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The Hidden Cost of Sports Stadiums
August 3, 2000
When the Patriots' move to Hartford fell through, the state's residents had mixed emotions. While some were upset, shifting their loyalties to NFL teams outside of New England, others were relieved. But from an economic standpoint, it was a gain to all those who reside or work in the state of Connecticut. While it is commonly assumed that publicly financed sports stadiums can assist in reviving cities, a closer look at other urban areas illustrates why this belief is wrong.
In order for public investments to revitalize a city, they must achieve "new" spending instead of merely persuading consumers to attend a sporting event at the expense of some other entertainment. For example, the estimated cost for the construction of Baltimore's Camden Yards was originally $177 million, coupled with a projection for the creation of 1394 new jobs. Assuming that all income generated by this investment is new income, the cost per newly created job will be only $127,000. But if 80% of the generated income turns out to be a substitute for other spending, only 534 jobs will be created, each costing a whopping $331,000. A recent study found that Cleveland's Gateway Complex, home to the Cleveland Indians and Cavaliers, created only 1900 jobs -- far fewer than originally estimated -- at an estimated public cost of $320 million.
Dean V. Baim, Professor of Economics and Finance at Pepperdine University, who studied 14 stadiums in the U.S., found that they had an aggregate net accumulated value of negative $139.3 million. In fact, the only one to have a positive net accumulated value was the Los Angeles Dodger Stadium at $5.85 million, a privately built stadium. This instance suggests that private investors have the best instinct for making sports arenas economically successful.
Knowledgably taxpayers have understandably become skeptical about publicly funded stadiums. Part of the reason is that the initial estimates tend to be unrealistically low and, once the work has begun, there is little way of controlling public debt. In 1990, the estimated cost for the Gateway Complex was $320 million. Although nearly half of this was to be financed privately, it was decided that the other half was to be financed through an increase in alcohol and cigarette taxes. After six years, expenses exceeded $460 million and private contributions amounted to only 34% of total costs.
Voters have often rejected proposals for taxes to subsidize stadiums. In Pittsburgh, an eleven county referendum rejected a sales tax increase to finance both a football and baseball stadium for the Steelers and Pirates, despite the local popularity of these teams. On November 4, 1997, voters in Minnesota also set a $10 million cap on public assistance for a new baseball stadium. The same thing happened in Milwaukee and Seattle when a 1996 ballot rejected tax increases to finance the construction of new sports facilities. These are clear indicators that voters have become increasingly sophisticated about the viability of publicly financed stadiums.
In truth, successful stadiums can be funded almost entirely through private investment, and they will be built if such investments make economic sense. In 1987, Joe Robbie enrolled private investors to finance almost 90% of construction costs for the Miami Dolphins' new facility. He built luxury boxes and suites and pre-sold tickets to raise these funds. In the case of Robbie's stadium, the remaining costs of construction, assumed by the public sector, amounted to only land acquisition and road improvements. Other examples of limited public participation in financing include Minneapolis' Target Center, where the public's share was limited to $20 million, and the new facility for the St. Louis Blues, financed privately with the exception of $10 million for land clearance.
In a time when Hartford struggles with a lack of productive investment, a large public project such as a sports stadium would likely create more costs than benefits. Evidence suggests the benefits of such a project seldom surpass the costs. To justify the use of public funds for an investment, a city must focus on an economically sound strategy. If, in fact, stadiums are a good investment, private funds will be available to build them. If private funds are not available, maybe the stadiums are not as attractive as their boosters would have us believe.
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The Yankee Institute for Public Policy, Inc. is a nonpartisan educational and research organization founded more than two decades ago. Today, the Yankee Institute's mission is to "promote economic opportunity through lower taxes and new ideas for better government in Connecticut." The Yankee Institute for Public Policy, Inc. is classified by the IRS as a 501 (c) (3) public charity. Contributions are deductible to the extent allowed by law.
