Academic journal article Economic Review - Federal Reserve Bank of Kansas City

What Are the Benefits of Hosting a Major League Sports Franchise?

Academic journal article Economic Review - Federal Reserve Bank of Kansas City

What Are the Benefits of Hosting a Major League Sports Franchise?

Article excerpt

Over the last few decades the number of U.S. metropolitan areas large enough to host a franchise from one of the four major professional sports leagues has soared. Even as the National Football League, Major League Baseball, the National Basketball Association, and the National Hockey League have expanded to include more franchises, demand by metro areas continues to exceed supply. As a result, metro areas have been forced to compete with each other to retain and attract franchises.

Large public expenditures on the construction of new sports facilities have been the main form of this competition. Sports stadiums and arenas are extremely expensive. A new football or baseball stadium costs approximately $325 million; a new basketball or hockey arena costs approximately $200 million. The public's share of these costs has averaged $200 million and $100 million, respectively. During the 1990s more than $6 billion in public funds was spent on construction of sports stadiums and arenas. Almost $4 billion has already been allocated toward new facilities scheduled to open by the end of 2004.

The large public spending on sports facilities has been controversial. Usually these costly projects are justified by claims that hosting a sports franchise spurs local economic development by creating numerous new jobs and boosting local tax revenue. However, independent economic studies suggest that taxpayers may not be getting such a good deal. In seeking to quantify the job creation and tax revenue benefits produced by a sports franchise, these studies overwhelmingly find that the benefits are much smaller than the outlay of public funds.

Does this mean that public funding of sports franchises is not justified? Perhaps not. An important element missing in the debate is the impact of a sports franchise on a metro area's quality of life. While difficult to measure, the contribution of a sports franchise to quality of life may exceed more traditional job creation and tax revenue benefits. If so, when quality-of-life benefits are included in the calculation, public spending may not appear to be such a bad investment for some metro areas.

The first section of this article reviews the current rush by metro areas to build sports facilities and lays out the arguments both in favor of and against using public funds to do so. The second section shows why the job creation and tax revenue benefits from hosting a major league franchise fall far short of typical public outlays on constructing a new sports facility. The third section argues that the large quality-of-life benefits associated with hosting a major league team may justify the public outlays.

1. THE DEBATE ON PUBLIC FINANCING FOR SPORTS STADIUMS

More than half the U.S. population lives in one of the 38 metro areas that host one or more teams from the four major professional sports leagues. And millions more live in rapidly growing metro areas with populations large enough to make them a potentially attractive place to locate a team. With demand for hosting major league teams exceeding supply, both current and potential host metro areas have been forced to compete to retain and attract franchises. Doing so almost always requires allocating large public expenditures to the construction of sports stadiums and arenas.

This section documents the scope and magnitude of public spending on professional sports franchises. It then summarizes the claims made to justify such spending as well as the critique of these claims by independent economists.

The scope and magnitude of public financing for sports stadiums The National Football League (NFL), Major League Baseball (MLB), the National Basketball Association (NBA), and the National Hockey League (NHL) are the four most widely followed professional sports leagues in the United States. Of the 121 teams in these four leagues, 111 play in 92 stadiums and arenas in 38 U.S. metro areas (Appendix 1). The remaining ten teams play in eight stadiums in six different Canadian metro areas. …

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