Soc 432: The Role Of Sports Franchises As Economic Catalyst
The Role of Sports Franchises as Economic Catalyst
Soc 432: Urban Community
University of Arizona
INTRODUCTION Professional sports have become a prominent part of American lives. Today most major cities and urban communities in the United States have at least one major professional sports team. These major professional sports teams include Major League Baseball, The National Basketball Association, The National Football League, and the National Hockey League. In addition, small towns and cities across the United States have become home to minor league teams in variety of sports. In the I990’s alone, 6o major league facilities were constructed. In dollar terms, the 1990’s saw $I8 billion spent on major league facilities, …show more content…
with approximately 55% of these funds coming from public coffers (Chapin 2004). Sports have grown to become apart of the American culture, and today is a multibillion-dollar industry. As sports in America have grown, so has the need for new stadiums and facilities. These facilities no longer are just used to host sporting events but are entertainment centers that have an array of options for a whole family and can host a number of different events.
Today more than ever, professional sports teams are seen as important engines of economic development and redevelopment in urban areas.
They are believed to provide both economic and non-pecuniary benefits to the people and city in general. Yet the recent boom in sports stadium construction has led to funding of professional sports teams to shift from private to public. Much of the cost of constructing new stadiums now lies with the city and public rather than the owners of the teams. This shift has caused many to question whether or not new stadiums are worth the cost or if the money could be better spent somewhere else. The purpose of this paper is to examine the exact impact professional sports teams have in urban areas and their perceived role as economic catalyst. It will start by looking at the public financing of stadium construction and then look at both the benefits and costs of sports …show more content…
business.
PUBLIC FINANCING OF STADIUM CONSTRUCTION There has recently been a boom in sports stadium construction in the United States over the past 20 years. In the time between 1991 and 2006, 64 new major league facilities were built (Feng and Humphreys 2008). This trend shows no sign of slowing down, as each of the major leagues in the United States continues to expand into different cities and markets. This has led to a greater need for complex sporting facilities that often cost millions or even billion of dollars. In its early years, the business of sports and more importantly stadium construction was primarily a private business. Stadium construction was financed with private money by investors and owners of the team. However, today the majority of financing for these new stadiums has come from the public and not private investment. State and local government subsidies to professional sports teams have rapidly increased in amount. The subsidies start with the federal government, which now allows state and local governments to issue tax-exempt bonds to help finance these sport facilities (Noll & Zimbalist 1997). These exemptions lower the amount that cities and teams must pay for construction of stadiums. Most large cities are willing to spend big in order to attract or keep major league teams because of the perceived benefits. The expectation is that these new teams or stadiums will provide economic benefits that exceed the cost of the subsidies, therefore causing economic growth in the locally economy (Robertson 2010). However much of the cost such as land acquisition and stadium construction fall entirely on taxpayers rather than the owners themselves. Still proponents for these subsidies argue that sports facilities improve the local economy through both economical and non-economical benefits. Cities provide owners with millions of dollars for the construction of new stadiums in the hopes of generating economic growth. Advocates say that in the long run these new stadiums self finance themselves through revenue from ticket taxes, sales taxes, other spending outside the stadium and also property tax increases arising from the stadiums economic impact (Noll & Zimbalist 1997). Yet research done in a number of different studies has shown no positive evidence on the impact from professional sports facilities on urban economies. The question remains does it make sense to use public funds to retain and attract sports franchises in the hopes of expanding the economy.
