SPORTS AND ECONOMIC DEVELOPMENT- by Mike Narcowich

SPORTS AND ECONOMIC DEVELOPMENT

Economic development strategies which focus on sports are controversial, and for good reasons. Programs based on plans to construct a new sports venue or lure a professional team to an area are often justified by touting the potential economic benefits of such a move. However, research in this area indicates such benefits are often greatly exaggerated or even false. Scholars of the issue who do believe sports strategies have positive effects tend to emphasize the noneconomic benefits of them, although economic benefits are highlighted by the advocates of specific stadium proposals. Difficulties with how economic impacts of sports facilities or teams are measured only aggrevates the controversy over the potential of sports as an economic development strategy.

My literature review of writings on the topic of sports and economic development

Sports and Economic Development Articles - An Introduction to the Issues

"Are New Stadiums Worth the Cost?," by Roger G. Noll, Professor of Economics at Stanford, and Andrew Zimbalist, Professor of Economics at Smith College. This article appeared in the Brookings Review in Summer, 1997. The site is linked to a book review of their new book, "Sports, Jobs, & Taxes."

The Heartland Institute- Robert Baade, Professor of Economics at Lake Forest College, testifies on the limited economic effects of sports facilities before Congress in November, 1995 Baade is the foremost authority on economic impacts of stadiums, as well as the leading critic of sports as an economic development strategy.

Antitrust Issues

The major sports leagues of America operate monopolies. Baseball's antitrust exemption, along with the internal policies of the other major sports leagues, act to limit the number of teams which may join those leagues. This creates an undersupply of major sports franchises, which in turn leads to a bidding war among cities to attract new franchises or retain existing ones.

The Heartland Institute- Academic scholars' Congressional testimony from November, 1995 on antitrust issues and sports Professor Gary R. Roberts of Tulane Law School speaks in favor of a limited antitrust exemption; Professor Steven F. Ross of the University of Illinois speaks against it. The Heartland Institute is a public policy group in Chicago.

The Scope of Public Financing of Sports Facilities

The federal government subsidizes state and local governments' sports ventures by allowing them to issue tax-exempt bonds. Noll and Zimbalist estimate lost federal tax revenue from this activity to equal $2 million per stadium per year (from "Sports, Jobs, and Taxes", 1997). They estimate state and local subsidies for sports to be even larger. The 1986 Tax Reform Act sought to lower public monies being spent on sports facilities, but has been ineffective. Senator Patrick Moynihan advocates banning all federal subsidies of sports stadiums, and has introduced legislation to achieve that.

My literature review - Section 3: Financing Tools

"Field of Debt," by Michael K. Ozanian. A December, 1997 Forbes magazine article on the tremendous sums being spent on stadium financing. The charts are particularly interesting.

Arguments Against Public Financing of Sports

The economic disbenefits of public financing are cited by critics of sports-based economic development strategies as the main reasons such strategies are not worthwhile. Many economic studies show only a small positive or negative effect on an area's economy, if any. Furthermore, the opportunity cost of not investing in other public infrastructure or investment options is often sizeable. Economic consultants who produce glowing studies of the anticipated benefits due to an area which invests heavily in sports are criticized by sports-strategy skeptics for grossly exaggerating expected benefits and minimizing potential costs for political reasons. Furthermore, the skeptics note technical flaws such as the miscalculation of multiplier effects, jobs created in the area by sports are often part-time, low-wage, and seasonal, and the possibly false assumption that owners and players of sports franchises will live in or spend money in the target area.

"Field of Fantasies," by Robert Baade and Alan Sanderson. In Intellectual Ammunition, March/April, 1996

My literature review - Section 6: Arguments Against Public Financing of Stadiums

Arguments for Public Financing of Sports Facilities

Proponents of public financing of sports claim that sports facilities and teams generate tax revenue for the area, cause direct spending by teams and owners in an area, create new jobs, and contribute to community development. In addition, they claim that stadiums are more attractive to tourists and shoppers than heavy industry (another potential economic development tool) and new stadiums lead to improved infrastructure in an area. Advocates of sports-based development strategies also point out that many economic studies of sports facilities that show negligible or negative impacts examined facilities that were built in suburban areas. They emphasize that most of the stadiums built in the last decade differ fundamentally from those studied in past studies; the new stadiums and arenas tend to be built in urban areas and are often part of an urban development strategy. Furthermore, they include new stadium technology, such as expanded luxury seating, restaurants and bars, catering, and theme activities.

