1.  INTRODUCTION:  SPORTS AS SAVIOR  

In recent years, professional sports teams have tended to seek stadiums and arenas built with the latest stadium technology.  The cookie-cutter, flying-saucer, multi-use stadiums of the 60s & 70s have been replaced by single-sport facilities, crafted to better accommodate a specific sport.  Partly in response to rising player salaries, the facilities are specially designed to maximize revenues through such amenities as luxury sky boxes that rent for $50,000-200,000 per year, club seats (which cost more than regular seats), catering, concessions and theme activities.  This has led to higher revenues for teams, thus making more cities capable of supporting franchises (Zimbalist 1996).  With more cities entering the bidding wars for franchises, cities are forced to offer ever higher bids, including public financing, to win those franchises (Noll). 

An imbalance exists between supply and demand for major professional teams, and thus the teams have exerted more power on the terms of their relationship with host cities.  There is also a self-reinforcing cycle between skyrocketing players' salaries and the amount of revenue a team feels compelled to reap.  This situation leads cities to bid more and more in an attempt to win a sports franchise, or to retain an existing one (Zimbalist 1996). 

Baade and Dye have investigated the reasons why cities choose to finance new sports stadiums.  First, fiscal pressures due to declining federal aid and a loss of economic activity to the suburbs have compelled cities to search for ways to revitalize themselves (Baade and Dye 1988).  Public officials often believe that revenues generated from a new stadium will spill outside the stadium, and increase economic activities in other parts of the city to a degree which makes the stadium worthwhile. 
 

2.  MONOPOLY'S ROLE IN THE BARGAINING POSITION OF SPORTS FRANCHISES   

The major sports leagues in America- the National Football League (NFL), major league baseball (MLB), the National Basketball Association (NBA), and the National Hockey League (NHL) have an effective monopoly on each of their respective professional sports.  MLB has an antitrust exemption codified in the law, whereas the other leagues encourage policies which preserve a monopoly/monopsony situation by limiting the number of franchises in each league. 

Roger Noll, Professor of Economics at Stanford, and Andrew Zimbalist, professor of economics at Smith College, have observed that "Leagues maximize their members' profits by keeping the number of franchises below the number of cities that could support a team.  To attract teams, cities must compete through a bidding war, whereby each bids its willingness to pay to have a team, not the amount necessary to make a team viable" (1997, 3).  A threat therefore exists that team owners could move the team out of the city, and the team would not be replaced.  Owners often engage in what Baade and Dye call "owner extortion", which occurs when franchises threaten to leave a city in order to gain the most beneficial financial arrangement with the city to stay" (1988, 266).  This is greatly affected by political considerations: 

The incidence of owner "extortion" is increasing for a number of reasons. Among them, perhaps, is the recognition by owners that politicians who fail on glamour issues like 
sports may be politically vulnerable.  A mayor's political stock rises substantially if the 
mayor secures a professional sports presence and falls just as rapidly if his or her name 
is associated with the loss of a team" (Baade and Dye 1988, 266). 

3.  FINANCING TOOLS   

The federal government subsidizes state and local governments' sports ventures by allowing them to issue tax-exempt bonds to finance sports stadiums.  This loss in tax revenue, according to Noll and Zimbalist, amounts to approximately $70 million for a typical $225 million stadium, or more than $2 million a year.  State and local governments pay even larger subsidies than the federal government - often more than $10 million per year (Noll and Zimbalist 1997).    The 1986 Tax Reform Act halted federal subsidies to local governments for sports facilities if the revenue generated from such facilities covered more than 10 percent of the debt service.  This failed to lower the public moneys spent to subsidize sports stadiums, however, because it tended to cut rents below 10 percent of debt service (Noll and Zimbalist 1997). 

In 1996, Senator Patrick Moynihan (D-NY) introduced a bill to eliminate federal subsidies of stadiums by eliminating tax-exempt financing.  Noll and Zimbalist believe that although cities may shy away from subsidies, if such a bill is passed, because costs will necessarily be higher without federal aid, cities will still bid for franchises, and may simply pay more money in interest charges (1997). 
 

4.  VISIONS OF PROSPERITY:  ARGUMENTS FOR THE PUBLIC FINANCING OF SPORTS FACILITIES   

These positive impacts alleged by proponents to come from sports franchises include the 
generation of tax revenue, direct spending by teams and owners in an area, new jobs and 
community development (stadiums can be used for concerts, conventions, and festivals), 
improved infrastructure, and the fact that a stadium is more attractive to tourists and shoppers 
than heavy industry (as has been argued in Nashville [Peters 1996]). 