ECONOMIC AND NON-ECONOMIC BENEFITS Advocates for professional sports teams in urban communities utilize a general argument based on both the economic and non-economic impact provided by sports teams. While those that argue against sporting facilities in cities focus on the economical cost, those in favor say both types of impacts help stimulate the local economy. Economic impacts include things such as increased tax revenues through sales and property taxes, money generated from spin-off businesses, stadium revenues, district development or re-development, and most importantly new jobs (Chapin 2002). All of these are made possible through sports franchises in major cities. Furthermore, stadiums or arenas offer additional benefits that go beyond just sporting events. Outside of sporting events, sports facilities can house such events as concerts or conventions. These events can have a substantial economic impact on a city as it another way to bring in revenue. One of the key benefits associated with sports franchises is the creation of jobs. New sports facilities being built create the need for a number of construction jobs. Once the construction is complete, owners need individuals to fulfill service roles such as ticket collectors, concession stand workers, and maintenance personnel. In this case, the arrival of a new stadium causes the creation of new jobs, which means more money for individuals and in the end helps the local economy as more people have disposable income.
Non-economic impacts include non-pecuniary benefits such as community identity or civic pride. Essentially these impacts are benefits that cannot be captured in terms of dollars or jobs. Although they do not evolve money per se, these benefits if substantial enough can influence communities and make it worthwhile for them to provide public financing for new sporting facilities.
Many categorize the non-economical impacts into 4 different forms. These forms are 1) social/psychic impacts 2) image impacts 3) political impacts and 4) developmental impacts (Chapman 2002). Together these impacts, although non-economical, make having a sports team more beneficial for a community in general.
Social impacts refer to the enjoyment provided by sports and sports facilities to the people of the community (Chapman 2002). The idea behind social impacts is that it gives people a better sense of community and pride. They are able to connect with the city and people better as they have something in common with the whole community. Those who follow the sports teams are able to develop a subculture within the city. This subculture allows for those with common interest and characteristics such as an interest in football to come together with others who share the same interest at places such as the stadiums themselves or local bars.
Image impacts are the increased community visibility due to being a “major league city”. This impact of being home to a franchise from one of the four major league sports teams in America increases the ability for a city to better compete for new businesses and households (Chapman 2002). The status of being considered a major league team has recently led to a vigorous race by cities to pursue major sports teams. Many advocates see stadium construction as a way to build city image and increase tourism. In addition, having a sports team allows cities to have both a national and international presence in the market place, which is always welcomed.
Political impacts refer to the political benefits that flow from sport teams and facilities (Chapman 2002). The chance to build a new stadium or relocate a team to a city offers politicians the ability to rally a community and gain support. It can be an important mechanism for politicians seeking higher political office. Due to the shift from private to public funding for stadium facilities, politicians have taken an even greater interest in the political impact sports teams bring to a city.
Often times the argument made by those in favor of sports franchises as economic catalyst say that sports facilities have the ability to potentially catalyze new development in the surrounding area. Developmental impacts focus on this idea and examine how sports teams have the ability to usher in large investments in the district by outside businesses (Chapmin 2002). These developmental impacts have the potential benefit of increased investment. Results indicate that new stadiums in downtown settings built for existing or new teams are potentially beneficial in that they can generate ancillary spending before and after games (Santo 2005). Businesses see sporting events and the volume of activity they bring as an opportunity for increased revenue. Therefore they are eager to develop complimentary businesses such as restaurants, hotels, bars, and housing. All of these businesses together have to potential to kick-start a local economy because more money begins to circulate.
Another intangible benefit of sports facilities that is enjoyed by residents is an increase in residential property value in surrounding areas.
A study done by Xia Feng and Brad Humphreys that was published in August 2008 found that the presence of sporting facilities had a significant positive effect on the value of surrounding houses. This positive effect however decreased as the distance from the facility is increased. The study itself examined the impact of two professional sports facilities, Nationwide Arena, home of the Blue Jackets of the NHL, and Crew Stadium, home of the Columbus Crew of MLS, in Columbus Ohio and the surrounding residential property values (Feng and Humphreys 2008). It looked at the effect of proximity to a sports facility on residential property value. What they found as a result of the study was that presence of both sports facilities in Columbus had a significant positive effect on housing values. Those houses that were located close to both stadiums saw an increase in home values with the building of the stadiums. What this study implies is that sporting facilities have the ability to generate intangible benefits that are often not considered. These benefits, as discussed in the study, have the ability depending on location and execution to increase residential property values in the vicinity of hundreds of millions of dollars (Feng and Humphreys 2008). These residential property value increases only add to the understanding of why cities
continue to subsidize sports facility construction and how intangible benefits are generated from sporting facilities.
