77K- Regional Economist • April 2001

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Should Cities Pau for

"We play the Star-Spangled Banner before every game— you want us to pay taxes, too?" Sports — Faculties? Americans love sports. Watching the home team in any of the four major sports—baseball, football, basketball and hockey—march to victory in the World Series, Super Bowl, NBA Finals or Stanley Cup Finals arguably generates more by Adam M. Zaretsky excitement and local pride in a town than any other event. Fans love when the hometown boys win. But even when they don't, fans stick by their teams. By and large, so do the cities these teams play in. In fact, cities with home teams are often willing to go to great lengths to ensure they stay home. And cities without home teams are often willing to dangle many carrots to entice teams to move. In either case, the most visi- ble way cities do this is by building new stadiums and arenas.

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[5] Between 1987 and 1999, 55 stadiums N.Y., and began charging admission, and arenas were refurbished or built in making it the first recorded baseball the at a cost of more than "stadium" in the United States. The $8.7 billion.1 This figure, however, facility was quite attractive to the fledg- includes only the direct costs involved in ling sport of baseball because it enabled the construction or refurbishment of the the exclusion of non-paying spectators facilities, not the indirect costs—such as and impressed the up-and-coming play- money cities might spend on improving ers, for whom teams were beginning or adding to the infrastructure needed to to compete. By the time the National support the facilities. Of the $8.7 billion Association was formed in 1871, owners in direct costs, about 57 percent—around of such enclosed ballparks had a distinct $5 billion—was financed with taxpayer advantage in the competition for teams. money. Since 1999, other stadiums have In many ways, not much has changed been constructed or are in the pipeline since then. Teams today are still attracted (see table on page 8), much of the cost by modern facilities, and cities go out of which will also be supported with of their way to provide them. In other tax dollars. Between $14 billion and ways, though, much has changed. $16 billion is expected to be spent on Nowadays, facilities are not usually these post-'99 stadiums and arenas, owned privately by individuals, but, The uOlmrS being inuested in sports facilities are quite substantial considering the ouerall contribution the industry makes to the BCOllOltllJ

with somewhere between $9 billion and rather, publicly by a government agency. $11 billion of this amount coming from And even though public financing of sta- public coffers. The use of public funds diums is a more common practice today, to lure or keep teams begs several ques- cities did pony up for a few of the older, tions, the foremost of which is, "Are well-known stadiums in times past. these good investments for cities?" Some prime examples of government- The short answer to this question is owned stadiums from yesteryear are "No." When studying this issue, almost the Los Angeles Coliseum and Soldier all economists and development special- Field, both of which are still in use today. ists (at least those who work independ- Other famous venues, such as Fenway ently and not for a chamber of commerce Park, Ebbets Field, Wrigley Field, Yankee or similar organization) conclude that the Stadium and the original Comiskey Park, rate of return a city or metropolitan area were all privately financed and owned. receives for its investment is generally In fact, prior to World War II, of the 28 below that of alternative projects. In major league sports facilities that were addition, evidence suggests that cities built—for which data are available— and metro areas that have invested heav- only five were paid for in part or whole ily in sports stadiums and arenas have, with taxpayer dollars.2 Since World on average, experienced slower income War II, however, of the roughly 140 growth than those that have not. sports facilities that have been built Why, then, would cities engage in or refurbished, only 14 did not use such activities? This question is actually taxpayer dollars. harder to answer than the former one because, more often than not, the rea- ...But When They Are, Are They sons cited are not quantifiable. In other Worth It? words, the reasons are not as easily measured as, say, costs, because they The dollars being invested in sports include many intangible variables, such facilities are quite substantial consider- as civic pride and political self-interest. ing the overall contribution the industry Moreover, cities generally justify these makes to the economy. In testimony decisions—and convince taxpayers of before the U.S. Congress, economist their virtue—with analyses that many Robert Baade said that Chicago's profes- economists consider suspect because sional sports industry—which includes the studies generally overlook some five teams—accounted for less than basic economic realities. one-tenth of 1 percent of Chicago's 1995 personal income.3 Baade further commented that even when compared Not Always Built with Tax Dollars... with the revenue of other industries, In 1862, William Cammeyer enclosed professional sports teams contribute the Union Club Grounds in Brooklyn, small amounts to the economy. He

