Team Player

2/1/2015

STATE LEGISLATURES MAGAZINE | February 2015

These 10 tips can help boost the success rate of sports stadiums built with taxpayers money.

By Louis Jacobson

The question of whether it’s smart to use taxpayer funds to build a sports stadium has been argued endlessly in states across the country—for at least four decades, in fact. Generally, most economists, public officials and other experts are skeptical about the economic value of building taxpayer-subsidized stadiums, but there are times when it can make sense.

The Sports Draw

Stadiums have a unique pull because Americans are passionate about their sports teams. Even losing teams can draw large numbers of visitors, far more than other attractions like museums or musical performances.

Because of this, sport franchises can exert a lot of leverage—and they can convince other groups to do so as well, ranging from businesses and construction companies to labor unions and advocates of “smart growth,” who often like the idea of mass-transit oriented, high-density projects anchored by a sports facility. Then there are the fans. They brag about the civic pride and higher quality of life that a sports team brings home.

Most economists, however, have concluded that if you want to spur economic development, building a sports stadium isn’t a good bet. Being skeptical without being closed-minded is the right approach, says Andrew Zimbalist, a Smith College economist. “There certainly have been more cases than not where it hasn’t worked out economically,” he says. “But it doesn’t mean that it can’t.”

 “To the degree that residents’ self-image is caught up in a team or they enjoy having a hometown team, a stadium is a fine thing to build,” he says. But the city “shouldn’t think of the stadium as an investment in civic infrastructure. It will not make a city rich.”

For lawmakers considering funding requests for new stadiums, there is widespread agreement—based on interviews with 27 economists, former public officials and other experts—on some specific steps to take to tilt the economic equation more favorably toward taxpayers.

1. Ensure the project will attract out-of-towners.

One of the fundamental tasks of any economic development project is to attract money from outside the jurisdiction where it’s built, and whose taxpayers are paying for a portion of it. If this goal isn’t achieved, studies show, new projects will simply divert existing entertainment money from restaurants, movie theaters and the like to the stadium, rather than increasing overall economic activity.

“Visitors from out of town bring in dollars that otherwise would not be there,” says Michael Pakko, an economist and economic forecaster at the University of Arkansas at Little Rock. This can be a reason to advance projects close to state borders.

 This still doesn’t guarantee the project will bring value to the broader metropolitan area in question, however, says Brad Humphreys, an economist at West Virginia University who has testified about recent stadium proposals in the Washington, D.C., area. For instance, if D.C. builds a stadium, “businesses in suburban Maryland and Virginia lose out,” he says. On the broad metropolitan level, “it’s a zero-sum game,” he says. “I have trouble believing that’s a reasonable economic justification.”

2. Build a facility that can host events year-round.

An idle stadium generates no revenue. To make it economically viable, it must host events as close to year-round as possible. Based purely on numbers, the average baseball stadium, for example, will likely be a better economic bet than the average football stadium.

“Normally only six to eight games will be played per year in a football stadium,” says Ernie P. Goss, an economist with Creighton University. “Most of the attendees will be from within the state, and the event is for one day only. This produces very limited economic benefits, with significant taxpayer costs.”

Better still than baseball or football stadiums are arenas that host both a pro basketball team and a pro hockey team, since together they host about 80 games a year. This can easily be supplemented by concerts and other special events.

Interestingly, some of the projects with the best economic track records are the least sexy: minor-league baseball stadiums, because they can offer frequent use along with lower construction and operating costs. The biggest risk with these baseball parks is that a minor league team may move before a stadium’s construction outlay is paid off, says Stephen S. Fuller, director of the Center for Regional Analysis at George Mason University.

3. Build a stadium that fits the local area.

Don’t plan a new stadium in isolation. Focus on its potential to rehabilitate an entire neighborhood or at least prevent its deterioration. Several stadiums built in the past decade or two have done just that: Coors Field in Denver, Petco Park in San Diego, Camden Yards in Baltimore and Safeco Field in Seattle.

This type of success requires careful planning at all stages.

“The best advice I can give is to make the facility part of an overall plan and not to start with the facility and try to draw up a plan around it,” says Michael Leeds, a Temple University economist. “Too many cities start the process backwards.”

Stadium construction often benefits neighborhood property owners by increasing property values, says Humphreys of West Virginia University. He warns, however, that gentrification can cut both ways. “If you’re a renter, you’ll probably be worse off” after a stadium is built and property values go up, “because rents will go up” as well, he says.

4. Choose the neighborhood carefully.

By itself, a stadium can’t hold back severely troubling economic tides. It’s far easier for communities that are already reasonably healthy to afford the required infrastructure investments, says John E. Gnuschke, director of the Bureau of Business and Economic Research at the University of Memphis. Neighborhoods with unworkable locations can torpedo a stadium project’s viability.

Where geography is concerned, “downtown stadiums are almost always winners, even when home to terrible teams,” says Arthur C. Nelson, director of the Metropolitan Research Center at the University of Utah. “The farther away from downtown you get, the greater the likelihood of local economic failure, even if the team does well,” he says.

“Thankfully, places such as the Pontiac Silverdome in suburban Detroit have been replaced with downtown stadiums. Even in Detroit, they are doing well despite a lackluster regional economy,” says Nelson.

