Stadium Building Economics Don’t Add Up According To Stanford Expert

Roger Noll is a well-educated stadium building critic and professor of economics at Stanford, and he makes a concise argument why public financing economics for stadium building never work out very well for a city and taxpayers in his article from Brookings, Sports, Jobs, & Taxes: Are New Stadiums Worth The Cost? An author of books and several other articles on the subject, Noll has examined countless examples from nearly every angle including cities that did not sink millions into sports development. His conclusions in nearly every case are the same: “effect on overall economic activity is extremely limited (perhaps even negative), no recent facility appears to have earned anything approaching a reasonable return on investment, and no recent facility has been self-financing on its impact on net tax revenues.” Roger Noll believes the public should not subsidize sports facilities for privately owned teams, and the economics of building stadiums always runs a deficit and never works out for taxpayers.

Beyond his opinion and criticism, Noll is able to very articulately give a synopsis and offer a very convincing picture of stadium building economics. He describes subsidies exist on the federal level and the local and state level. The federal government will allow state and local governments to issue tax exempt bonds on debt they have assumed on facilities. The tax exemption significantly lowers the interest on the debt that is owed and reduces the cost for the owners and cities. And as this is a creative and convenient tactic for owners and the leagues to get these facilities built, Noll explains the implication of these tax breaks; “Assuming a differential of 3 percentage points, the discounted present value loss in federal taxes for a $225 million stadium is about $70 million, or more than $2 million a year over a useful life of 30 years. Ten facilities built in the 1970s and 1980s, including the Superdome in New Orleans, the Silverdome in Pontiac, the now-obsolete Kingdome in Seattle, and Giants Stadium in the New Jersey Meadowlands, each cause an annual federal tax loss exceeding $1 million.” But the losses don’t stop there and typically the State and local governments are the ones really left on the hook. Cities often get stuck with picking up the bill for infrastructure improvements and subsidizing or providing the land for the development as well. According to Noll the average sports facility will cost a host city more than $10 million a year.

The economic rational proponents claim is the polar opposite, in that new sports facilities will improve the local economy in a multitude of ways and actually generate revenue for the city. Noll outlines the most common arguments are the new facilities will expand employment and construction jobs, attendance and franchise employees will generate new spending in the area, and attract new tourists and companies which will further increase local spending and jobs.

Critics including Noll confront these assumptions and the notion that collectively stadiums spur so much economic growth that they are self-financing. As Noll explains these arguments are based on 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. Increased productivity can arise in two ways: from economically beneficial specialization by the community for the purpose of trading with other regions or from local value added that is higher than other uses of local workers, land, and investments. 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.” I agree with Noll on this conclusion and that the alternatives must be considered to evaluate the success and economic rationale of a project. As Noll argues, “By comparison, other billion dollar facilities – like a major shopping center or large manufacturing plant – will employ many more people and generate substantially more revenue and taxes.”

Often the construction of a new stadium will promote little, if any, new consumption. Noll explains the economic impact analyses are often riddled with errors and will factor all stadium revenue as new entertainment spending (revenue that would not have been captured had the stadium not existed). To many critics this is a huge miscalculation and fails to acknowledge what level of spending at a new stadium is actually new entertainment spending, and how much is merely providing a substitute for dollars that would have been spent at existing entertainment alternatives. And the same argument can be made for tourist projections. I don’t think the huge costs of subsidies can justify such a minute return, especially when there are more important places to spend the money.