Together these impacts provide examples of how sports teams serve as economic catalyst. Economic and Noneconomic impacts take a variety of different forms. Despite the wide variety, these factors are routinely considered by the public sector when evaluating sports franchises. Their impacts serve as reasons for decision makers and voters alike to provide public funds to sports projects. However along with these benefits comes cost. The next section will examine the costs that sports teams cost the public and city in general.
COST OF SPORTS FRANCHISES IN URBAN COMMUNITIES Those opposing sports and its urban development argue that sports at best offer non-pecuniary benefits such as civic pride but fail to make an economic impact. A growing body of evidence has recently indicted that professional sports teams may not be major engines of economic growth as once thought (Coates and Humphreys 1999). Econometric studies of the determination of income and employment in US cities find no evidence of positive economic benefits associated with past sports facility construction (Coates and Humphreys 2003). The majority of these studies use a method called econometric techniques to measure the effect professional sports teams had in terms of changes in the average level of income per capita, average earning of workers in various sectors of a city’s economy, and employment (Coates and Humphreys 2003). Looking at cases of new sports facility construction, numerous academic studies have found no economic impact of professional sports franchises on income and employment. It appears the economic benefit from sports franchises is only concentrated in a small sector of the economy mostly related to jobs dealing with sports (Coates and Humphreys 2003). Industries such as retail, hotel, restaurants, and the overall economy do not see an increase or benefit from sporting facilities being built or teams relocating as one thought. There are a number of explanations explaining why sports teams fail to be economic catalyst. These reasons are not mutually exclusive, meaning they often work together simultaneously to produce the effect that they do. The three key reasons why sports teams do not promote economic development include the substitution effect, extensive leakages; and opportunity cost. Substitution effect revolves around the idea of consumers’ leisure consumption activities. More often then not, consumers have a limited amount of money they can spend on leisure activities. The money spent going to a sporting event is highly substitutable with other forms of entertainment such as going to the movies or going bowling (Coates and Humphreys 2003). Professional sports do not induce consumers to spend more but rather shifts their spending from other leisure activities. The idea that sports franchises create new spending is flawed. Instead of creating new consumption, sports facilities simply rearrange the spending and economic activity in an urban area (Siegfried and Zimbalist 2000). As a result, sports related consumption may increase as a result of a new stadium being built, but with this comes a decrease in other leisure consumption. Many believe that by ignoring the substitution effect the economic value of a sporting facility is vastly overvalued (Coates and Humphreys 2003).
The majority of revenues from professional sports go towards the salaries of players’, coaches, trainers and other personnel. The remaining usually goes to owners. The effect this money has on local economies depends on how much of this money is spent locally and how much leaks out to other areas (Siegfried and Zimbalist 2000). Unlike the wages and salaries paid to employees of local restaurants, movie theaters, and business establishments, the large salaries earned by players and coaches leak out of the local economy (Coates and Humphreys 2003). With average incomes well over a million dollars, players and owners alike face high federal tax rates that drains a large percentage of the money they earn. In addition, because of their high salaries and the relatively short careers, these individuals typically tend to save more and spend less than the typical worker. Most of these savings leak out of the local market and into the world’s money market (Siegfried and Zimbalist 2000). Moreover, players and owners often do not live full time in the places they play. Therefore, a large share of their spending takes place outside of the local community and in different cities and states (Siegfried and Zimbalist 2000). The local economy is not able to reap much of the benefits from having a wealthy class of professional athletes, as a large percentage of their income is spent not in the community. Opportunity costs are the opportunities that city, county, or state governments must