Thomas Chema, of Arter and Hadden, believes sports stadiums are effective at generating 
economic activity.  He criticizes Robert Baade, a professor at Lake Forest College and a leading 
critic of public financing of sports, for having published results of a study which found sports 
stadiums had a negligible impact on economic growth.  Chema claims Baade researched 
"essentially non-urban facilities" (Chema 1996, 20) which, unlike more recent stadiums in urban 
areas, were not intended as economic development catalysts. As for the stadiums that were built 
in urban areas, Chema believes, "the relatively few urban venues might as well have been in the 
suburbs because they were separated from their host city by a moat of surface parking" (1996, 
20). 

Rick Horrow, an NFL consultant, wrote a recent article in Tennessee's Business  in which he advocated public financing of sports facilities, saying investing cities have received "significant, long-term economic benefits" in the form of tax revenue, direct spending (salaries, supplies, food, insurance, visitors) by the sports team, and the direct impact of new jobs and community development (1996, 29).  As an example of the direct spending associated with such a project, Horrow cited a University of Cincinnati Center for Economic Education study in 1996 which projected the impact of construction on two local professional sports stadiums to be $1.1 billion. 
 

5.  SYMBOLISM AND COMMUNITY:  NON-ECONOMIC BENEFITS OF SPORTS FACILITIES   

In addition to economic benefits, there are other arguments proponents of public financing of sports stadiums use.  Mathew Peters, a research associate with the Business and Economic Research Center at Middle Tennessee State University, discounts the focus on immediate economic benefits of proposed sports financing projects, and instead urges the acceptance of the view that, "the greatest benefits may not derive from measurable economic activities attributed directly to the financial success of the team, but rather from the improved infrastructure, urban renewal, and construction of a venue to accommodate the diverse needs of the area" (Peters 1996, 7).  In Nashville's case, Peters (1996) stressed the improved access to the CBD, parks that would be developed along with the stadium, and the displacement of existing heavy industries which are not conducive to health or tourism. 

It is believed that sports strengthens a city's national and regional image:  both on television and to those who attend sporting events in person.  There is a conventional wisdom that exists among sports financing proponents that a better image attracts more tourists, businesses, and residents, and expands the tax base.  People also believe sports facilities lead to community pride and solidarity.  Arthur T. Johnson, of the University of Maryland, Baltimore County, and Allen Sack, of the University of New Haven, write that "the physical (i.e., the built environment) and psychological well-being of a community concern officials just as much as a community's fiscal health" (1996, 369).  Similarly, in 1992, the Baltimore Sun wrote about the effect of Camden Yards, the new baseball stadium for the Baltimore Orioles, emphasizing how it had "an uplifting psychological impact on the city, over and above any direct physical or economic impact" (Gunts [1] 1992, 1G).  This impact is even harder to measure than economic impacts. 

The role of sports facilities in revitalizing a city and creating a more pleasant urban atmosphere is also one constantly raised by financing advocates.  Oriole Park at Camden Yards was the capstone of a strategic plan to revitalize the city. The Baltimore Sun, in its approving review of the stadium in 1992, wrote that "it provides something for the general public to focus on, to strive for - something for a whole city to rally around" (Gunts 1992, 1G). 

Arthur T. Johnson, in Minor League Baseball and Economic Development, reviewed the case of Harrisburg, Pennsylvania's strategy of using minor league baseball for economic development.  The team made the revitalization of City Island, a derelict wasteland, possible (Johnson).  Now 600,000 people visit the island each year. 
 

ARGUMENTS AGAINST PUBLIC FINANCING OF STADIUMS  

6.  A NEGLIGIBLE IMPACT:  ECONOMIC DISBENEFITS OF PUBLIC FINANCING   

The minimal economic effects of a new stadium or arena on a city have been written about by many authors.  Economic studies of these effects by many authors show only a small positive or negative impact on a city's economy, if any.  Critics of economic development strategies which focus on sports often point out that many other alternatives might yield a better return on investment than that of sports. 

Robert Baade and Richard Dye used regression analysis to examine the relationship between the addition of a sports stadium or team in a city and area income growth.  Using nine separate equations for each of the nine cities examined, only 2 showed a positive relationship that was significant, while 5 indicated a significantly negative impact, and 7 were insignificant (Baade and Dye 1988).  This and similar studies by Baade are often referred to by many scholars of the subject. 
 Professor Andrew Zimbalist of Smith College criticized the idea that sports facilities' economic impact is significant in his article "The Economic Impact of Sports Teams on Cities."  In the essay, he also finds that the main recipients of the public largesse are the owners and players;  they reap millions while "the city cannot even cover its incremental debt service with rent and other stadium revenues" (1996, 10). 

