Invest in Startups, Not Stadiums
This week Missouri Governor-elect Eric Greitens announced that Missouri would not be sponsoring up to $100 million in public financing of stadiums. This is a pretty surprising move that bucks a long-running trend of governments utilizing stadiums as an economic development strategy.
While this decision might disappoint sports enthusiasts, if you’re a government official looking to grow jobs, you should study Greitens’ example. In fact, take it a step further: invest in startups, not stadiums. Here’s why.
My favorite baseball team, the Atlanta Braves, recently got a new stadium with $350 million dollars in public funding— even though their most recent stadium opened in 1996 and was only open for 20 years. In nearly every big city, an owner of a pro sports team has at one point held the city hostage, demanding a new stadium or else the team will move.
And it tends to work: over the past twenty years, America has replaced 90% of its pro sports stadiums with the help of public dollars. According to a 2012 book by Judith Long, from 2000 to 2010 a total of fifty new sports facilities opened, and they received over $150 million dollars in public funding. Nearly every local politician has justified the expense by citing the economic growth benefits to the community.
Do stadiums create jobs and grow the economy? The answer from over a dozen studies is a resounding “No.” As Stanford professor Roger Noll noted, no facility built recently has even re-couped its costs — it would take almost one hundred years for a stadium to repay itself. Governor-elect Greitens called stadiums “welfare for millionaires” — providing hundreds of millions of dollars in subsidies to the ultra-wealthy owners of sports teams.
If we don’t spend money on stadiums, what’s a better economic development strategy? Investing in local startups.
Startups create jobs, and a few places where we are investing heavily are doing really well. According to the Kauffman Foundation, new firm creation accounts for nearly all net new jobs in the US. 78% of startup investment goes to three states: California, Massachusetts and New York. In these states, startup investment has increased by 300% over the past twenty years. And nearly fifty per cent of the jobs added in the economic recovery have been in these three states.
The problem is that entrepreneurship is in crisis everywhere else. Over the past twenty years both new startup investment — and firm creation — has grown in the “Big Three” states but declined everywhere else. According to the nonpartisan Economic Innovation Group, fewer Americans are starting successful firms than at any point in our lifetime. Great ideas exist everywhere (I know because I’ve seen them through our work at Village Capital) but the opportunity to turn your idea into a business is far too dependent on your zip code.
So what does a “startups, not stadiums” mentality look like? Missouri actually provides a good example. Over the past five years, St. Louis has seen the largest increase in startups of any metro area with more than 200,000 people. I’ve been working in the St. Louis startup scene, and I can testify that government is playing a role. The state has been aggressively investing through its own investment fund, the Missouri Technology Corporation. Foundations such as our partners at the Kauffman Foundation have been regional leaders. And the Arch Grants program has offered startups $50,000 seed financing just for setting up shop in St. Louis.
Missouri is right to continue investing in startups, not stadiums, and I’d encourage other ecosystems to follow their lead. Here is a helpful rule of thumb:
If you need to pay for a stadium, make sure that economic growth actually happens. I’d propose that for every ten dollars that a government commits to a pro sports stadium, the private investors in the stadium project commit one dollar to startup entrepreneurs operating in the vicinity of the stadium.
Imagine if, for example, government leaders in Wisconsin and Milwaukee had demanded that in addition to their $400 million in public funding for the Milwaukee Bucks’ new stadium, the Bucks’ hedge fund billionaire owners would need to commit $40 million (it could even be an investment — not a grant) to startups in Milwaukee. We’d see an incredible inflow of talent to ensure that the stadium had lasting impact even beyond the short-term construction boom.
Interestingly, the Cleveland Cavaliers, the Detroit Lions, and Los Angeles Dodgers have gotten into the entrepreneurship game, all setting up accelerators or entrepreneurship support programs in their stadiums for their network. Governments should follow their lead and make sure their economic development plans actually develop the economy.
So — good for all government officials who recognize that stadiums don’t actually create jobs. We know that startups do — and I’m eager to see communities across the U.S. invest in the job engines of the future.
