The Fairy Tales of Stadium Subsidies

Although the professional sport facility has provided billions with entertainment and excitement throughout the course of history, millstones and milestones have defined the evolution and integration of sports facilities. The revolutionary technological and architectural advancements exemplified in these facilities are stunning, but financing and filling these enormous facilities has bewildered many city governments. This paper will review the impact of the professional sports facility and analyze the social and financial impact each step of the process has exerted on society, especially in the 20th and 21st centuries. Specifically, this paper will emphasize the strong positive correlation between professional stadium development and the resulting economic stagnation within the localities they are built. 

In the past four decades across the United States, there has been an unprecedented boom in the rate at which sports stadiums are constructed. In the aggregate, close to $20-$30 billion of public funds have been used to finance the construction of these facilities. Often the rationale to utilize public funds to construct these stadiums rests on promises of increased urban development and bolstered economic prosperity. However, studies have indicated that in many cities that have constructed stadiums in the past decade attendance has dropped and the quality of life in the surrounding area has not improved. Sharp, Register, and Grimes (2002) claim, 

What is the most subsidized industry in all of America?  Arguably, it is an industry dominated by small and mid-sized businesses.  I would say that the Kings of the subsidies game are the four major league sports – the National Football League (NFL), Major League Baseball (MLB), National Basketball Association (NBA), and the National Hockey League (NHL) – along with minor league baseball and hockey.  After all, what other industries – other than those actually operated by the government, like public schools – have the government subsidize almost all of the buildings in which they operate? Answer: None. It‘s an only pro sport (p. 120).

These revelations should cause the public and public officials to pause and consider the utility of constructing stadiums that generate inconsistent benefits for society while further plunging local and state governments into debt. 

The media’s impact on the decision to build and publicly finance these stadiums is unquestionable and deserves closer examination. More so than offering objective facts that provide a rational basis for accepting or rejecting a stance, the media plays a bigger role in framing and defining a problem. The media can shape and influence the perception of a problem, which, in turn, influences how the public will collectively respond to the issue (Mazzarella, 1990, p. 175). From this perspective, a somewhat dubious agenda may lurk behind the media’s attempts to sway the public within the context of professional sports stadium construction. Unfortunately, in the “money talks” culture of the 21st century, political and economic elitists who have the most to gain from the construction of these facilities control the media. The disproportionate tax burden on the elite and the layperson often make tax hikes on the public a hard issue to sell to the public. Consequently, the media’s framing on this issue plays a pivotal role in the public perception of this issue. 

Given that most individuals choose to remain uninformed about most policy issues, the media must tap into a medium that will capture the public’s attention. Surely sports have garnered the public’s attention, and the fact that this issue is on the front cover of most sports pages makes it easily accessible to the layperson and amplifies the importance of the message. Furthermore, the public’s perception of the issue will often be congruent with the local media coverage of the issue (Mazzarella, 1990, p. 180). Consequently, the referenda that concern the building of professional sports facilities is potentially decided by an elite minority who has the financial means and influence of framing the issue in such a way that misleads the public. 

Between 1987 and 1999, over 50 professional sports facilities were either refurbished or built in the United States, which cost $8.7 billion, not including the cost to make improvements to infrastructure surrounding each stadium. Of the $8.7 billion spent, 57 percent of the funds were provided at the expense of the taxpayer. These numbers are projected to increase in the future. The referenda that promote the building of these stadiums are often supported by studies that suggest these facilities will create more jobs and increase the amount of money spent locally. However, Zartesky (2001) suggests that these studies wrongly rely on what is referred to as the multiplier effect. The academic studies and the non-academic studies of the benefits have produced discrepancies that undermine the promised prosperity that is supposed to accompany the construction of these stadiums. 

Prior to the 1960s, the primary concern of the owner of a professional sports team owner was to simply put bodies in seats. Now the main concern of the contemporary owner is to sell high producing revenue streams like skyboxes, luxury suites, and season tickets. Consequently, a stadium’s revenue stream lives and dies by the ability of the franchise to sell these luxury products. Not only have the sales of these products declined in the wake of the financial collapse of 2008, but studies also suggest that the revenue professional sports teams earn is modest and doesn’t bear a significant impact on the local economy. The reason for this is that any revenue that is created has disproportionate distribution. In other words, the revenue that the stadium generates is often spent somewhere else or not injected back into local economies. Given that many professional sports facilities are built in large metropolitan cities, the stadium's impact on the economy has proven to have a little tangible effect. These stadiums ultimately become one very small component of a large local economy. 

Another often-overlooked deficiency of these subsidized sports facilities is the marginal decrease in attendance from year to year. Also, another promised benefit associated with the construction of these sports stadiums in the development of inner-city and urban areas. The proponents of this argument often emphasize that public investment of funds will yield a high profit and improvement to the surrounding infrastructure.  However, the overwhelming consensus among academics is that the tangible economic benefits of public investment for sports stadiums do not justify the cost. 

