Stadium Subsidy

A stadium subsidy is a type of government subsidy given to professional sports franchises to help finance the construction or renovation of sports stadiums. Stadium subsidies can come in the form of cash payments, tax abatements, infrastructure improvements, and operating cost subsidies. The government funding to provide stadium subsidies comes from state or local (often municipal) tax revenues.

Background

Eighty years ago, stadium subsidies were essentially unheard of, with funding for professional sports stadiums coming from private sources. Over time this situation changed, and today most new or renovated professional sports stadiums are financed at least partly through stadium subsidies. This change has been caused by the increase in bargaining power of professional sports teams at the expense of their host cities. As the years have passed, municipalities have come to love their local professional sports teams. Citizens feel a special bond with their teams and share in a sense of civic pride when they are successful. The presence of professional sports teams can also bolster the local economy.

At the same time, sports teams have realized their ability to relocate at lower and lower costs. This imbalance in the relationship between cities and their sports teams has often led to threats from the teams to move if they are not given large subsidies from the cities to construct new stadiums. Because local governments feel that keeping their sports teams around is critical to the success of their cities, they comply and grant the stadium subsidies. This process is what has led to the large number of stadiums financed through subsidies that we have today.

Benefits

In granting stadium subsidies, governments claim that the new or improved stadiums will bring positive benefits to the city. The first way this is accomplished is through the creation of jobs. New stadiums usually require more employees than the old facility. Nearby the stadiums, jobs are also created in local shops, restaurants, hotels, and in the transportation industry.

On this note, it is argued that stadiums help create new small businesses in the vicinity of the stadiums, which increases property values and, with that, the tax base of the cities. The increased tax base allows the cities to pay off the stadium subsidies.

Cities also grant stadium subsidies because they believe that new stadiums can be used as a marketing tool. New stadiums can help revitalize downtrodden neighborhoods or city centers, attracting tourism and business investment. These factors lead to economic growth in the city and, because of increased spending on tourism activities like food and lodging, the positive externality of increased aggregate income.

Finally, another positive externality caused by stadium subsidies is the increase in civic pride that can result from bringing a professional sports team into a city. For cities that already have a team, a stadium subsidy can help avoid the drop in civic pride that would result if the team were to leave. It is thought that the presence of a sports team helps bring people in a city together and can also help increase productivity. While it is not the new stadium but the team that drives the civic pride, it is often the prospect of a stadium subsidy that entices the team to either come to a city or, if they are already located in the city, to remain there.

Criticisms

There exist many criticisms regarding the use of stadium subsidies. First, critics argue that new stadiums generate little to no new spending (consumption). Instead, what fans spend in and around the stadium are substitutes for what they would otherwise spend on different entertainment options. Thus, this argument contends, new stadiums do not cause economic growth or lead to increased aggregate income. Because there is not an increase in consumption related to new stadiums, it is not worth it for cities to subsidize their construction.

Another criticism of stadium subsidies is that much of the money the new stadiums bring in does not stay in the local economy. Instead of going to stadium employees and other sources that would benefit the local community, a lot of the money goes toward paying the players. The problem is that most of these players do not live in the local community, so the money they make is taken away and spent in other locations. Critics question why a city should subsidize a sports stadium when large portions of the revenue the stadium receives will not be reinvested in the city. They go on to claim that subsidizing job training or improved transportation are smarter investments to make, as they will yield higher returns for the city.

Critics also argue that the construction of new stadiums could cause citizens and businesses to leave a city because of eminent domain issues. If a city is forced to take land from its citizens to build a new stadium, those who have lost land could become angry enough to leave the city. If they are business owners, then they will likely take their businesses with them. This cost, it is argued, must be added in when a city determines whether or not it is worth it to subsidize a new stadium.

Finally, critics contend that any benefits resulting from a new stadium are felt by the entire region where the stadium is located and not just the immediate city. However, often it is only the city, and not the whole region, providing the subsidy. Thus, the city is not realizing the full benefits of the new stadium while, at the same time, undertaking the full cost of the subsidy.

See also

*Professional sports
*Stadium
*Externality
*Public finance

References

1. http://economics.about.com/cs/baseballeconomics/l/aa021403b.htm

2. http://findarticles.com/p/articles/mi_qa3620/is_200410/ai_n9472619

3. http://www.umich.edu/~econdev/stadium_subsidy/