The Myth of Stadium-driven Economic Development

The WSJ had a great piece this week debunking the myth that shiny new sports arenas are an economic boon for cities.

Like Des Moines, Iowa, and Little Rock, Ark., Kansas City is among a growing number of U.S. cities taking an “If you build it, they will come” approach to stadiums, ballparks and particularly arenas. Encouraged by a building boom since the early 1990s in which major cities built new sports facilities for their professional teams, municipalities are raising money by such means as issuing bonds or imposing taxes to finance the building of new arenas in hopes of energizing their economies. . . . . But while arenas with big-time tenants may bolster a city’s self-image and quality of life, evidence shows they have a minimal economic upside. Most operate at a loss. In “The Economics of Sports Facilities and Their Communities,” published in 2000 in the Journal of Economic Perspectives, authors Andrew Zimbalist of Smith College and John Siegfried of Vanderbilt University argue that “independent work on the economic impact of stadiums and arenas has uniformly found that there is no statistically significant positive correlation between sports facility construction and economic development.” The authors cite several studies, including one by sports economist Robert Baade that found “no significant difference in personal income growth from 1958 to 1987 between 36 metropolitan areas that hosted a team in one of the four premier professional sports leagues and 12 otherwise comparable areas that did not.” The authors’ conclusion: Arenas put a drag on the local economy by hurting spending on other activities in the city and boosting municipal costs such as security. “It doesn’t make sense to build an arena for economic reasons, even if you have a team,” Mr. Zimbalist says. “To do so not having a team is irresponsible.”

The article has some great examples offering evidence that: (1) “building it” is no guarantee that “they will come,” and (2) what cities tout as “successful” stadia somehow often still operate at a loss.

Nashville, Tenn., completed the $156 million Gaylord Entertainment Center in 1996 and has had an NHL team, the Predators, playing there since 1998. Proponents of the center say Nashville has won substantial economic returns for its investment, especially downtown. Kevin Lavender, a longtime member of the city’s Metropolitan Sports Authority, which oversees the arena says: “There’s no debate [about whether] it’s been positive.” (Debate or not, Nashville operates the 17,000-seat venue at a loss of about $4 million a year and is currently balking at requests by the Predators for certain upgrades.) Other cities have built costly stadiums never to see a team materialize. San Antonio’s $186 million Alamodome opened in 1993 with expectations that it would deliver the city a National Football League franchise. The closest the 65,000-seat indoor stadium has come was when it hosted the New Orleans Saints football team for three games last year. The Alamodome was home to the NBA Spurs for a decade, and it has hosted a NCAA men’s basketball Final Four, among other events. But the stadium has only 38 luxury suites, and even the addition of 14 more boxes by next September is probably too few to attract an NFL franchise. Still other arena-building cities have had to wait years for a team. St. Petersburg, Fla., opened its Sun Coast Dome in 1990 in hopes of attracting Major League Baseball. Meantime, the city lost $2 million a year on the stadium, even while the facility was home to the NHL Tampa Bay Lightning for several seasons. By the time a major-league team, the Tampa Bay Devil Rays, began playing in 1998, the $110 million stadium needed a $66 million infusion.

Full disclosure: I love heading to Houston’s impressive Minute Maid Park for an Astros game as much as the next guy. I haven’t been inside the new Reliant Stadium for a Texans game yet, but it looks to be a state-of-the-art spot to catch some ‘ball. But the facts are the facts as far as stadium-driven economic development goes.