The (Broken) Economics of Professional Sports Stadiums

The wide world of sports has had a bad week for public relations. First, the Miami Dolphins hazing fiasco occurred, which was analyzed by my colleague Cliff Leak in “Man up: NFL Hazing and Jonathan Martin’s ‘Man Card’.” Next, the Atlanta Braves announced they would be vacating Turner Field, their stadium of 17 years, to move into a new stadium in 2017. The Braves are leaving downtown Atlanta to move North to the suburbs in Cobb County. The Atlanta Braves move is particularly surprising because they are leaving a relatively new stadium and they are taking baseball to the suburbs, making it difficult for the lower class to enjoy a game. But the real issue with the Braves’ move is associated with their reason to move. The Atlanta Braves organization is moving because the city of Atlanta will not provide taxpayer money to upgrade the current stadium. The Atlanta Braves are the latest team, owned by millionaires or billionaires, to threaten to move or actually move if the taxpayer does not provide them with a new home.

The Atlanta Braves’ move to Cobb County is predicated on the supposed need to receive public funding in order to improve Turner Field before they agree to sign a new lease. The city of Atlanta, like most cities, is having a difficult time closing budget deficits and cannot afford to give public funds for stadiums. Of course, the city of Atlanta may be in a better financial state if they did not agree to pay $200 million towards a new stadium for the Atlanta Falcons. The inability of the city of Atlanta to provide public assistance to building the stadium opened an opportunity for Cobb County to offer $450 million in public funding to build a $672 million dollar stadium 10 miles north of Atlanta. The Atlanta Braves are only the latest team to demand public funding for private profit. In the past 20 years, over 100 sports stadiums have opened in the United States replacing almost 90 percent of professional sports stadiums in that time. The vast majority of these stadiums received public funding.

The Atlanta Braves are far from the only team currently fighting with their local government to secure public funding for a new stadium or significant upgrades to their current stadium. The St. Louis Rams recently rejected a $200 million from the city to upgrade the Edward Jones Dome, instead requesting over $700 million. The San Diego Chargers want a new billion dollar stadium but are only willing to pay $100 million of the price tag. Cincinnati recently spent over $800 million in taxpayer money to build a new two new professional sports stadiums. In each of these cities, the local governments are slashing the budgets of police, schools, and firing city employees. Meanwhile, professional sports owners are demanding public funds to improve stadiums so the owners can make more profit. The owners justify their demands by saying the new stadium will create jobs and grow the local economy. If the city does not help pay for the new stadium, the owners threaten to leave the city taking away a beloved sports franchise and the associated jobs.

The notion that publicly funded stadiums creates job and generate income for the local economy has long been disputed by economists. Researchers indicate that the jobs created by new stadiums are temporary construction jobs filled by out-of-state contractors or low-paying service-oriented (janitor, food sales) jobs working at the stadium. The real issue with building new stadiums is that the cost tends to rise quickly and cities end up paying more than they originally planned. Judith Grant Long (2012), in a study on the cost of professional sports stadiums, found that the average public cost for a new stadium jumped from $142 million in 1990 to $241 million in the 2000s, an increase of 70 percent. Long found that cities have drastically underestimated the true costs of the projects. The local governments fail to consider the loss in revenue from public subsidizing land and infrastructure, the continuing costs of operation, loss of property taxes, and increased demand for municipal services around stadiums (traffic cops). Long suggests that if these factors were included in the cost projects, the overall cost would increase 25 percent.

The use of public funds for private gain is not new in the United States. In some situations the subsidies are paid back, and in other situations the economy is boosted. The research suggests that public funds used for the creation of new stadiums are rarely repaid (see Long, 2012). The overwhelming tendency to exploit public funds for the benefit of private gain amounts to white collar crime. White collar crime generally refers to the violation of trust between two entities for private gain (Potter, 2001). Sports owners who demand public funds for private gain fit this definition. First, sports owners know new stadiums do not increase local economies, thus violating the public trust. Second, the owners consistently underestimate the true cost of the stadium and force the public to cover the difference. As a result, the sports owners carry little liability and receive all of the profit, exploiting the public’s irrational love of sports in order to do it. The challenge for governments is to stop providing tax breaks, subsidies, and tax-payer funds for sports teams that receive all of the profit. Until the sport franchises are willing to share the rewards, they need to pay all the costs. After all, would the city of Atlanta benefit more from a $450 million stadium or putting $450 million into education?

References

Potter, G.W. (2001). Controversies in white-collar crime. Cincinnati: Anderson Publishing.

Long, J.G. (2012). Public/private partnerships for Major League sports facilities. New York: Routledge.