forgo in order to build a stadium or subsidize a sports franchise. Often proponents of sports franchises fail to recognize the opportunity costs associated with sports facilities (Chapman 2002). All resources are scarce. The funds to build a stadium or arena have opportunity costs (Siegfried and Zimbalist 2000). If a city decides to fund construction of a new stadium, the city must raise the money by either reducing government services or raising taxes. Spending on construction thereby causes lower spending by the government in other areas or lower disposable household income (Siegfried and Zimbalist 2000). Local officials must ask what is more beneficial or valuable to a community, a new stadium or more money for public projects and lower taxes. In today’s environment must of the money funded to build stadiums is done by the public through taxes. Because of this, government officials must assess rather or not this money could be better spent on other projects. Money dedicated to a new stadium or arena is money that cannot be spent on things such as education, libraries, schools, public safety, new facilities, or new roads. In the long run, this could reduce the earnings in cities (Coates and Humphreys 2003). Ultimately, the cost of building a stadium in the short run may create jobs but it also shifts resources from one part of the economy to another. This shift can eventually harm long term economic growth as schools and other public projects are put on hold in order to fund sports franchises. In addition, many of the jobs created through sport franchises are often jobs that pay below the metropolitan norm (Baade 1994). These jobs are low skilled jobs and also low paying such as ushers, guards, parking lot attendants and concession stand workers. Although these jobs provide work for individuals, they divert resources for high skilled, high wage jobs like police to labor-intensive, low skilled jobs, which is another often unforeseen opportunity cost. Instead of creating new high paying jobs, the community is stuck with jobs that are not very desirable and may hamper long-term economic growth in the economy.
CONCLUSION
All in all the debate over the role of sports franchises in urban communities remains unsettled. Any decision regarding the construction of sports facilities requires a vast understanding of the many issues involved. As discussed throughout this paper, there are a number of cost and benefits to sports franchises. Cities today continue to pour millions of public dollars towards funding and building new stadiums in the hopes of kick starting the local economy. However these cost continue to increase as sports facilities are becoming more and more complex and more expensive. Economists and opponents argue that these projects simply redirect spending from one section of the economy to another and fail to contribute to economic growth. On the other hand, advocates say sports facilities have the unique ability to serve as economic catalyst. They offer both economical and non-economical benefits such as new jobs, community redevelopment opportunities, and increased civic pride that help the local economy. The mixed success of different professional sports franchises throughout the United States as economic catalyst shows how difficult it is to determine whether it is a good or bad idea to invest in sports franchises. In the end, much of the debate of whether or not a sport facility can impact a local economy depends not on the exact numbers but on the situation, location, and context in which a new stadium is being built.
References
1. Coates, Dennis, and Brad R. Humphreys. 2003. "Professional Sports Facilities, Franchises and Urban Economic Development." Public Finance & Management; Sep2003, Vol. 3 Issue 3, P335 3.3 (2003): 335-58. Web.
2. Baade, Robert. 1994. “Stadiums, Professional Sports, and Economic Development: Assessing the Reality.” Heartland Institute Policy Study, April 4. Baade, Robert.
3. Siegfried, John and Andrew Zimbalist. 2000. "The Economics of Sports Facilities and Their Communities." Journal of Economic Perspectives. 14(3): 95-114.
4. Coates, Dennis, and Brad R. Humphreys. 1999. "The Growth Effects of Sport Franchises, Stadia, and Arenas." Journal of Policy Analysis and Management 18.4 (1999): 601-24. Print.
5. Noll, Roger G., and Andrew S. Zimbalist. 1997. Sports, Jobs, and Taxes: The Economic Impact of Sports Teams and Stadiums. Washington D.C.: Brookings Institution, 1997. Print.
6. Chapin, Tim. 2002. “Identifying the Real Costs and Benefits of Sports Facilities.” The Lincoln Institute
7. Feng, X. and Humphreys, B. R. (2008, August). Assessing the Economic Impact of Sports Facilities on Residential Property Values: A Spatial Hedonic Approach. North American Association of Sports Economists.
