Professional sports and the arenas that house them are an integral part of American culture, with stadiums dating back more than a hundred years. But they don’t build stadiums like they used to. Gone are the Colosseum-like edifices that could last for centuries. Modern professional sports facilities have an average life cycle of just a few decades.
It’s been almost 30 years since the last wave of stadium construction, when 16 new stadiums opened between 1995 and 2003—and that was just in the NFL. Baseball, hockey and basketball teams also built new facilities during that time. Most of them tapped into public funds to support construction and ongoing maintenance. Now, policymakers are facing a new round of facility-funding proposals as stadiums and arenas reach the end of their lifespan.
Teams seek new facilities for several reasons, including the desire for new technology, more amenities, greater seating capacity and, most important, the ability to raise new revenues. As a result of some sweetheart revenue sharing agreements that skewed heavily in favor of team owners over the past 25 years, public sentiment has shifted, with many disillusioned by what is perceived as team greed. This is causing many policymakers to think twice about public funding deals that give away most of the revenue. Team owners seeking to build or renew stadiums often threaten to leave their home city unless local and/or state governments contribute financially. In most instances—but not always—cities give in and contribute hundreds of millions in public money toward the construction of new facilities. When they don’t, they risk losing their teams.
In 2019, the NFL’s Oakland Raiders moved to Las Vegas after the team failed to secure funding for a new stadium from the state of California and Nevada lawmakers put up $750 million. Now, baseball’s Oakland Athletics plan to abandon Oakland after 55 years and relocate to Las Vegas in 2024 after Nevada agreed to help fund a new ballpark.
For the past several decades, cities and states have subsidized the construction of new sports facilities. However, consensus among economists and other experts is that sports stadiums do not offer a positive return on investment.
How Do Stadiums Generate Revenue for Teams?
Stadiums generate revenue through the sale of parking, food and beverages, merchandise and advertising. More recently, team owners have learned that they can generate revenue through the sale of naming rights and personal seat licenses. Corporations spend millions of dollars yearly to have the privilege of naming a stadium. In Atlanta, Mercedez-Benz agreed to pay $324 million over 27 years for naming rights to the stadium built in 2017.
Personal seat licenses allow fans to buy season tickets or specialty seating, like club seats. Luxury seating typically includes skyboxes. Skyboxes are usually purchased by corporations at premium prices and another level of more expensive seating known as club seats. These seats offer ticket holders better view, preferred parking and higher quality food and beverage service including waitstaff. After television rights, luxury seating is the second most important source of revenue for teams.
Why Do Cities and States Subsidize Stadiums and Arenas?
Team owners and those in favor of public subsidies argue that new sports facilities are an opportunity for economic development. They claim that the construction phase creates job opportunities from the moment the building is approved to the moment it’s operating. Once the stadium is operational, advocates assert that tourists and business travelers are more likely to visit the host city and spend money which in turn creates more jobs and generates revenue. Advocates also argue that ticket sales and food and merchandise sales outside stadiums contribute to the local economy.
Moreover, advocates claim the presence of a sports team brings intangible benefits to the community. Residents may perceive an increased worth and value of their community simply by being a city with a major sports league. People also bond when they follow the team and watch games together on television. All in all, they argue, the presence of a sports team can be seen as a public good that justifies public funding.
For lawmakers, the risk of losing a sports team to another city while they’re in office may also influence their decision to provide funding for a new stadium. A team moving to another city would create animosity among fans and could result in less public support from constituents.
What Does the Data Say?
Much of the research indicates that the economic impact stadiums have on cities is negligible. There’s no denying that the construction of a new stadium creates employment opportunities such as construction jobs and seasonal employment opportunities within the stadium. Construction jobs become available when a stadium is built and if the surrounding area develops well. However, the quality of the jobs, such as those of stadium workers, are questionable. Game-day personnel positions are low wage, temporary and part-time. Furthermore, critics raise questions such as whether investments in another business would contribute as much, if not more, economically.
In addition, consumer spending may increase in areas near the stadium, but it is not necessarily new spending. The majority of people who attend games are local residents who would still have spent money in the host city. Contrary to the claims of sport stadium advocates, the economic contribution from visitors is not always significant if the team doesn’t draw many fans from outside the region. Research shows that out-of-state fans make up between 5% to 20% of attendees. Evidence also suggests that those out-of-state fans do not usually travel for the sport event. Instead, they are in the area for other reasons and would have spent money elsewhere in the city had there not been a sporting event.