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Pro sports stadiums don't bolster local economies, scholars say

Melissa Mitchell, News Editor
217-333-5491; melissa@illinois.edu

11/17/2004

Brad Humphreys in the foreground and an orange and blue Illinois painted volleyball court floor in the background
Click photo to enlarge
Photo by Kwame Ross
Sports economist Brad Humphreys, a UI professor of recreation, sport and tourism, and a colleague from the University of Maryland, were commissioned by the Cato Institute to study the economic impact of a deal proposed by the mayor of Washington, D.C.; under terms of the agreement, the Major Baseball League would move the Montreal Expos to the nation’s capital in exchange for a new, city-built ballpark.

CHAMPAIGN, Ill. — If you build it, they will come … with wallets bulging, eager to exchange greenbacks for peanuts, popcorn, hot dogs and beer, and T-shirts and ball caps with team logos.

At least that’s the theory embraced – time and time again – by mayors and city council members hoping to lure professional sports teams to their cities by promising to build new arenas for the teams. But one guy who’s not buying it is sports economist Brad Humphreys, a professor of recreation, sport and tourism at the University of Illinois at Urbana-Champaign.

That’s because Humphreys and colleague Dennis Coates, a professor of economics at the University of Maryland, Baltimore County, haven’t uncovered a single instance in which the presence of a professional sports team has been linked to a boost in the local economy.

“Our conclusion, and that of nearly all academic economists studying this issue, is that professional sports generally have little, if any, positive effect on a city’s economy,” Humphreys and Coates wrote in a report issued last month by the Cato Institute in Washington, D.C. The institute commissioned the professors to study the economic impact of a deal proposed by Anthony Williams, the mayor of Washington, D.C.; under terms of the agreement, the Major Baseball League would move the Montreal Expos to the nation’s capital in exchange for a new, city-built ballpark.

The professors based their report on new data as well as previously published research in which they analyzed economic indicators from 37 major metropolitan areas with major-league baseball, football and basketball teams.

“The net economic impact of professional sports in Washington, D.C., and the 36 other cities that hosted professional sports teams over nearly 30 years, was a reduction in real per capita income over the entire metropolitan area,” Humphreys and Coates noted in the report.

The researchers found other patterns consistent with the presence of pro sports teams. Among them:

• a statistically significant negative impact on the retail and services sectors of the local economy, including an average net loss of 1,924 jobs;

• an increase in wages in the hotels and other lodgings sector (about $10 per worker year), but a reduction in wages in bars and restaurants (about $162 per worker per year).
Those employed in the amusements and recreation sector appeared, at first glance, to benefit significantly from the presence of a pro team, with an average annual salary increase of $490 per worker, Humphreys said. However, he added, “this sector includes the professional athletes whose annual salaries certainly raise the average salary in this sector by an enormous amount.

As it turns out, those workers most closely connected with the sports environment who were not professional athletes saw little improvement in their earnings as a result of the local professional sports environment.”

Humphreys, who plans to present data from the report at a Nov. 29 hearing in Washington, D.C., said it is fairly common for city officials – blinded by bright visions of dollar signs – to pose as cheerleaders for projects aimed at attracting pro teams.

Arena-funding measures vary from initiative to initiative, with taxpayers typically covering most of the tab – even though critics of such plans maintain that team owners could easily foot the bill themselves. In the Expos case, Humphreys said, the mayor of Washington, D.C., has promoted his plan by stating that the ballpark would be funded entirely by team owners, ballpark users and the district’s largest businesses, and not by residents’ tax dollars.

Humphreys called the proposal a “novel approach,” but discounted it as disingenuous. “To say taxpayers won’t pay for the construction is really a sin of omission,” he said.

“First, the team’s share of financing the stadium is a 30-year lease committing the team to an initial rent of $3.5 million each year, increasing to $5 million by the fifth year, and then increasing by 2 percent minus $10,000 per year thereafter,” Humphreys and Coates note in their report. But, in real terms, with inflation averaging a projected 3 percent over 30 years, taxpayers will in reality be handing the team what the researchers call a “de facto rent subsidy” in just five years.

“Second,” they state, “taxes will be collected on ticket sales, concessions, parking, and merchandise sold within the stadium.
It is likely that the District of Columbia residents who purchase food, beverages, and clothing while attending games would have chosen to eat and purchase clothes in the district – and pay taxes on those purchases – in the absence of the stadium and franchise. In other words, revenues generated inside the stadium may not be new revenues, even if they are dedicated specifically to paying for the new stadium.

Humphreys and Coates also take exception to the idea that corporate “ballpark fees” would shield residents from the costs involved. “Whether it is a surcharge or an increase in the corporate income tax rate, this so-called fee is a tax increase, pure and simple. Corporations do not pay taxes, people do.

Whether it is in the form of lower wages for workers, lower asset values for corporate owners, or higher prices for consumers of the goods and services those companies provide, this tax increase will touch D.C. residents in some way.”

Funding structures aside, Humphreys said government officials lobbying for stadium deals often base perceived economic benefits on flawed impact studies. In the D.C. case, the researchers report that the Office of the Deputy Mayor for Planning and Economic Development claimed the team and ballpark would create 30 jobs earning an annual total of $94 million – or a whopping $261,111 per job.

“The wonder is that anyone finds such figures credible,” Humphreys said. “Yet decade after decade, cities throughout the country have struggled to attract or keep professional sports teams, and the idea that a team brings with it large economic gains invariably arises. As it turns out, claims of large tangible economic benefits do not withstand scrutiny.”

That’s because such impact studies often are based on skewed data. For instance, when citing multipliers – the ripple effect that each dollar spent on professional supports is projected to have on the community’s wider economy – impact studies often overstate such contributions and fail to differentiate between net and gross spending. And, Humphreys added, such studies typically don’t consider what economists call the “substitution effect.”

“As sport- and stadium-related activities increase, other spending declines because people substitute spending on sports for other spending,” Humphreys said. “If the stadium simply displaces dollar-for-dollar spending that would have occurred otherwise, there are no net benefits generated.”

In the end, Humphreys said, while a professional sports team may not be the golden goose that city leaders in the nation’s capital and elsewhere may hope for, there are some benefits to having a home team.

“A baseball team in D.C. might produce intangible benefits,” Humphreys said. “Rooting for the team might provide satisfaction to many local baseball fans.”

However, he added, “that is hardly a reason for the city government to subsidize the team. D.C. policymakers should not be mesmerized by faulty impact studies that claim that a baseball team and a new stadium can be an engine of economic growth.”