Guest Editor's Introduction: Sports and Public Finance

By Humphreys, Brad R. | Public Finance and Management, July 1, 2006 | Go to article overview

Guest Editor's Introduction: Sports and Public Finance


Humphreys, Brad R., Public Finance and Management


Abstract

The last 30 years have seen extraordinary changes in sports facility construction and financing. The five papers in this special issue examine the current state of sports facility financing and economics from the cutting edge of research. The papers in this special issue examine the financing and economics of sports facilities from a variety of perspective, including tangible and intangible economic benefits, new financing models, and an assessment of the profitability of new stadiums.

Introduction

A great deal of change has occurred in the construction and financing of professional sports venues over the past thirty years in the United States. According to figures in Crompton, Howard and Var (2003), over the period 1970-1984 government subsidies accounted for, on average, 93% of the cost of a new sports facility, the average arena cost $87 million, and the average baseball stadium cost $225 million in real 1996 dollars. The period 1995 to the present featured three important changes:

1. An increase in the cost of new stadium construction. Over the period 1996-2003 the average arena cost $222 million and the average baseball stadium cost $338 million

2. An increase in the fraction of the construction costs borne by the tenants of sports facilities. In contrast to 1970-1984, professional sports teams provided just under 50% of the financing for new sports facility construction. Teams began to pick up a much larger share of the tab.

3. An explosion in construction of new sports facilities. Over 50% of the existing inventory of professional sports facilities in the United States was built after 1994.

Interestingly, despite the decline in the fraction of the public subsidy involved in building new stadiums and arenas, the size of the public subsidy, in terms of total public dollars spent, remained relatively constant since 1970. These radical and extensive changes have produced a number of interesting developments in both the public policy debate on the appropriateness of stadium subsidies and the academic research on the economics and finance of sports facilities.

In this special issue of Public Finance and Management, a group of sports economists examine the changes in stadium financing and the economics of sports facilities from a variety of perspectives. Taken together, these papers provide interesting insight into why these changes took place, and how these changes affected the sports landscape.

The rate of public subsidization is not the only part of the financing mix that has changed since 1995. The method of generating public funds for stadium subsidies has also changed significantly. Robert Baade and Victor Matheson (2006), in "Have Public Financing Principles Been Shut Out in Financing New Stadiums from the NFL," take a critical look at the current financing practices in the National Football League (NFL). Like the other major North American professional sports leagues, the NFL experienced a boom in stadium construction in the period since 1995. Baade and Matheson show that much of the pubic funding used to build these facilities was generated by "visitor taxes" on hotel rooms, rental cars, and other common purchases made by out of town visitors. Ultimately, Baade and Matheson conclude that these financing methods do not pass the commonly applied equity and efficiency tests developed in public finance.

Although taxpayers refused to increase the level of subsidies provided for sports facility construction after 1995, the continuous increase in stadium construction costs has produced tension between the proponents of stadium subsidies - primarily sports team owners and local politicians - and the opponents of these subsidies. Much of the debate in this area focuses on the estimates of the direct economic benefits generated by new sports facilities, as the presence of direct economic benefits would provide a clear justification for subsidies. …

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