8. Chapin, Timothy S. 2004. "Sports Facilities as Urban Redevelopment Catalysts: Baltimore 's Camden Yards and Cleveland 's Gateway." Journal of the American Planning Association 70.2 (2004): 193-209. Print.
9. Robertson, Robby. 2010. “The Economic Impact of Sports Facilities.” Unites States Sports Academy
10. Santo, Charles. 2005. "The Economic Impact of Sports Stadiums: Recasting the Analysis in Context." Journal of Urban Affairs 27.2 (2005): 177-92. Print.
Soc 432: Urban Community
University of Arizona
INTRODUCTION Professional sports have become a prominent part of American lives. Today most major cities and urban communities in the United States have at least one major professional sports team. These major professional sports teams include Major League Baseball, The National Basketball Association, The National Football League, and the National Hockey League. In addition, small towns and cities across the United States have become home to minor league teams in variety of sports. In the I990’s alone, 6o major league facilities were constructed. In dollar terms, the 1990’s saw $I8 billion spent on major league facilities, …show more content…
with approximately 55% of these funds coming from public coffers (Chapin 2004). Sports have grown to become apart of the American culture, and today is a multibillion-dollar industry. As sports in America have grown, so has the need for new stadiums and facilities. These facilities no longer are just used to host sporting events but are entertainment centers that have an array of options for a whole family and can host a number of different events.
Today more than ever, professional sports teams are seen as important engines of economic development and redevelopment in urban areas.
They are believed to provide both economic and non-pecuniary benefits to the people and city in general. Yet the recent boom in sports stadium construction has led to funding of professional sports teams to shift from private to public. Much of the cost of constructing new stadiums now lies with the city and public rather than the owners of the teams. This shift has caused many to question whether or not new stadiums are worth the cost or if the money could be better spent somewhere else. The purpose of this paper is to examine the exact impact professional sports teams have in urban areas and their perceived role as economic catalyst. It will start by looking at the public financing of stadium construction and then look at both the benefits and costs of sports …show more content…
business.
PUBLIC FINANCING OF STADIUM CONSTRUCTION There has recently been a boom in sports stadium construction in the United States over the past 20 years. In the time between 1991 and 2006, 64 new major league facilities were built (Feng and Humphreys 2008). This trend shows no sign of slowing down, as each of the major leagues in the United States continues to expand into different cities and markets. This has led to a greater need for complex sporting facilities that often cost millions or even billion of dollars. In its early years, the business of sports and more importantly stadium construction was primarily a private business. Stadium construction was financed with private money by investors and owners of the team. However, today the majority of financing for these new stadiums has come from the public and not private investment. State and local government subsidies to professional sports teams have rapidly increased in amount. The subsidies start with the federal government, which now allows state and local governments to issue tax-exempt bonds to help finance these sport facilities (Noll & Zimbalist 1997). These exemptions lower the amount that cities and teams must pay for construction of stadiums. Most large cities are willing to spend big in order to attract or keep major league teams because of the perceived benefits. The expectation is that these new teams or stadiums will provide economic benefits that exceed the cost of the subsidies, therefore causing economic growth in the locally economy (Robertson 2010). However much of the cost such as land acquisition and stadium construction fall entirely on taxpayers rather than the owners themselves. Still proponents for these subsidies argue that sports facilities improve the local economy through both economical and non-economical benefits. Cities provide owners with millions of dollars for the construction of new stadiums in the hopes of generating economic growth. Advocates say that in the long run these new stadiums self finance themselves through revenue from ticket taxes, sales taxes, other spending outside the stadium and also property tax increases arising from the stadiums economic impact (Noll & Zimbalist 1997). Yet research done in a number of different studies has shown no positive evidence on the impact from professional sports facilities on urban economies. The question remains does it make sense to use public funds to retain and attract sports franchises in the hopes of expanding the economy.