Another key argument is that owners and players may not live in an area and spend money, as was feared in the case of the Houston Oilers football team moving to Nashville.  John J. Siegfried, a professor of economics at Vanderbilt University, claims that only about 100 people in high paying jobs, including management and players, are employed by an NFL franchise, and most of those will not live in Tennessee (Siegfried 1996, 31).  As a result, potential economic benefits from their direct spending will not be realized in the area targeted for economic development. 

In "Sports Stadiums and Area Development: A Critical Review," Robert Baade and Richard Dye discounted proponents' of stadium construction argument that jobs would be created by noting that the type of jobs created would be generally low-wage and seasonal, including ticket sellers, restaurant and bar workers, and taxi drivers.  They argue that a city engaged in such a strategy would gain a comparative advantage in that sector of labor, as compared to a neighboring area that encouraged a sector utilizing high-skilled workers and high-technology- which Baade described as "growth-producing jobs" (1988, 272). 

The issue of opportunity cost is another which many critics raise.  Critics of sports-based development policies ask whether it would not be better to spend the money on schools, roads, attracting other businesses, using the land for a private organization that would pay property taxes, reducing tax rates, or investing the money.  For example, Leslie Wayne, writing in the New York Times, reported that a congressional study concluded that the Sunny Day Development Fund was a far better opportunity for creating jobs than building a new football stadium in Baltimore (Wayne 1996).  Indeed, Andrew Zimbalist compared the economic effect of a new sports franchise on a city as being equivalent only to that of a small department store. 

Mark Rosentraub, in his 1996 paper, "Does the Emperor Have New Clothes- a Reply to Robert J. Baade," emphasizes that sports are such a small portion of a city's economy that, he believes, large sums of money would be better invested in other projects.  Rosentraub, Swindell, Przybylski, and Mullins (1994) emphasize the relatively small contribution of sports to a city's economy.  They found that the total annual impact of amateur sports from all sources was equal only to one-third of the payroll of Indiana University's Indianapolis campus, or $120 million.    Siegfried writes of the negative effects produced by a new sports facility which displaces existing businesses.  In the case of Nashville, the new stadium for the Tennessee Oilers football team has forced the Nashville Bridge Company to move to Ashland City with its 200 employees. 

Some have found that sports just realigns residents' entertainment budgets, it does not lead to more spending on entertainment (Noll 1974 and Baade 1990).  Johnson and Sack, in their analysis of the Volvo International Tennis Tournament, found economic results consistent with this theory.  In that case, people spent less on other leisure activities at the same time they began spending money on the tennis tournament (1996). 

Another argument is that the fan base for sports stadiums is "insufficiently foreign", 
in that not enough paying fans come from out of the city as to create a net import of spending (Baade-2, 1996).  Western cities, however, notably Kansas City, have been found to import fans at a higher rate, perhaps because they have more of a regional following because the pro franchises are farther apart (Baade-2, 1996). 

Other costs are in the political arena.  Political capital expended and political conflict often result when a movement arises to publicly finance a sports stadium or arena.  In Harrisburg, Pennsylvania, the mayor and city council clashed, with the result that most of city council was voted out in the next elections and replaced with council members more favorable to mayor (Johnson 1993).  Johnson and Sack detailed the negative effects the VITT had on New Haven's racial climate;  the black population tended to view the tennis project as elitist, or "one more giveaway to the old [white] boys" (1996, 377). 
 

7.  WHICH YARDSTICK?  THE DIFFICULTIES OF MEASURING ECONOMIC IMPACTS OF SPORTS FACILITIES   

The effects of a new sports facility are extremely hard to estimate due to the complexity of 
the task, flawed methodology, and often-inflated expectations of the parties administering a sports 
development project.  This results in impact studies that are overly optimistic. 

Multiplier effects are generally used by jurisdictions to estimate the indirect economic benefits caused by constructing a new stadium or luring a professional team to an area.  These are funds "that would otherwise not be spent in an area" (Siegfried, 31).  For larger metropolitan areas, the U.S. Department of Commerce usually uses a multiplier of 2 (depending on the area's economy and geography). 

Jurisdictions commonly over inflate their multipliers, predicting unjustifiably a multiplier such as 4, which New Haven used to estimate the effects of the Volvo International Tennis Tournament's effect on spending in the state (the spending that would not have occurred without the tournament).  Johnson and Sack found that if a more realistic multiplier is used, the facility was found to have no effect on net spending, but rather appeared just to shift spending from other leisure industries to the tournament. 

There is great difficulty in attributing changes in an area's economy to the construction of a new stadium.  For example, in Indianapolis, the sports strategy has been alternately praised for causing a slower loss of jobs and prosperity to the suburbs than otherwise would have been expected, while others have attacked the strategy for what they believe caused or contributed to an economic downturn in the city. 

