Why this matters
Stadium negotiations in the U.S. can be filled with half-truths and exaggerated arguments. Here's what anyone debating public financing for a stadium needs to know.
It has been a lucrative spring for sports team owners in the United States, with state and local governments committing billions of dollars to fund stadium construction projects:
- In March, the Buffalo Bills reached an agreement with the state of New York and Erie County representatives for $850 million in public money to construct a new $1.4 billion stadium.
- While replacing the Bills’ Highmark Stadium after a half-century may seem overdue, the Tennessee Titans are planning to replace 23-year-old Nissan Stadium with a new $2.2 billion dome. The state has committed $500 million, and the team is nearing agreement with Nashville officials for another $1 billion.
- Meanwhile, the Washington Commanders are pitting states against each other to replace 25-year-old FedEx field. The Virginia legislature is considering proposals ranging from $350 million to $1 billion, and Maryland is offering $400 million to improve the area around its existing stadium.
- Maryland also authorized $1.2 billion for refurbishing stadiums for Baltimore’s Orioles and Ravens.
Though it might seem strange for the public to prop up for-profit private businesses owned by billionaires, using tax dollars to fund stadiums is a common practice across the county. In my own research, I’ve found that adjusting for inflation, governments have committed nearly $38 billion to construct stadiums for major sports league teams since 1960 – $27 billion of that since 1990. Though the public share of stadium construction costs has declined over time, total public funding has increased as facilities have grown more expensive. Stadiums have evolved from utilitarian concrete-and-steel bleachers into extravagant entertainment palaces featuring retro-themed architecture and luxury amenities such as private suites, club seating, in-stadium restaurants, and boutique concessions.
Today, the historical trend of sports stadium replacement indicates a wave of new construction is imminent. Stadiums tend to have 30-year lifespans, with the U.S. experiencing previous construction waves peaking in 1970 and 2000. Though stadiums are durable structures capable of longer lives, the “novelty effect” of increased attendance and revenue from newer venues incentivizes owners to pursue them. Forty-six major league stadiums opened in the 1990s will turn 30 by 2030, and the six of those facilities that have already been replaced hint at what’s coming next.
The median public contribution of $500 million per sports stadium project suggests that the public cost of replacing the 40 remaining venues may approach $20 billion. Though not all the venues will be retired, renovations often come at a similarly steep price. For example, the Cleveland Guardians are getting a $435 million refurbishment of Progressive Field, which opened in 1994. Two-thirds of the cost will be covered by taxpayers.
Given the dollar amounts potentially at play, it’s fair to ask questions: what kind of return on investment can the public reasonably expect from sports stadium subsidies? And how do those returns compare to the promises made by team owners, supportive politicians, and other stadium advocates when they ask for government handouts?
Previous construction waves have given economists lots of data to study. Here’s a summary of what we’ve learned – all of which can help you make sense of the facts, figures, and competing claims that tend to swirl around proposed projects.
Is There an Overall Economic Case for Stadium Subsidies?
Stadium advocates often argue that stadium funding is a worthwhile public investment because game-related commerce improves local economic well-being by generating jobs, income, and tax revenue. But in reality, stadiums have a poor record of producing such benefits.
Economists Dennis Coates, Brad Humphreys, and I recently conducted a comprehensive review of more than 130 studies of the economic impact of sports teams and stadiums. Though the research methods, time periods, and stadiums examined vary, the findings are remarkably consistent: Teams and stadiums are not associated with having strong economic impacts on local communities. These findings explain why people in my line of work overwhelmingly agree that sports stadiums are poor public investments. In a recent University of Chicago survey of economic experts, 80 percent of respondents agreed that stadium subsidies were likely to cost taxpayers more than what they get in return.
As for the rosy economic projections conjured up to support stadium subsidies? They are doomed by design. Easy-to-observe spending on tickets, concessions, and other related consumption in and around stadiums comes largely from local residents who were already spending their income locally. A family that buys hot dogs, peanuts, and popcorn at the game would have otherwise spent that money at some other local business, perhaps going out to dinner or a movie. Stadiums don’t boost host economies, because stadium-related spending mostly isn’t new spending. It’s the same spending reallocated to a different location.
Do Stadiums Create Jobs?
Net employment effects of stadiums to communities tend not to be positive, and any benefits appear limited to specific sectors. Economists examining employment in cities that host professional sports teams have found that amusement and recreation workers may experience small increases in earnings, but these gains are offset by decreased employment and wages in other sectors. Subsequent studies have similarly found little support for improved employment from sports venues and hosting teams. Economists examining geographic impacts around recently opened stadiums have found some small improvements in jobs and wages, but only for nearby restaurants and bars – and gains were limited to within one mile of venues.
Do Stadiums Spur Local Development?
Whether you’re looking at cross-city comparisons or localized case studies, the results are almost always the same: Areas with sports teams and stadiums are not associated with greater income, growth, or business activity that ripples out to their communities. Businesses that complement sports – like bars and restaurants – have been observed to experience some increased spending. However, the gains are small, tend to be limited to these industries, and are observable within only one to two miles of venues.
Do Stadiums Increase Local Tax Revenues?
Stadium supporters often contend that a stadium will increase spending and property values, filling municipal coffers with added sales and property taxes that more than cover the cost of any subsidies. Unfortunately, I am not aware of any stadium that has produced a positive return on investment to its host municipality.
Cobb County’s $300 million subsidy to build Truist Park to host the Atlanta Braves provides a recent example. Local leaders pitched the ballpark as an economic “Home Run for Cobb,” but five years after its opening, the county runs a $15 million annual deficit to service stadium debt and cover operations. Though the county did experience some spending growth after the stadium opened, the tax revenue generated has fallen well short of covering its stadium obligations. Also, the promised influx of general fund collections from higher property assessments did not materialize; instead, Cobb has had to increase property tax rates to cover its expenses.