ECONOMIC AND NON-ECONOMIC BENEFITS Advocates for professional sports teams in urban communities utilize a general argument based on both the economic and non-economic impact provided by sports teams. While those that argue against sporting facilities in cities focus on the economical cost, those in favor say both types of impacts help stimulate the local economy. Economic impacts include things such as increased tax revenues through sales and property taxes, money generated from spin-off businesses, stadium revenues, district development or re-development, and most importantly new jobs (Chapin 2002). All of these are made possible through sports franchises in major cities. Furthermore, stadiums or arenas offer additional benefits that go beyond just sporting events. Outside of sporting events, sports facilities can house such events as concerts or conventions. These events can have a substantial economic impact on a city as it another way to bring in revenue. One of the key benefits associated with sports franchises is the creation of jobs. New sports facilities being built create the need for a number of construction jobs. Once the construction is complete, owners need individuals to fulfill service roles such as ticket collectors, concession stand workers, and maintenance personnel. In this case, the arrival of a new stadium causes the creation of new jobs, which means more money for individuals and in the end helps the local economy as more people have disposable income.
Non-economic impacts include non-pecuniary benefits such as community identity or civic pride. Essentially these impacts are benefits that cannot be captured in terms of dollars or jobs. Although they do not evolve money per se, these benefits if substantial enough can influence communities and make it worthwhile for them to provide public financing for new sporting facilities.
Many categorize the non-economical impacts into 4 different forms. These forms are 1) social/psychic impacts 2) image impacts 3) political impacts and 4) developmental impacts (Chapman 2002). Together these impacts, although non-economical, make having a sports team more beneficial for a community in general.
Social impacts refer to the enjoyment provided by sports and sports facilities to the people of the community (Chapman 2002). The idea behind social impacts is that it gives people a better sense of community and pride. They are able to connect with the city and people better as they have something in common with the whole community. Those who follow the sports teams are able to develop a subculture within the city. This subculture allows for those with common interest and characteristics such as an interest in football to come together with others who share the same interest at places such as the stadiums themselves or local bars.
Image impacts are the increased community visibility due to being a “major league city”. This impact of being home to a franchise from one of the four major league sports teams in America increases the ability for a city to better compete for new businesses and households (Chapman 2002). The status of being considered a major league team has recently led to a vigorous race by cities to pursue major sports teams. Many advocates see stadium construction as a way to build city image and increase tourism. In addition, having a sports team allows cities to have both a national and international presence in the market place, which is always welcomed.
Political impacts refer to the political benefits that flow from sport teams and facilities (Chapman 2002). The chance to build a new stadium or relocate a team to a city offers politicians the ability to rally a community and gain support. It can be an important mechanism for politicians seeking higher political office. Due to the shift from private to public funding for stadium facilities, politicians have taken an even greater interest in the political impact sports teams bring to a city.
Often times the argument made by those in favor of sports franchises as economic catalyst say that sports facilities have the ability to potentially catalyze new development in the surrounding area. Developmental impacts focus on this idea and examine how sports teams have the ability to usher in large investments in the district by outside businesses (Chapmin 2002). These developmental impacts have the potential benefit of increased investment. Results indicate that new stadiums in downtown settings built for existing or new teams are potentially beneficial in that they can generate ancillary spending before and after games (Santo 2005). Businesses see sporting events and the volume of activity they bring as an opportunity for increased revenue. Therefore they are eager to develop complimentary businesses such as restaurants, hotels, bars, and housing. All of these businesses together have to potential to kick-start a local economy because more money begins to circulate.
Another intangible benefit of sports facilities that is enjoyed by residents is an increase in residential property value in surrounding areas.
A study done by Xia Feng and Brad Humphreys that was published in August 2008 found that the presence of sporting facilities had a significant positive effect on the value of surrounding houses. This positive effect however decreased as the distance from the facility is increased. The study itself examined the impact of two professional sports facilities, Nationwide Arena, home of the Blue Jackets of the NHL, and Crew Stadium, home of the Columbus Crew of MLS, in Columbus Ohio and the surrounding residential property values (Feng and Humphreys 2008). It looked at the effect of proximity to a sports facility on residential property value. What they found as a result of the study was that presence of both sports facilities in Columbus had a significant positive effect on housing values. Those houses that were located close to both stadiums saw an increase in home values with the building of the stadiums. What this study implies is that sporting facilities have the ability to generate intangible benefits that are often not considered. These benefits, as discussed in the study, have the ability depending on location and execution to increase residential property values in the vicinity of hundreds of millions of dollars (Feng and Humphreys 2008). These residential property value increases only add to the understanding of why cities
continue to subsidize sports facility construction and how intangible benefits are generated from sporting facilities.