Attempts to justify these taxpayer subsidies also focus on the intangible benefits of these stadiums. Intangible benefits include public good and social good benefits. Swindell and Rosentraub (1998) argue, “Prices cannot be charged nor markets established for goods or services (1) that can be consumed at the same time by more than one person and (2) for which it is impossible or inefficient to exclude nonpaying users” (p. 15). From this perspective, some have suggested that a stadium provides goods to the community in the form of civic pride, reputation, and image. Although these benefits are impossible to quantify, a group of economists, Sharp et al. (2002) attempted to assign values to these intangibles by asking consumers about their willingness to pay for these commodities. Their research revealed that the average consumer's price point is far less than the average subsidy a professional sports team receives in taxpayer subsidies. Certainly, studies such as this on have their limitations, but the underlying principle reinforces the prevailing notion that the benefits to subsidize these facilities do not come close to outweighing the cost. 

But why don’t stadiums seem to be able to produce the type of benefit that proponents suggest they will. According to Zaretesky (2001), economists are in agreement that three conditions must be met in order to ensure that localities derive an economic benefit from the construction of sports facilities. First, the “funds generate new spending from non-area visitors who only come due to the new stadium” (p. 215). However, Zaretsky argues that very little evidence exists to suggest that sporting events draw enough revenue from visiting tourists than any other activity. An underlying cause of this may be the availability to view sporting events on cable television or through subscriptions to the MLB, NFL, and NBA networks (which are high due to the salary designated to players) or the recent downturn in the economy that has crippled individual discretionary income. Often teams that are close to metropolitan teams that are in close proximity will attract the most amount of revenue from tourists; however, most metropolitan cities do not meet this description.

The second condition is that taxpayer investment incites residents to purchases goods and services they would not have previously spent. Unfortunately, this condition is nearly impossible to meet, given that in order to substantiate such a claim one would have to sift through a mountain of household spending patterns, per capita income rates, and a plethora of dizzying and complex statistics. The criterion is not in of itself unreasonable, but analyzing the revenue created by taxpayer investment into a stadium is implausible. 

The third criterion used to establish whether or not public stadium funds can generate new revenue is by determining how much of the funds recycle through the local economy. For example, a stadium is built, resulting in the creation of new jobs in the region. Since more people are working, they spend more money in the area, resulting in local businesses hiring additional employees to meet the increase in demand. Further, these additional workers increase demand on area goods, services, spurring the creation of additional jobs (Zaretsky, 2001, p. 211). However, these projections present a whole other laundry list of agendas. More often than not, those who draft these revenue projections have invested interests in the success of stadium construction, and any additional employees who are hired come from other local jobs. Consequently, no a net increase in jobs is created, but jobs are merely shuffled around. 

While proponents of stadium subsidies suggest that these stadiums will create more jobs within a locality, the evidence they present is often misleading. The studies that attempt to establish this notion are often limited in their scope, focusing on too limited a geographic region. Coates (2007) argues that while many stadium subsidy advocates preach about the potentiality of these facilities to develop urban communities, they often do so at the expense of another community of the locality (p. 570). These individuals talk of development when the consequences of their proposals actually result in redistribution. This practice then becomes a de facto exercise in picking winners and losers. 

A particular case study conducted by Eric M. Click (2009) is not only demonstrative of the problems that define the subsidizing of professional sports facilities but is also, perhaps, a micro chasm of what is occurring on a national level. Throughout the latter half of the 20th century, professional sports teams shuffled in and out of the city of St. Louis. In 2001, the St. Louis Cardinals began to push and pressure the state legislature to pass a bill that would fund a new baseball stadium in downtown St. Louis. The organization employed lobbyists and the media to spin the story in such a way that would appeal the masses and add pressure to the state legislature to approve the bill. A center spread advertisement in the St. Louise Business Journal printed a rhetorically charged add, which read, ‘If players are honored with statues, then what do you build for the game‘s greatest fans? ‘It also said Major League Baseball Commissioner Bud Selig conditionally had awarded the 2006 All-Star Game to St. Louis – if the stadium is completed by then” (Click, 2009, p. 123) At the beginning of 2006, following months of gridlock and covert deals, Busch Stadium was completed with a total price tag of over $400 million. 

