If You Build It

We know stadiums are bad investments. So why do they keep getting built?

Artwork from the new Texas Rangers ballpark

This afternoon, a spade penetrated Texas dirt just outside of Dallas, marking the breaking of the ground on a new housing project, funded with a $500 million contribution by the city of Arlington. Although the Dallas metroplex, with its 24% increase in homelessness over the past year, could surely use an expansive new housing initiative, this one will be the permanent home of just 25 people — that is, the 25 players on the Texas Rangers’ roster.

This undertaking is just the latest in a seemingly never-ending parade of similar-scale construction projects across the country, fueled by billions in subsidies from local municipalities. So far, this calendar year has already seen an aesthetic overhaul for two of Atlanta’s professional teams, with both the Braves and Falcons consecrating their new cathedrals of sport. And luckily for the good citizens at Atlanta, all the modern amenities that come with a new stadium will only cost them a cool billion! Yes, you read that right, billion with a ‘B’. Between state and local government, the public is investing $392 million in the Braves stadium and almost $600 million (!!!) in the new Falcons one.

Now, publicly funded stadia have been around forever. From the great Hippodrome of Constantinople to Philadelphia’s Veterans’ Stadium, cities have long constructed venues to facilitate their bread and circuses. For much of the mid-to-late 20th century, these stadia were municipal property, designed to be able to accommodate both football and baseball. The 1990s brought back the era of privately owned stadia, which had been common in the early days of organized sport. However, it did not bring a return of teams actually paying for their own venues.

Since the advent of the modern building era, beginning with the 1992 construction of Camden Yards, teams have consistently pushed to form public-private partnerships with local government to help offset the cost of a new stadium, and have been remarkably successful in doing so. Over the past two and a half decades, local governments have paid for roughly 60% of the cost of all new U.S. stadiums, putting the current bill somewhere in the tens of billions of dollars. Teams can readily provide a litany of reasons why this is a sound investment for a city’s tax dollars, most of which can be boiled down to the argument that over time the city will make money from the team’s presence thanks to increases in tourism. This is all presented to City Hall in the form of a beautifully formatted, glossy economic impact study. We’ll go to The Cure for a response:

Impact studies are always the first tool pulled out of the billionaire owner’s toolbox. Commissioning one is the first step in any respectable campaign for a new stadium. But the funny thing about these impact studies is that they invariably seem to reflect the interests of the firms that retain them. They focus on showing what a boon a new stadium would be for the tourist industry, highlighting the ways in which it will bring new money into the local economy. But numbers are fickle, and can be manipulated to fit most any narrative you wish. Such is the case in these situations.

Here are the most common ways in which numbers are intentionally fudged to make a new stadium’s impact on the tourist industry look more impressive than it ever will be:

1. Including Local Residents- studies of impacts for tourism attractions often falsely include expenditures by those already in a given community. This is not economic growth, but simply a transfer of resources that most likely would have still been spent in the community otherwise.
2. Inappropriate Aggregation- altering the area defined as ‘local’ so that more people become ‘visitors’, increasing visitor spending numbers.
3. Inclusion of Time-Switchers and Casuals- including the spending of those that otherwise would have come to a city anyway, but just moved dates to coincide with some cultural event.
4. Abuse of Multipliers- crediting job creation and other spending to stadium construction and events when they are unrelated.
5. Ignoring Costs Borne by the Local Community- economic impact studies frequently only report benefits, ignoring costs of both the project itself as well as those taken on by the surrounding community.
6. Ignoring Opportunity Cost- no analysis of alternative ways investment money could have been spent.
7. Ignoring Displacement Cost- visitors to a tourism event can displace other visitors that otherwise would have come to a community had there been the room.
8. Expanding the Project Scope- taking credit for economic development near stadium or event sites with no evidence of a causal relationship, or projecting development that never occurs.
9. Exaggerating Visitation Numbers- inflating estimates of attendance for events and places that don’t charge admission.
10. Inclusion of Consumer Surplus- counting how much more a consumer hypothetically would have been willing to spend on a given event before it became financially prohibitive.

Another common argument in favor of stadium construction is that it will increase property valuations in the surrounding communities. For a long time, this was considered fact. But more recent studies have shown that the effect on home values oscillates between negligible and slightly negative. For example, the original plan for the new Cowboys stadium had it placed in Dallas. Upon announcement, average property value in the area fell 1.5%, and then rebounded when the project was moved to Arlington. This then caused property values in Arlington to dip by a similar amount.

While professional athletic venues are often touted as economic catalysts, research overwhelmingly indicates that the economic benefits are inconsequential. The entire literature review is summed up in this damning quote from economist Andrew Zimbalist [emphasis mine]:

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 government, a city, or an entire metropolitan area, the economic benefits of sports facilities are de minimus.

With paper after paper having found scant evidence of positive economic impact from professional sport, team owners are left with little to do but cling to intangible, unquantifiable concepts like ‘community pride’. This leads to politicians privileging feeling over fact in their decision making. For example, the St. Louis economy improved when their football team decamped for Arizona in 1988, yet local government pursued a replacement team because “most people in America believed that St. Louis’s best days were behind her.”

Studies have shown that there is some merit to the idea that stadiums offer a sort of intrinsic value to the local populace, specifically in smaller metropoles with shrinking populations that may be more dependent on sport for notoriety (think Pittsburg or Baltimore). But even the least conservative attempts to valuate these benefits are still vastly outstripped by the amount of subsidies actually pumped into these stadia. One example with the Pittsburgh Penguins puts their 30-year intrinsic value to the city at $26.9–74.7 million. Yet the average taxpayer subsidy for stadia between 1994 and 2000 was a whopping $84 million.

There are a number of other reasons why cities never end up making back the money they invest in stadia. One is that, of all the jobs that professional sports bring to a city, those earning high salaries tend not to actually live there year-round. In general, 93% of workers live in the communities they are employed by. Yet among professional athletes, that number is 29%. This translate to less of their income being re-injected into the local economy. Whereas 58% of the average person’s salary is spent locally, that number is only 10% for the pros.

Additionally, public-private partnerships are often set up in such a way that any cost overruns (which there always are) fall exclusively on the taxpayer. New stadia will require new infrastructure, whether it be in the form of highway exits, subway stops, or parking lots and stop lights. Again, you can bet this isn’t coming out of the owner’s pocket.

Proponents of stadium construction are often moneyed and organized. Powerful bankers, lawyers, and construction unions, as well as team owners and players all stand to benefit. Additionally, fans who attend games who would benefit as well tend to be much more vocal than the opposition. As Zimbalist summarized the matter,

In contrast, most voters do not find it in their interest to actively oppose a referendum that may cost them $25 or $50 per year (per voter) in additional taxes. The issue is complex, the subsidies are indirect, and the proponents have almost all of the information. Those who are motivated to oppose the subsidies frequently are poorly funded, disorganized, and politically naïve.

St. Louis votes ‘NO’ on billionaire subsidies

But there are some signs the tide may be slowly turning against the billionaires. Recent referenda in St. Louis and San Diego showed that cities are no longer content to be held hostage by their professional teams, and would rather see those teams leave than fork over hundreds of millions of tax dollars that could be better spent elsewhere. And while for now teams may have the ability to decamp to another city more willing to be exploited, the number of cities able to host a team is very small, and the threat to move will soon be empty. Community organizers and local governments are slowly becoming more aware of how bad of a deal these partnerships really are, and I predict that it won’t be too much longer before this chapter of exploitation by professional teams comes to a close.