Stadium Construction and Broken Windows

USA Today reports on a study by University of Dayton economists Marc Poitras and Larry Hadley: privately financed sports stadiums pay for themselves. Tax dollars aren’t necessary to make them viable. Somehow I doubt that the study will slow the pace of publicly financed sports stadiums. While it may make it more embarrassing for franchise owners to ask for public handouts, what’s a little stigma among friends? The success of the begging strategy is mainly due to the threat of exit—owners demand public financing as a way of extracting money from cities fearful that teams will leave. There isn’t free entry into sports leagues—leagues tightly control new entrants—so cities are always vulnerable to the threat of a team leaving.

The claim that sports teams and new stadiums are good for the economy is a classic case of the “broken window fallacy” of Bastiat. The benefits are seen—the jobs building the stadium, the fans who spend money at the restaurants near the stadium. Unseen are the jobs lost elsewhere and the restaurants on the other side of town that lose business. Roger Noll and Andrew Zimbalist found that the net benefit of public stadiums is basically zero—there’s no stimulus to the local economy worth talking about. Their conclusion:

In our forthcoming Brookings book, Sports, Jobs, and Taxes, we and 15 collaborators examine the local economic development argument from all angles: case studies of the effect of specific facilities, as well as comparisons among cities and even neighborhoods that have and have not sunk hundreds of millions of dollars into sports development. In every case, the conclusions are the same. 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 neighborhood, a city, or an entire metropolitan area, the economic benefits of sports facilities are de minimus.

The U of Dayton study is here.

You can find the entire Noll and Zimbalist book online here.