[6] VicRrgipnnl Hcvnouiist • April 2001

-•••'•-'•••»=••"=""•"•" — noted, for example, that "the sales rev- Orioles for $173 million. The sale net- enue of Fruit of the Loom exceed [ed] ted Jacobs an almost 150 percent return, that for all of with no money out-of-pocket for the (MLB), while the sales revenue of Sears new ballpark.4 [was] about thirty times larger than that of all MLB revenues." And the Dollars Keep Turning Over Still, cities are driven by the idea that playing host to professional sports teams Economic impact studies also tend to builds civic pride and increases local tax focus on the increased tax revenues cities receipts from the team-related sales and expect to receive in return for their salaries. When it comes to salaries, how- investments. The studies, however, often ever, economist Mark Rosentraub noted gloss over, or outright ignore, that these in a 1997 article that there is no U.S. facilities usually do not bring new rev- county where professional sports enues into a city or metropolitan area. accounts for more than 1 percent of Instead, the revenues raised are usually the county's private-sector payroll. just substitutes for those that would have Although sports facilities certainly been raised by other activities. Any stu- generate tax revenues from their sales, dent of economics knows that house- the pertinent question is whether these holds have budget constraints that are revenues are above and beyond what binding, which means that families would have occurred in the region any- have only so much money to spend, way. To address this question, city pro- particularly on entertainment. If the posals to use taxpayer money to finance family chooses to spend the money at sports facilities are routinely accompa- the ballpark, for example, then those nied by "economic impact studies." funds cannot be spent on other activi- These studies, which are often commis- ties. Thus, no new revenues are actually sioned by franchise owners and being generated. conducted by an accounting firm or Public funds used for a stadium or local chamber of commerce, generally arena can generate new revenues for a use spurious economic techniques to city only if one of the following situations demonstrate the number of new jobs occurs: 1) the funds generate new and additional tax revenues that will be spending by people from outside the area generated by the project. The assump- who otherwise would not have come to tions that are made in these studies— town; 2) the funds cause area residents to such as how much of the newly generated spend money locally that would not have income will stay in the region and how been spent there otherwise; or 3) the many "secondary" jobs will be created— funds keep turning over locally, thereby often cannot be substantiated by eco- "creating" new spending. nomic theory. Very little evidence exists to suggest Estimates of income that will be gen- that sporting events are better at attract- erated and, hence, spent in the region ing tourism dollars to a city than other are often overstated. Most of the "big" activities. More often than not, tourists money in sports goes to the owners and who attend a baseball or hockey game, players, who may or may not spend the for example, are in town on business or money in the hometown since many are visiting family and would have spent live in other cities. And because athletic the money on another activity if the careers are usually short-lived, much sports outlet were not available.5 of the players'income is invested. Economists Roger Noll and Andrew Moreover, league rules often require Zimbalist have examined the issue in ticket revenues be shared with franchise depth and argued that, as a general rule, owners in other cities as a way to subsi- sports facilities attract neither tourists nor dize teams in smaller markets. In the case new industry. A good example, once of the National Football League, every again, is Oriole Park at Camden Yards. visiting team leaves town with 34 per- This ballpark is probably the most suc- cent of the gate receipts from each game. cessful at attracting outsiders since it is On top of all this, the value of the only 40 miles from the nation's capital, subsidy a team receives when a city where there is no major league baseball foots the bill for a new stadium or arena team. About a third of the crowd at every often shows up as a higher team resale game comes from outside the price, which then ends up in the owner's area. Noll and Zimbalist point out that, pocket. For example, Eli Jacobs bought "Even so, the net gain to Baltimore's the for $70 million in economy in terms of new jobs and 1989, just after the team had convinced incremental tax revenues is only the state of Maryland to build it a new about $3 million a year—not $200 million