Together these impacts provide examples of how sports teams serve as economic catalyst. Economic and Noneconomic impacts take a variety of different forms. Despite the wide variety, these factors are routinely considered by the public sector when evaluating sports franchises. Their impacts serve as reasons for decision makers and voters alike to provide public funds to sports projects. However along with these benefits comes cost. The next section will examine the costs that sports teams cost the public and city in general.
COST OF SPORTS FRANCHISES IN URBAN COMMUNITIES Those opposing sports and its urban development argue that sports at best offer non-pecuniary benefits such as civic pride but fail to make an economic impact. A growing body of evidence has recently indicted that professional sports teams may not be major engines of economic growth as once thought (Coates and Humphreys 1999). Econometric studies of the determination of income and employment in US cities find no evidence of positive economic benefits associated with past sports facility construction (Coates and Humphreys 2003). The majority of these studies use a method called econometric techniques to measure the effect professional sports teams had in terms of changes in the average level of income per capita, average earning of workers in various sectors of a city’s economy, and employment (Coates and Humphreys 2003). Looking at cases of new sports facility construction, numerous academic studies have found no economic impact of professional sports franchises on income and employment. It appears the economic benefit from sports franchises is only concentrated in a small sector of the economy mostly related to jobs dealing with sports (Coates and Humphreys 2003). Industries such as retail, hotel, restaurants, and the overall economy do not see an increase or benefit from sporting facilities being built or teams relocating as one thought. There are a number of explanations explaining why sports teams fail to be economic catalyst. These reasons are not mutually exclusive, meaning they often work together simultaneously to produce the effect that they do. The three key reasons why sports teams do not promote economic development include the substitution effect, extensive leakages; and opportunity cost. Substitution effect revolves around the idea of consumers’ leisure consumption activities. More often then not, consumers have a limited amount of money they can spend on leisure activities. The money spent going to a sporting event is highly substitutable with other forms of entertainment such as going to the movies or going bowling (Coates and Humphreys 2003). Professional sports do not induce consumers to spend more but rather shifts their spending from other leisure activities. The idea that sports franchises create new spending is flawed. Instead of creating new consumption, sports facilities simply rearrange the spending and economic activity in an urban area (Siegfried and Zimbalist 2000). As a result, sports related consumption may increase as a result of a new stadium being built, but with this comes a decrease in other leisure consumption. Many believe that by ignoring the substitution effect the economic value of a sporting facility is vastly overvalued (Coates and Humphreys 2003).
