The Impact of New Stadiums on Professional Baseball Team Finances

By Depken, Craig A., II | Public Finance and Management, July 1, 2006 | Go to article overview

The Impact of New Stadiums on Professional Baseball Team Finances


Depken, Craig A., II, Public Finance and Management


Abstract

This paper investigates the impact of a new stadium on the finances of professional baseball teams and updates the empirical evidence through the 1990s. The data suggest that new stadiums continue to generate substantial short-term returns to team owners, partially explaining their insistence on public subsidies for new stadiums. Conclusions that the public returns to a new stadium are minimal likely reflect the ability of team owners to negotiate for the majority of the additional revenue generated by a new stadium. The additional profit to a team owner averaged in excess of seven million dollars during each of the first five years of a new baseball stadium.

Introduction

Between 1991 and 2003, U.S. cities spent approximately $2.3 billion fourteen new Major League Baseball stadiums. These venues averaged $241.5 million in current-dollar construction costs and have an average capacity of approximately 46,000 seats; the new venues cost approximately $5,250 per seat.1 On average, host cities paid approximately two-thirds of total construction costs, or approximately $3,500 per seat. As noted by Rosentraub and Swindell (2002), these public dollars represented an increase in the level of subsidies paid to sports teams, in the form of stadium construction, over previous decades.

However, during the same period of time, approximately 40% of public referendums for new stadiums failed, and those that passed were often controversial and closely contested (Fort, 1997). The closely contested public referendums for stadium construction reflect the heated debates and often strongly divided voting public on the issue of financing stadium construction. The debate over publicbuilt stadiums has intensified over the past twenty years, arguably because of the increased amount of public money required for stadium construction and the increased demand for other government services.2

The majority of the new stadiums built in baseball during the 1990s replaced venues that were more than thirty years old.3 Perhaps the building spree of the 1960s was sufficiently depreciated in the 1990s to require replacement. However, unlike the public acceptance of spending public money to repave roads, which offer clear public good benefits, it has yet to be conclusively determined that stadiums provide sufficient public benefits to justify their costs. Debates to replace a stadium most often center on who will ultimately bear the cost of construction, the population of the host city or the team owner (Zimmerman, 1997), and implicitly who receives the benefits of a new stadium.

Most every proposal to publicly fund a new professional sport venue evokes economic studies and other justifications for or against the proposal. While economists have generally concluded that the public benefits of a new stadium do not outweigh the public costs (or that the public returns to new stadiums are significantly less than alternative uses of public money), studies funded by stadium proponents consistently predict dramatic economic benefits from a new stadium.

One reason for the differences between academic and consultant studies is that most academic studies take place after a stadium has been built, while those studies that predict tremendous economic benefits almost universally occur before a stadium is built. The source of the different conclusions should be apparent. Studies published in the peer-reviewed literature are ex post studies that use actual data, however imperfectly measured, whereas ex ante studies utilize imagined or estimated impacts, which however motivated are much more susceptible to mistake or manipulation.

The majority of studies about the impacts of new stadiums focus on quasi-public benefits, i.e., those that accrue to the host-city's population and businesses, including economic development, increased tourism, reduced unemployment, increased wages, increased property value and tax revenues, and quality of life measures such as civic pride. …

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