My literature review- Section 4: Visions of Prosperity - Arguments for the Public Financing of Sports Facilities

"Mariners Hope for Camden Yards-Style Revival," by Karen Hucks - Tacoma News-Tribune, 1997. This article contains themes that supporters of sports-based economic development strategies often use. Oriole Park at Camden Yards, home of Baltimore's [baseball] Orioles, is credited with elevating economic prosperity and community pride (other studies show the stadium did not have a significant positive economic effect on Baltimore), as well as boosting tourism in the city and causing significant spin-off economic impacts. Oriole Park is considered by many to be the finest example of the new type of sports stadium- one that utilizes new technology such as expanded concessions and nostalgic architecture, and is part of a downtown revitalization strategy.

Which Yardstick? The Difficulty of Measuring Economic Impacts of Sports Facilities

The effects of new sports facilities are hard to measure. The task is complex, methodology is often flawed, and jurisdictions pushing sports as an economic development strategy often tout overly optimistic studies as justifying their proposals. Much of the controversy and difficulty over measuring economic impacts stems from the multiplier chosen.

economic development: the ongoing process of creating wealth in which producers deploy scarce human, financial, capital, physical and natural resources to produce goods and services that consumers want and are willing to pay for. The economic developer's role is to participate in the process of national wealth creation for the benefit of local consumers and producers by facilitating either the expansion of job opportunities and tax base or the efficient redeployment of local resources - Dr. Emil Malizia, Professor of Economic and Real Estate Development, University of North Carolina at Chapel Hill, in Economic Development Review, 1994.

multiplier: number which is is multiplied by the direct economic impact a stadium provides to measure the indirect economic impacts a stadium provides. These are funds "that would otherwise not be spent in an area," according to John Siegfried ("Does Nashville Need a Publicly Funded Football Stadium?" 1996). The multiplier could be as high as 4, or as low as 1.2, depending on the area demographic and geographic situation. If a relatively high amount of fans need to stay in hotels for example, because they tend to travel long distances to visit the stadium, it could be argued that their relatively high degree of spending on local hotels means a higher multiplier should be used in measuring indirect economic effects than if more fans lived in the local area and didn't need to stay in hotel rooms.

direct economic effects: spending on or at the new sports facility itself (land rents, taxes on concessions, service contracts, ticket sales, etc.).

indirect economic effects: Also known as spin-off or secondary effects. This does not occur within or on the stadium, but which would not have occured without the stadium's presence. This could include spending by fans outside the stadium or arena, such as that at neighborhood stores, area hotels and restaurants.

Reference Lists on Sports and Economic Development

There is a wealth of available material on sports and economic development, and many economic impact studies have been conducted. The overwhelming majority of the literature from academic sources condemns such strategies for their minimal economic impact, whereas the noneconomic impacts of a stadium are more likely to be raised by those advocating investment in sports facilities. Literature which challenges the writers opposing sports strategies challenges economic assumptions, and emphasizes the relative economic success of more recently constructed stadiums which have tended to be built in urban, rather than suburban or fringe areas.

My literature review - Works Cited

Chapin's Stadia Home Page is a web page compiled by Chapin, a Ph.D. student in Urban Planning at the University of Washington. The page includes a bibliography of writings on financing and economic impacts of sports facilities. There are many links to interesting resources, including public policy groups active in public financing of sports issues, and to web sites containing financial information about sports franchises.

Minnesota Legislative Reference Library offers a June, 1997 resource page on financing professional sports facilities. Included are reports, articles and interest groups pertaining to sports development in Minnesota and around the nation, with links to various articles.

Washington State Library's Reference List: "Fields of Dollars?: Public Money and Sports Facilities - selected journals, books, government publications, and newspaper articles. Prepared in January, 1997 by the staff of the Washingon State Libarary in Olympia, Washington.

This page prepared by Mike Narcowich
for Class #261, Urban & Regional Planning
13-April, 1998

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comments about this page should be directed to: narcowic@email.unc.edu