Jeers for New Stadium Subsidies

Academic research has shown over and over again that sports stadium’s are little more than black holes for taxpayers. While proponents trot out studies purportedly showing the “economic benefits,” research conducted well after the investments show the have virtually no impact on urban economic growth.

A recent article in the Wall Stree Journal suggests that the public might finally understand that these subsidies are not the “investments” proponents say they are. Rather, they a pure public expenditures with few tangible benefits.

The recession is drastically shifting the decades-long debate over the value of subsidizing sports stadiums. Local governments, which once had cash to burn, are suddenly heavily squeezed. Consumers, once willing to fork over more money for seats in showcases, are seeing their disposable incomes vanish.

As a result, big facilities like the one planned here [Lee County/Sarasota, Florida], once viewed as huge revenue generators and symbols of local pride, increasingly look to many people like monuments of a bygone era of excess. In New York, the new home of the New York Mets, Citi Field, has been dubbed “Bailout Park” and “TARP Field” by locals in the wake of the federal government’s Troubled Asset Relief Program. Citigroup Inc., recipient of billions in TARP funds, helped foot the bill for the Mets’ new digs by paying $400 million for naming rights.

In fact, in cases like Sarasota, which is funding a training facility, the economic benefits may be much smaller than advocates suggest. This was the case for a stadium in Madison, Wisconsin. negative. After a decade long investment in sports in Indianapolis, the economic impacts were virtually nonexistent for the region as a whole. These results are consistent with the bulk of academic research. An excellent review of the research by Victor Matheson at the College of Holy Cross examines estimates of benefits of this spending before the decision and after the decision and finds all but one found much lower benefits in the real world.

But the economics of such projects remain murky. Local supporters point to a Florida-funded study in 2000 estimating a county derives $25 million in annual economic benefits by hosting spring training. A study commissioned by Sarasota County last year estimated the Sox could generate $45 million in annual benefits.

Several academics dispute those projections, pointing to data showing tax and sales revenue have remained stable in counties after they secured or lost major league baseball teams. Philip Porter, an economist at the University of South Florida, said Lee County’s decision to bankroll a new spring-training site is “unconscionable” amid the current uncertainty.

Mr. Porter notes local taxpayers could be on the hook if Lee County’s tourist-tax revenue, which has remained stable in recent months, shrinks in the coming years. He also argues communities have wiggle room with tourist-tax proceeds and could be directing them toward a local park or school gymnasium, freeing up local taxes for other needs.

How can cities get away with claims of so much economic development?

For one, these studies virtually never evaluate the economic consequences of higher taxes to cover higher local spending.

Second, almost all these studies only focus on the estimated benefits of the investment, not the impacts on other sectors or whether diverting private investment from other more economically viable sectors carry long-term economic implications. Government spending is considered as effective as private spending, and they ignore entrepreneurship and the market accountability in filtering worthy and unworthy investments. Indeed, the studie commissioned by proponents are notable for using “economic benefit” studies, not “cost-benefit” studies.

For more critiques of sports stadium subsidies by Reason Foundation, see our work here, here, and, for the larger urban context, here.