Policy Documents

Is There an Economic Rationale For Subsidizing Sports Stadiums?

Robert A. Baade –
February 23, 1987

Controversy shadows sports in the United States. Sports are so deeply woven into the fabric of our culture that disputations about them are inevitable. Sports are leisure; sports are business; sports are religion.

The multiple personalities of sports are nowhere more visible than in the many municipal stadium debates taking place throughout the country. City leaders from Miami to San Francisco have summoned sound eocnomic management as their star witness in defending plans to subsidize the renovation or construction of stadiums. Can this witness stand up to a stiff cross-examination? The purpose of this paper is to determine if subsidizing sports facilities makes economic sense for municipalities.

This analysis begins with an assessment of the history and future prospects for privately financed and managed sports facilities. Can private interests derive from a sports facility benefits sufficient to cover their costs? What
does recent history tell us about private ownership of these facilities? What do current plans for new stadiums and arenas imply about the likelihood of private ownership in the future? Part II of this paper provides some answers to these questions.

In Part III, the author challenges the prevailing notion that sports produce significant economic benefits for municipalities, and offers instead two alternative hypotheses to explain how sports affect an economy. He first proposes that, in the short term, local spending by sports fans and visiting personnel does not represent an increase in spending on leisure activity, but rather may be merely a diversion of leisure dollars from other activities.

The author proposes a similar hypothesis with respect to the long-term economic impact of sports. Those who argue that stadium development can serve as a catalyst for urban renewal see a link between professional sports and the ability of a municipality to attract new business or foster a "big-league" expansionist attitude among businesses already in the area. The author suggests, however, that any long-term economic "growth" prompted by sports stadiums may not be growth at all, but merely a realignment of
economic development in the service sector of the economy.

In Parts IV and V, the author finds statistical evidence to support both new hypotheses. A summary and concluding remarks constitute Part VI of the paper.