The majority of revenues from professional sports go towards the salaries of players’, coaches, trainers and other personnel. The remaining usually goes to owners. The effect this money has on local economies depends on how much of this money is spent locally and how much leaks out to other areas (Siegfried and Zimbalist 2000). Unlike the wages and salaries paid to employees of local restaurants, movie theaters, and business establishments, the large salaries earned by players and coaches leak out of the local economy (Coates and Humphreys 2003). With average incomes well over a million dollars, players and owners alike face high federal tax rates that drains a large percentage of the money they earn. In addition, because of their high salaries and the relatively short careers, these individuals typically tend to save more and spend less than the typical worker. Most of these savings leak out of the local market and into the world’s money market (Siegfried and Zimbalist 2000). Moreover, players and owners often do not live full time in the places they play. Therefore, a large share of their spending takes place outside of the local community and in different cities and states (Siegfried and Zimbalist 2000). The local economy is not able to reap much of the benefits from having a wealthy class of professional athletes, as a large percentage of their income is spent not in the community. Opportunity costs are the opportunities that city, county, or state governments must forgo in order to build a stadium or subsidize a sports franchise. Often proponents of sports franchises fail to recognize the opportunity costs associated with sports facilities (Chapman 2002). All resources are scarce. The funds to build a stadium or arena have opportunity costs (Siegfried and Zimbalist 2000). If a city decides to fund construction of a new stadium, the city must raise the money by either reducing government services or raising taxes. Spending on construction thereby causes lower spending by the government in other areas or lower disposable household income (Siegfried and Zimbalist 2000). Local officials must ask what is more beneficial or valuable to a community, a new stadium or more money for public projects and lower taxes. In today’s environment must of the money funded to build stadiums is done by the public through taxes. Because of this, government officials must assess rather or not this money could be better spent on other projects. Money dedicated to a new stadium or arena is money that cannot be spent on things such as education, libraries, schools, public safety, new facilities, or new roads. In the long run, this could reduce the earnings in cities (Coates and Humphreys 2003). Ultimately, the cost of building a stadium in the short run may create jobs but it also shifts resources from one part of the economy to another. This shift can eventually harm long term economic growth as schools and other public projects are put on hold in order to fund sports franchises. In addition, many of the jobs created through sport franchises are often jobs that pay below the metropolitan norm (Baade 1994). These jobs are low skilled jobs and also low paying such as ushers, guards, parking lot attendants and concession stand workers. Although these jobs provide work for individuals, they divert resources for high skilled, high wage jobs like police to labor-intensive, low skilled jobs, which is another often unforeseen opportunity cost. Instead of creating new high paying jobs, the community is stuck with jobs that are not very desirable and may hamper long-term economic growth in the economy.
CONCLUSION
All in all the debate over the role of sports franchises in urban communities remains unsettled. Any decision regarding the construction of sports facilities requires a vast understanding of the many issues involved. As discussed throughout this paper, there are a number of cost and benefits to sports franchises. Cities today continue to pour millions of public dollars towards funding and building new stadiums in the hopes of kick starting the local economy. However these cost continue to increase as sports facilities are becoming more and more complex and more expensive. Economists and opponents argue that these projects simply redirect spending from one section of the economy to another and fail to contribute to economic growth. On the other hand, advocates say sports facilities have the unique ability to serve as economic catalyst. They offer both economical and non-economical benefits such as new jobs, community redevelopment opportunities, and increased civic pride that help the local economy. The mixed success of different professional sports franchises throughout the United States as economic catalyst shows how difficult it is to determine whether it is a good or bad idea to invest in sports franchises. In the end, much of the debate of whether or not a sport facility can impact a local economy depends not on the exact numbers but on the situation, location, and context in which a new stadium is being built.
References
1. Coates, Dennis, and Brad R. Humphreys. 2003. "Professional Sports Facilities, Franchises and Urban Economic Development." Public Finance & Management; Sep2003, Vol. 3 Issue 3, P335 3.3 (2003): 335-58. Web.
2. Baade, Robert. 1994. “Stadiums, Professional Sports, and Economic Development: Assessing the Reality.” Heartland Institute Policy Study, April 4. Baade, Robert.
3. Siegfried, John and Andrew Zimbalist. 2000. "The Economics of Sports Facilities and Their Communities." Journal of Economic Perspectives. 14(3): 95-114.
4. Coates, Dennis, and Brad R. Humphreys. 1999. "The Growth Effects of Sport Franchises, Stadia, and Arenas." Journal of Policy Analysis and Management 18.4 (1999): 601-24. Print.
5. Noll, Roger G., and Andrew S. Zimbalist. 1997. Sports, Jobs, and Taxes: The Economic Impact of Sports Teams and Stadiums. Washington D.C.: Brookings Institution, 1997. Print.
6. Chapin, Tim. 2002. “Identifying the Real Costs and Benefits of Sports Facilities.” The Lincoln Institute
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