Wednesday, July 05, 2000

Stadiums could hurt incomes

Study weighs effect of sports subsidies

By John Hanchette
Gannett News Service

        WASHINGTON — Arguments have raged for years over how much new taxpayer-financed sports stadiums help or hurt local economies. Now, a study concludes that they might actually lower per-capita incomes in their areas of location.

        “Our research suggests that professional sports may be a drain on local economies rather than an engine of economic growth,” University of Maryland-Baltimore economics professors Dennis Coates and Brad Humphreys wrote after examining all 37 cities in the United States that had one or more professional football, baseball or basketball franchises at some point from 1969 to 1996.

        In a study just published in Regulation, a journal of the Cato Institute think tank here, the professors write that contrary to invariably rosy team studies, “subsidies of sports facilities may actually reduce the incomes of the alleged beneficiaries” — taxpaying citizens.

        Mr. Coates and Mr. Humphreys continue:

        “Despite the beliefs of local officials and their hired consultants about the eco nomic benefits of publicly subsidized stadium construction, the consensus of academic economists has been that such policies do not raise incomes.”

        In recent years, franchise owners in several cities have used the threat of moving to another city to goad state and local politicians into providing posh new stadiums or arenas at little cost. The same strategy sometimes produces a new stadium in a new town.

        Hamilton County taxpayers in 1996 approved a half-cent sales tax to pay for new football and baseball stadiums. The Bengals' new Paul Brown Stadium is set to open this fall. The Reds' new ballpark is to open in 2003.

        “There are strong reasons to doubt the accuracy of the estimated benefits claimed by economic impact studies,” they write. “The results of these studies invariably reflect the desires of those who commission them.”

        Most of these economic impact studies fail to consider two things, the Maryland professors write:

        • The effect of taxes to build the stadiums.

        • Failure to consider substantial spending declines as fans devote money to the new team or new stadium that they would have spent elsewhere.

        “If the stadium simply displaces dollar-for-dollar spending that would have occurred otherwise, then there are no net benefits generated,” the authors say. “To consider the spending on stadium-sports-related activities as all benefits is ... to widely overstate the value of the investment.”

        Much of the real economic benefit, their study shows, is in “a very narrowly defined communi ty” surrounding the stadium as fans patronize nearby restaurants, bars and hotels.

        The tax question is even bigger. Optimistic impact studies typically fail to address alternative uses of the public money for new arenas, the authors say — “such as maintaining local infrastructure, increasing the quality of public health, safety and education, and attracting new businesses.” That loss of public capital for other income-boosting activity “could diminish the ability of the local economy” to expand, they write.

        Even when teams have a posi tive economic impact, they write, it is often “offset by another element that carries a negative impact.”

        For instance, when a new NBA team arrives in a city — considered alone — the real per capita income goes up by about $67 on average across the league. But when a new arena for that basketball team is built with public money, it reduces real per capita income by an average $73 in each of the 10 years following construction — a net loss of about $6 a taxpayer.

        The study's authors acknowledge that there is little way to measure civic pride in sports franchises in this American culture, nor to measure the compensating effect major league teams have on metropolitan economies through “nonpecuniary” benefits.

        For instance, “recent college graduates might be willing to take a lower paying job in a city with a professional sports franchise” instead of a higher paying job in a town that has none. No one has yet figured a way to economically measure the sports fan's pure pleasure of working in a city with a major league team — especially if it's winning.


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