As the years have passed, whether or not taxpayers have seen a return on their investment is indeterminate. Either way, the manner by which the deal to construct a new stadium for the St. Louis Cardinals is demonstrative of the influence the media and political elitists have over the decision to construct these facilities. In an interview following the construction of Busch Stadium, Missouri Representative, Bob Holden commented on the medias influence throughout the months of debate, 

Well, one the media was, I don‘t want to say adding gasoline to the flames, but it made for a great story.  I don‘t care what side you were on.  And the livelier it kept, the more interesting the newspaper, the television, and what their news is about and the radio.  They were very actively involved because, again, they were trying to mirror the frustration or the interest of the community, but also there was a self-serving interest (Click, 2001, p. 135). 

This comment underscores the effect the mainstream media has on not only framing issues but also on accelerating the rate at which decision is made. While some would suggest that the decision to construct a stadium should take years, the pulse of the media can push the decisions to be made in months. 

Although the tangible and intangible economic indicators all point to stopping taxpayer subsidies for stadium construction, there are no signs that these trends will slow down. It seems imperative to ask why. Click (2009) suggests that psychological and cultural pressures drive the seemingly irrational decisions to fund these stadiums. He suggests that politicians often fear being blamed for the potential loss of iconic institutions, “which they not only perceive as an anchor to the city…both in population and business, but also the primary positive image and brand” (p. 204) Furthermore, Click suggests that cities like St. Louis that possess rich sports traditions feel the need to restore these traditions. 

If Click’s assessment is indeed correct, then the recurrence of this decision-making process may pose disastrous consequences for other localities that are willing to socialize the risk for what is primarily private profit. Surely professional sports stadiums have the potential of imbuing a city with pride and a greater feeling of community, though at what cost? While every taxpayer bears the cost of construction, not every taxpayer is able to enjoy luxurious palaces their money contributes to. Average income rates allow few citizens that tolerate ticket costs and politicians who normally cringe at the thought of raising taxes will raise every tax from cigarette taxes to motel taxes to finance these stadiums. 

Looking forward, the demand for most advanced, innovative facilities does not seem likely to diminish. It seems foolish to dismiss the needs for stadium subsidies as frivolous, but it also seems irresponsible to continue offering these subsidies to sports franchises given the insignificant amount of return these investments offer. Therefore, it seems prudent to meet the demands of these competing groups somewhere in the middle, which is clearly a euphemism for compromise. However, as it has already been established, the process by which these deals are constructed and negotiated indirectly disenfranchises the group who bears the greatest risk for the investments. Consequently, the dissemination of information to the public must be reformed in an attempt to make the process more comprehensible and inclusive. 

Many sports teams who grow dissatisfied with the conditions of their current stadium often result in threats of finding another city that is willing to provide the funds to build more advanced and up to date facilities. Perhaps, moving forward, the whole system should be treated like a market where the supply and demand dictate the price the local electorate is willing to pay for such a large investment. Surely this is an oversimplified suggestion, but the point underscores the awful habit city councils and state legislatures have of capitulating to the demands of professional sports franchises. 

This paper has taken a cursory look at the issues and intricacies that compose the revolving debate concerning the prudence of subsidizing the construction and operation and professional sports stadiums. The academic studies that have analyzed this conundrum are nearly unanimous in their valuation. They all highlight the incongruities encapsulated within the studies that support or criticize these subsidies. However, looking at this issue objectively, it seems clear that the cost-benefit analysis of stadium subsidies reveals that the public cost far outweighs the tangible economic benefits. Even when the analysis accounts for the intangible economic benefits the outlook appears only marginally ameliorated. Less certain than what the studies have suggested is the possible solutions available to city and state governments. This paper has also attempted to reinforce the dubious practices that seem to fuel the political machine that drives sports subsidies. Surely each locality must be analyzed on a case by case basis, but it seems that elite minorities often have more leverage and influence in these debates than the groups who have the most at stake in these situations. Consequently, looking ahead, steps must be taken to make the process more accessible, comprehensible, and transparent.

References

Click, E. (2009). The impact of the growth machine on public financing of professional sports facilities: The case of the St. Louis Cardinals. ProQuest Dissertations and Theses, 2009, 222-n.a. Retrieved from http://search.proquest.com/docview/305068124?accountid=9817. (305068124).

Coates, D. (2007). Stadiums and arenas: Economic development or economic redistribution? Contemporary Economic Policy, 25(4), 565-577. 

Mazzarella, J. (1990). Stadiums, arenas and professional sports: The effects of new sports facilities and sports teams on urban development since 1990. ProQuest Dissertations and Theses, 2005, 171.

Sharp, A., Register, C., & Grimes, P. (2002). Economics of social issues (15th ed.). New York, NY: McGraw Hill Higher Education.

Rosentraub, M., & Swindell, D. (1998). Who benefits from the presence of professional sports teams? The implications for public funding of stadiums and arenas. Public Administration Review, 58(1), 11-20.

Zartesky, A. (2001). Should cities pay for sports facilities? The Regional Economist, April. Retrieved from http://www.stlouisfed.org/publications/re/