ballpark from lottery rev- much of a return on a $200 enues. The enormously popular Oriole million investment."6 Park at Camden Yards opened in 1992. The claim that sport- The following year, Jacobs sold the ing facilities cause residents to spend more money in town ing, they spend money in the area (for than they would otherwise is harder to lunch, parking, etc.), which in turn substantiate. To prove such a claim, the requires local businesses to hire addi- agency performing the analysis would tional workers to support the increased need for its report both detailed infor- demand. These extra workers further increase demand for goods and ser- vices in the area, requiring more new jobs...and so on. That is, the dollars IW THE PIPELINE keep turning over locally. The story is • Plans for new stadiums often count on taxpayers' support. the same for fans spending money at the arena, which provides income for arena workers, who then spend the Team or City Total Public Dollars Percent Public money, generating incomes for other Cincinnati Reds 280 280 100 workers...and so on. Seattle Seahawks 430 300 70 On their faces, these are compelling St. Louis Cardinals 370 250 68 arguments. Some researchers have even San Diego Padres 411 275 67 attempted to quantify these effects, Chicago Bears 587 387 66 developing precise multipliers that tell Houston (new NFL) 310 195 63 analysts how much the new spending Philadelphia Eagles 395 234 59 or job creation should be "multiplied" Philadelphia Phillies 345 174 50 by to arrive at the "total effect" the spending or job creation will have on Boston Red Sox 550 200 36 the local economy. These multipliers New England Patriots 325 0 0 are often specific enough to distinguish I^HBBBHBBBHBBBHHi between various industries, occupations SOURCE: Teams and local newspapers and locations. Thus, economic develop- ment specialists and planners will mation about the spending patterns of generally latch onto multipliers and households and the ability to ferret out confidently proclaim that the 1,000 the information about their spending in new jobs created by this industry will other regions, which, at best, is extremely actually create 4,355 new jobs and gen- difficult and may even be impossible. erate $5.5 million in new revenue in Without such information, the report's the community when all is said and authors could back into this claim only done.7 Makes for great headlines, with some fancy footwork and shaky but are such outcomes believable? assertions. That is, they would have to Probably not. As Mark Twain once contend that residents are spending said: "It's not what we don't know that more in town because of higher incomes hurts. It's what we know that just ain't that enable households to devote more true." For one thing, these new jobs of their entertainment budgets toward most likely just lure workers away from local sporting events. Then, the authors other jobs in town and do not actually would have to demonstrate that lead to a net change in jobs in the area. incomes arc up because money was For another, many of the jobs are low- spent on the stadium. If they can't, the paying, part-time and needed only on argument falls apart since the only con- game days. Moreover, authors of these clusion is that incomes rose for unre- economic impact studies often choose lated reasons; throwing tax dollars at multipliers arbitrarily or with clients' the stadium did not affect households' wishes in mind to get the desired out- spending patterns. come. As economist William Hunter has pointed out, multiplier analysis can be used to justify any public works Multipliers: A Stadium project because "even the smallest Promoter's Friend multiplier will guarantee community Of the three circumstances described income growth in excess of public that purportedly generate new revenues, expenditures."8 the third—funds keep turning over Even if economic impact studies are locally, thereby "creating" new spend- taken at face value, however, the cost ing—is probably the most spurious from of creating these jobs is usually out of an economist's viewpoint. Such a claim the ballpark. In Cincinnati, for exam- relies on what are called multipliers. ple, when two new stadiums were pro- Multipliers are factors that are used posed to keep the NFL Bengals and the as a way of predicting the "total" effect MLB Reds in town, the economic the creation of an additional job or the impact study claimed that 7,645 jobs spending of an additional dollar will would be created or saved because of have on a community's economy. It the stadium investment. Since the works something like this: A stadium project was estimated at $520 million, is built, which creates new jobs in the each new or saved job was reported to region. Because more people are work- cost about $68,000.