The smaller the circle around the stadium whose impact is being measured, the greater percentage of customers from outside the area who are gauged to spend money there, and thus the higher amount of "imports" and net benefit to the area, so in many respects, the calculation of economic benefits to an area can be manipulated by an entity wishing to conduct a study which finds a result which justifies the construction of a sports facility. 
 

8.  KEYS TO SUCCESS FOR PUBLIC FINANCING OF SPORTS   

Baade and Dye believe that public officials will continue to consider public financing of stadia, and thus offer advice as to what they believe will make a stadium more successful than others, based on their research.  First, the number of usage dates for the stadium should be maximized.  The facility must be able to accommodate many different sports, and not be a single-use facility, as many new stadiums are, such as Camden Yards in Baltimore, built only for baseball.  Second, spillover effects from the stadium must be maximized.  For example, hotels should be located nearby if the stadium is to serve as a convention center part of the time.  Third, the facility must be integrated in its neighborhood;  large parking lots which form barriers are to be discouraged.  Cities should counter the monopoly power of owners. 

Thomas Chema, of Arter & Hadden, agrees with Baade that professional sports are not necessarily development tools, and their location and integration with the urban environment plays a large part in the amount of economic activity generated:  "when a city establishes a development strategy that includes sports as part of a critical mass of attractions designed to lure people into the urban core, then a sport team or venue can and will provide significant economic value to the city (1996, 22)." 

Noll and Zimbalist believe antitrust legislation should be used to split sports leagues up into competing leagues, because they believe this would lead to a situation in which no franchise would leave an economically viable city;  if one did, another from a competing league would arrive to fill the void.  However, the prospects for this are found to be slim, because the U.S. Congress and the Department of Justice's Antitrust Division are both subject to political pressures not to meddle with professional sports. 
 

9.  AREAS WHERE MORE RESEARCH IS NEEDED   

The secondary, multiplier economic effects of a sports project need to be studied in further detail.  Since multipliers vary between two and four (theoretically because of time and place differentials), there is a large amount of latitude available when selecting a multiplier.  A jurisdiction wishing to distort the true benefits of a project may easily pad the results of an economic analysis by choosing a high multiplier.  Further study may narrow the range of acceptable multipliers and better calibrate economic impact models. 

The non-economic disbenefits of a sports stadium need to be studied.  This was only lightly addressed by the literature, and was done in a cursory fashion without extensive analysis.  For example, Siegfried wrote "we must also tabulate the resentment and conflict stirred up within some families when intense devotion to the Oilers interferes with other family responsibilities" (34). 

More research also needs to be conducted on the possibility of leveraging increased contributions from the private sector, either through solely privately-financed ventures, such as the San Francisco (baseball) Giants' new stadium, or through public-private partnerships with a high proportion of private capital, as in the case of Toronto's Skydome.  New stadium technology, such as the auctioning off of the stadium's name to a private client, increased in-stadium advertising, and concessions have made a greater private contribution to sports financing possible. 

Research into the equity issue, or how fair an impact a new sports facility has on a community should be investigated further.  Johnson and Sack's article on the VITT touches on the discord the tennis center produced in lower-income communities that would not be as likely to enjoy the amenity as others, and Siegfried's article on Nashville's stadium told about a water tax used to raise money for the project being unfair to the lower-income residents, since a tax on water is regressive.  However, due to the changing nature of many sports stadiums, there appears to be an opportunity, as yet, unfulfilled, to examine the effect new technology, such as increased luxury seating, has on equity (for instance, are the wealthy the main beneficiaries of a new sports facility?) in public financing of sports. 

Finally, more research needs to be carried out with the goal of determining how to overcome political pressures from sports leagues and implement some of the ideas mentioned above, in particular, how to revoke baseball's antitrust exemption and foster the creation of professional sports leagues which compete with each other. 
 

10.  CONCLUSION   

Writers supporting the use of public financing for sports facilities are often those who have a stake in the financial prosperity of professional sports or those convinced of the need to build such a facility, despite the results of careful economic analyses.  Economic studies which advocates use to support their claims of financial success are often biased and show huge financial gains for the area.  A more compelling case is made by those who argue that there are noneconomic benefits of a sports facility which provide a basic leisure amenity- pro sports, and enhance the image of a city or town. 

Critics of public financing of sports facilities have been conducting their studies for the last thirty years, about as long as arguments that sports can be an economic development tool have been made.  Usually, such arguments are ignored by advocates or political sponsors of such strategies.  As the costs of stadiums rise ever higher, though, the private sector should play an increasingly larger role in financing projects to reduce the strain on public budgets, and efforts should be made to break up the major leagues into competing entities. 
 
 
 
 
 
 
 

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