Flashback: 1997! Sports, Jobs, & Taxes

It’s historically the quietest day of the sports year – the day after MLB’s All-Star Game. Which makes this the perfect day for Flashback: 1997!

This look back at “Sports, Jobs, and Taxes,” an essay by economists Andrew Zimbalist and Roger Noll, is dedicated to this blog’s frequent critics who insist a Tampa stadium would pay for itself (regardless of price) and implore me to “stop standing in the way of progress.”

An excerpt on why cities subsidize sports:

Advocates argue that new stadiums spur so much economic growth that they are self-financing: subsidies are offset by revenues from ticket taxes, sales taxes on concessions and other spending outside the stadium, and property tax increases arising from the stadium's economic impact.

Unfortunately, these arguments contain bad economic reasoning that leads to overstatement of the benefits of stadiums. Economic growth takes place when a community's resources—people, capital investments, and natural resources like land—become more productive…Building a stadium is good for the local economy only if a stadium is the most productive way to make capital investments and use its workers.

Zimbalist and Noll worked with 15 other collaborators to categorically dispel just about every common belief about stadium economics.

A new sports facility has an extremely small (perhaps even negative) effect on overall economic activity and employment. No recent facility appears to have earned anything approaching a reasonable return on investment. No recent facility has been self-financing in terms of its impact on net tax revenues. Regardless of whether the unit of analysis is a local neighborhood, a city, or an entire metropolitan area, the economic benefits of sports facilities are de minimus.
…
Sports facilities attract neither tourists nor new industry. Probably the most successful export facility is Oriole Park, where about a third of the crowd at every game comes from outside the Baltimore area. (Baltimore's baseball exports are enhanced because it is 40 miles from the nation's capital, which has no major league baseball team.) Even so, the net gain to Baltimore's economy in terms of new jobs and incremental tax revenues is only about $3 million a year—not much of a return on a $200 million investment.

Since this was written in 1997, Washington got a MLB team and Orioles’ attendance dropped severely.

Zimbalist and Noll also delved into how cities could protect themselves from the vicious competition that leads to bad stadium subsidies. Pay attention to this, Tampa Bay:

In principle, cities could bargain as a group with sports leagues, thereby counterbalancing the leagues' monopoly power. In practice, this strategy is unlikely to work. Efforts by cities to form a sports-host association have failed. The temptation to cheat by secretly negotiating with a mobile team is too strong to preserve concerted behavior.

You don’t need me to tell you there have been dozens of new publicly-subsidized stadiums built since 1997. In fact, Zimbalist/Noll are even resigned to the fact that nothing was likely to stop cities from competing “against each other to attract or keep artificially-scarce sports franchises.”

So is all stadium spending stupid? Not necessarily. We know pro sports teams create what Zimbalist/Noll call “public good.” It’s similar to a concept described here a few years back: fans take great pride in their teams and a franchise’s mere presence provides value.

There’s much more to “Sports, Jobs, and Taxes,” so when you’ve got a little time on your hands – give it a read.

This is also a good opportunity to remind readers that this blog has no agenda other than providing a big-picture look at sports business news – particularly the Rays’ Stadium Saga – and acting as a watchdog for the public.