Jackson Jambalaya

A 2011 study attacks the use of tax breaks and other forms of government largesse directed towards stadiums and other facilities. Dr. Robert Baade and Dr. Victor Matheson of Holy Cross studied the use of professional sports as a tool of economic development and found its effects are overrated. Here are some useful quotes from the study:


*125 of the 140 teams in the five largest professional sports leagues... will play in stadiums constructed or significantly refurbished since 1990. This new construction has come at a significant cost, the majority of which has been borne by taxpayers. Construction costs alone for major league professional sports facilities have totaled in excess of $30 billion in nominal terms over the past two decades with over half of the cost being paid by the public.

*Unfortunately, the methodology used to formulate estimates of economic impact is fatally flawed, resulting in a consistent bias toward large, but unrealized, impacts. Economic impact predictions are done in a reasonably straight-forward fashion. In the case of either an event or a franchise, the total number of visitors to the event or the team is estimated along with an average level of spending for each sports fan. The number of fans multiplied by the average spending results in an estimate of direct economic impact. Once the direct economic impact is determined, a multiplier is applied, which accounts for money re-circulating in the local economy. For most sports-related spending a multiplier around two is used, roughly doubling the direct economic impact.

*Although this methodology is easy to understand, typically researchers point to three primary flaws in most economic impact studies. The first common error is the failure to account for the substitution effect. While it is undeniable that sports fans around the country and around the world spend significant sums on spectator sports, in the absence of such entertainment opportunities, their spending would be directed elsewhere in the economy. A night at the ballpark means more money in the players‟ and team owner‟s pockets, but it also means less money in the pockets of local theater or restaurant owners. Most economists not associated with teams or event organizers advocate that any spending by local residents on local sporting events be eliminated from economic impact analyses.

*The next common criticism is crowding out. The crowds and congestion associated with major sporting events tend to reduce other economic activity in the local area, as sports fans displace other individuals. As with the substitution effect, sports tend to affect the allocation of economic activity across businesses and different sectors of the economy but not the total amount of activity that occurs. As a case in point, while Olympic visitors flocked to Beijing for the 2008 Summer Games, other visitors stayed away in droves. The number of tourist arrivals to the city in August 2008, the month of the Games, was the same as the number of visitors the previous year and total visitor arrivals for the entire year was significantly lower than the previous year.

*These studies and a multitude of others generally find that the actual economic impact of sports teams or events is a fraction of that claimed by the boosters, and in some cases actually show a reduction in economic activity due to sports.

*Even if the immediate direct economic impact of spectator sports is negligible, proponents of sports-based economic development suggest that the long-term effects may be large. Mega-events “put cities on the map,” and new stadiums can serve as anchors in dilapidated areas to promote local growth. Here too, however, the data are not convincing. While tourists may flock to host cities during major sporting events, the surge in visitors tends to be short-lived.

*While the long-run benefits of sporting events and stadium construction may never arrive, the debts that localities incur in hosting professional sports must still be paid. Montreal was still paying off its debts from the 1976 Olympics three decades later, and the Astrodome in Houston still carried millions of dollars of debt despite being vacant for a nearly a decade.

*Even if commercial sport does induce an increase in economic activity, the efficacy of sport as a developmental tool needs to be considered. The litmus test arguably should not be whether sport induces an increase in economic activity, but rather is it the most efficient method for improving the economy. Focusing on employment, Baade and Sanderson (1997) observed that the cost of creating a full-time equivalent job through sports subsidies far exceeds the cost of job creation through other subsidies. More specifically, it was noted that the cost of job creation through sports is far greater than jobs created through the Public Works Capital Development and Investment Acts of the 1970s or Alabama‟s much maligned subsidies to convince Mercedes-Benz AG to locate some of their manufacturing in that State. It is also important to note that as many as 98 percent of the jobs created through sports subsidies are in the relatively low-paying, non-manufacturing sector.