[8] TheRiyoiml l:coitoiiiift • April 2001 wwvw.stls.frb.org When economists John Blair and ropolitan area, the economic benefits David Swindell examined the $68,000 of sports facilities are de minimus."10 ENDNOTES 1 This sum is about $10.7 billion in figure a bit closer, though, they discov- In fact, research has shown that sub- 2000 dollars. These data are from ered it was too low because the study's sidizing sports facilities usually does not Keating (1999). estimate of 7,645 new or saved jobs affect a city's growth and, in some cases, 2 See Table 1 in Keating (1999) for a was too high. Blair and Swindell then may even hurt growth since funds are complete list of these facilities. re-evaluated the report, corrected for being diverted from alternatives with 3 See Roberts, et. al. (1995). double-counting and other problems, higher returns. In a 1994 study that 4 See Lane (1994). examined economic growth over a 5 See Noll and Zimbalist (1997a), and concluded that only 3,530 jobs chapters 2 and 15. would be created or saved if the stadium 30-year period in 48 metropolitan areas, 6 See Noll and Zimbalist (1997b). proposal passed. Thus, the cost per job Robert Baade found that of the 32 metro 7 This example is hypothetical and was actually going to run more than areas that had a change in the number solely for expository purposes. $147,000. In contrast, state economic of sports teams, only two showed a 8 See Hunter (1988). development programs spend about significant relationship between the 9 See Noll and Zimbalist (1997a), $6,250 per job to create new jobs.9 presence of a sports team and real per- chapter 9 (Blair and Swindell) for details. capita personal income growth. These 10 See Noll and Zimbalist (1997b). cities were Indianapolis, which saw a Those Old Economic Saws positive relationship, and Baltimore, REFERENCES Another glaring omission from these which had a negative relationship. Baade, Robert A. "Professional Sports economic impact studies is the value of Moreover, Baade found that of the as Catalysts for Metropolitan Economic Development/'/oM/™/ of the next-best investment alternative— 30 metro areas where the stadium or Urban Affairs (Spring 1996), pp. 1-17. what economists call the opportunity arena was built or refurbished in the . "Stadiums, Professional cost. "There's no such thing as a free previous 10 years, only three areas Sports, and Economic Development: lunch" is a favorite economist expres- showed a significant relationship Assessing the Reality," The Heartland Institute, Heartland Policy Study sion because it sums up exactly what between the presence of a stadium No. 62 (April 4,1994). opportunity cost means: When making and real per-capita personal income Baseball Almanac. http://baseballal- a choice, something always has to be growth. And in all three cases— manac.com/stadium.shtml given up. The value of the "losing" choice St. Louis, San Francisco/Oakland and Bast, Joseph L. "Sports Stadium Madness: Why It Started, How To must be considered when making the Washington, D.C.—the relationship Stop It," The Heartland Institute, decision and when calculating the value, was negative. Heartland Policy Study No. 86 or return, of the "winning" choice. In (February 23,1998). other words, when a city chooses to use Hunter, William J. "Economic Impact The "Build It and They Will Studies: Inaccurate, Misleading, taxpayer dollars to finance a sports sta- and Unnecessary," The Heartland dium, the city's leaders must consider Come" Syndrome Institute, Heartland Policy Study No. 21 Quly22,1988). not only what the alternative uses of Cities go to great lengths to lure a Keating, Raymond J. "Sports Pork: The those funds could be—such as schools, new team to town or to keep the home Costly Relationship Between Major police, roads, etc.—but they must also team home. They feel compelled to League Sports and Government," figure what return the city would receive Cato Institute, Cato Policy Analysis compete with other cities that offer No. 339 (April 5,1999). from these other ventures. Then, the new or updated facilities; otherwise, Lane, Randall. "Bread and Circuses," return from the city's next-best alterna- the home team might make good on Forbes (June 6,1994), pp. 62-65. tive (for example, schools) must be its threat to leave. The weight of eco- Merrifield, John. "A Neoclassical subtracted from the total return of the nomic evidence, however, shows that Anatomy of the Economic Base Multiplier, "Journal of Regional Science "winning" choice to arrive at the "actual" taxpayers spend a lot of money and (May 1987), pp. 283-94. return of the stadium investment. This ultimately don't get much back. And Mutti, John. "Regional Analysis from adjusted calculation, though, is almost when this paltry return is compared the Standpoint of International always missing from sports stadium Trade: Is It a Useful Perspective?" with other potential uses of the funds, International Regional Science Revieio impact studies. Why? Because in just the investment, almost always, seems (Winter 1981), pp. 95-120. about every case, the adjusted calculation unwise. Still, cities eagerly propose Noll, Roger G., and Andrew Zimbalist, would show that the next-best alterna- spending the funds, and taxpayers eds. Sports, Jobs and Taxes: The Economic Impact of Sports Teams and tive was actually the better alternative. willingly support the proposals. Why? Stadiums (Brookings Institution Has financing sports stadiums ever Because home teams strike an emotional Press,1997a). chord with the community—that intan- . "Sports, Jobs, and Taxes: been the best alternative? Research Are New Stadiums Worth the Cost?" shows "No." In their book, Noll and gible "civic pride" is evidently a powerful The Brookings Rcvirw (Summer Zimbalist—along with 15 other collabo- force. Thus, attacks on stadium propos- 1997b), pp. 35-39. rators—examined the local economic als, no matter how persuasive, likely Roberts, Gary R., Stephen F. Ross, and fall on deaf ears. More-convincing Robert A. Baade. "Should Congress development argument from a wide Stop the Bidding War for Sports variety of angles. In every case, the con- arguments would spell out the civic Franchises?" Hearing before the initiatives—education, housing and Subcommittee on Antitrust, Business clusions were the same. "A new sports Rights, and Competition, Senate facility had an extremely small (perhaps transportation, for example—that are Committee on the Judiciary even negative) effect on overall economic passed over or forgotten in favor of (November 29,1995). activity and employment. No recent a new stadium. Rosentraub, Mark S. "Are Tax-funded Sports Arenasa Good'Investment facility appears to have earned anything for America's Cities?"Insight approaching a reasonable rate of return Adam M. Zaretsky is an economist in the Research jjfcepternber 27,1-997), pp. 25-27. on investment. No recent facility has Division of the Federal Reseive Bank of St. Louis. Siegfried, John, and Andrew Zimbalist. been self-financing in terms of its Paige M. Skiba and Abbigail J. Chiodo provided "The EoonprrVies.of Sports Facilities-. research assistance. and Their Communities," Journal of*' - impact on net tax revenues. Regardless Economic Perspectives (Summer 2000), of whether the unit of analysis is a local pp. 95-il4. ' ' ' : '"' '; • neighborhood, a city, or an entire met-

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