5. Locate projects near mass transit.

Building a facility that will encourage event-goers to use close-by mass transit will maximize the positive impact for the surrounding neighborhood. With a sure ride home, sports fans will more likely stick around the area after the game.

“Surround a stadium or arena with a moat of parking lots and you will never get neighborhood development,” says College of the Holy Cross economist Victor Matheson. “Make people walk half a mile across acres of parking lots to get to the nearest bar and they will just get into their cars instead,” he says.                         “Get people to arrive by mass transit and you can locate after-game activities much closer to the departing crowds.”

6. Be wary of one-sided economic projections.

Supporters of stadium projects—including teams, business groups and government officials—often hire consultants to produce reports that estimate a project’s long-term economic impact. These typically include estimates of the direct impact of the stadium (jobs in construction and stadium operations), as well as the induced impact (money spent by visitors at the stadium or in the vicinity) and the indirect impact (money spent by stadium employees and local businesspeople as a result of new business drummed up by the stadium).

Typically, these reports offer projections that are hard to prove and easy to skew toward the rosiest of outlooks. This, combined with the propensity for stadium projects to experience cost overruns, suggests that it’s always worth taking consultants’ projections with a big grain of salt.

As the saying goes, cautions Allen Sanderson, a University of Chicago economist, “Never ask a barber if you need a haircut.”

7. Insist on keeping the parking revenues.

Tom Murphy—the former Pittsburgh mayor who oversaw the simultaneous construction of new stadiums for the Pirates and the Steelers, at the same time as a new convention center—urges other policymakers to follow his city’s lead on parking policy.

Pittsburgh diverted parking revenues from the teams to fund new parking garages, which are more compact than surface lots. This also frees up the highly attractive land near stadiums for residential and commercial development.

 “You cannot let teams keep the parking revenue from the lots around the stadium,” says Murphy, who is now with the Urban Land Institute. When teams are allowed to keep it, “surface lots become the highest and best use of the land.”

8. Drive a hard bargain.

The key to a successful project “is keeping the public’s share of the cost to a minimum,” says University of South Florida economist Philip Porter. That requires hard bargaining and refusing to approve a deal until the team has some significant skin in the game.

Most state and local governments simply “roll over and give the team what it wants without a fight,” he says.

And avoid getting sucked into bidding wars at all costs, warns Pakko of the University of Arkansas-Little Rock. They rarely produce any winners. “Sports franchises have monopoly power,” he says. “There are a limited number of teams, so cities are asked to bid against one another, whether or not having a local team is economically viable.”

9. Resist long-term commitments.

One thing that governments often agree to, but which hurts them in the long term, is signing contracts that require the community to maintain the stadium to a certain standard indefinitely, Porter says. Although proper maintenance can increase a stadium’s useful life to 50 years, not many stadiums will be considered adequate for that long.

“Some stadiums fail simply because they are surpassed by stadiums in other communities,” he adds. “This creates a rat race that communities cannot win, and leads communities to junk perfectly good stadiums for new ones.”

10. Keep expectations in line.

A stadium is not a panacea, and officials should not tout them as such. “The most common flaw is holding on to massive, unrealistic expectations,” says Matheson of Holy Cross.

In fact, it’s more justifiable to pitch stadiums as amenities rather than as engines of economic growth, says Roger Noll, emeritus professor of economics at Stanford University. “Cities should view stadiums not as an investment to improve local business conditions, but as a form of public consumption, like public art installations,” he says.

“I don’t oppose public spending on sports any more than I oppose it on art museums, opera or orchestras. My complaint is that supporters of subsidized stadiums claim that the stadium will yield economic returns to the city and its citizens, separate from the presence of the team. Four decades of research proves otherwise.”                                     

What to Ask

Don Coursey, an economist at the University of Chicago, has compiled a list of questions for journalists who are covering economic development projects. These questions can be just as helpful to elected officials asked to fund any number of projects, but they are particularly useful for evaluating stadium proposals. Coursey suggests any serious analysis of the economic viability of future projects should include consideration of the following questions.

  • Why does this project require public funds?
  • Why can’t it be completed using private funds?
  • Who will construct the project? Who will operate the project? Will these groups of professionals, laborers and managers come from the local population? Will the majority of their earnings stay within the local economy?
  • What assumptions are you making about the spectrum of users of your project?
  • How much revenue will be new injections into the economy, as opposed to simple, zero-sum movements of money within the economy?
  • How much of a primary draw will your project generate? If the project is just one of the many things that people might use or visit within a region, how are you accounting for this in your measurement of visitor revenue for your project?
  • How much economic activity will the project promote indirectly? Who computed the “multiplier”—the amount of additional projected economic activity from every dollar spent directly on the project in question?
  • Why is your project the best use of public funds? How does the impact of your study compare to alternative uses of the same funds?
  • How do you expect the economy to be affected if the project is not funded and built?
  • How will you address whether the project has met the community’s and your goals? Have funds been set aside to support a subsequent analysis of its actual impact?

Louis Jacobson is deputy editor of PolitiFact and a columnist on state politics for Governing magazine.

 

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