Can Special Districts Boost the Economic Return on Stadium Subsidies?
Several recent and proposed stadium developments have incorporated integrated commercial districts to enhance the commercial viability of their surrounding communities. Truist Park’s mixed-use development The Battery north of Atlanta includes entertainment, residential, and commercial space to draw people and spending to more than just Braves games. Similarly, Virginia lawmakers have proposed a “mini-city” development from which property taxes would be used to pay for a new stadium to host the Commanders. Nashville is likewise considering a redevelopment district surrounding a new Titans stadium, from which sales taxes would fund public obligations.
But The Battery has not been the economic game-changer it was touted to be. The reason is familiar: Stadium-district spending is also local spending. Customers patronizing external development vendors are doing so at the expense of other local businesses, which means no net enrichment of the community or its treasury. Even though The Battery is located in the heart of a business district, its commercial fortunes did not improve more than any other Atlanta business district without a new baseball stadium.
Another element that can make these districts a bad deal is that they may commit a share of tax revenues to stadium funding, which creates the illusion that these projects are “paying for themselves.” The reality is that district commerce is transferred from other local businesses, which experience less activity. The diminished spending results in lower general sales and property tax collections to fund existing government services – which municipalities must then make up with tax increases or cuts in service.
Just as economists are fond of saying, “there is no such thing as a free lunch,” a corollary for publicly funded stadiums is this: There is no such thing as a tax-free publicly funded stadium.
What If Visitors Pay for Stadiums?
Another common stadium funding gimmick is to tax tourist-associated commerce, like hotel stays and car rentals, which makes it appear that non-residents instead of local residents are funding the stadium. Of course, this tactic neglects an important lesson from Econ 101: The party that pays a tax does not necessarily bear the tax’s burdens.
Though consumers may see a surcharge on the bill, the burdens may be passed through to local sellers. Visitor taxes raise the effective price of the taxed product, which deters potential customers who are on the fence about visiting the area. Conventions seeking hundreds of rooms may opt for cities with lower hotel room rates to keep expenses down. Hotel owners may respond by lowering room rates to keep beds full, reducing its revenue to compensate for the added tax. Though the tax itself may look like it is being paid by guests, much of it comes from hotel owners, who earn lower income for themselves and the local workers they employ.
Regardless of who bears the tax burden, the connection between sports events and hotel stays is not as simple as assessing a tax and collecting more revenue. Hotels don’t just sit empty when sports events are absent. Sports events displace existing customers who were already paying hotel rental rates and taxes. Visiting spectators do not represent a windfall gain. Moreover, while hotels in close proximity to a venue may benefit from its presence, hotels farther away – which pay the same taxes – may end up with fewer stays and less revenue.
Tourist-based taxes are also not “user fee” taxes, assessed solely on stadium patrons just because some visiting fans may rent cars or hotel rooms. To the contrary, most people who rent cars are not visitors who are in town to see a game, thus most of these taxes are assessed on people renting cars for other reasons, such as local residents experiencing car trouble, hardly a group that seems deserving of more taxes. Game spectators make up a tiny share of hotel guests throughout the year. Remember: Most spectators are locals. Low-income residents who live in extended-stay hotels also end up paying hotel taxes.
But This One Will Be Different!
Instead of relying on existing academic research clearly demonstrating that stadiums are not engines of economic development, stadium boosters often commission private consultants to produce their own studies, which invariably project that the new stadium will be a bounty of riches for the community. For example, the Washington Commanders recently touted the findings of a “study” commissioned by the team that claimed a new stadium in Virginia would generate $25 billion in economic impact. Such findings are at odds with all available evidence on the subject, and while its estimates were widely reported, the study itself was not released to be vetted by experts. The reason for the secrecy is that rather than presenting objective forecasts, commissioned reports are public relations documents cloaked in complicated economics jargon. Stadium advocacy reports have a reputation for committing common mistakes, such as counting all stadium-related activity as net new, overestimating benefits, and undercounting costs.
In general, it is best to be skeptical of commissioned reports that forecast large economic returns, because such benefits should be evident in existing studies. Instead, they are rarely found. For policymakers, journalists, and interested citizens who wish to evaluate such claims, I recommend using a set of researcher-developed questions to rate the credibility of commissioned studies.
The Bottom Line
University of Chicago economist Allen Sanderson once said that "if you want to inject money into the local economy, it would be better to drop it from a helicopter than invest it in a new ballpark." It’s a good line – and one to remember the next time your city, municipality, or state is asked to help pay for a sports stadium.
The reality is that stadiums are not likely to have strong economic impacts – and, as such, are not good candidates for public subsidy. This is especially relevant given the imminent wave of stadium construction expected in the United States. While underwriting a large local project promising to generate jobs and spread wealth throughout the community may seem sensible on its face, the supporting evidence for return on investment is dismal. Politicians and voters alike should keep that in mind. It’s fine (and fun!) to enjoy a game in the stands of a new stadium as a paying customer. But there is no reason to pretend that doing so is making anybody else richer – other than the team’s owner, who likely is already a billionaire.
You can see it from the skyline: Sport is a dominant part of any community where it is played. The economic relationship between professional organizations and these communities has always been fundamental to understanding sport, but as the industry grows, so too does the sway sport holds over cities and states.
How do fans and residents see this relationship? Do these private businesses owe the public more than they are giving? And what is the ideal role sports organizations should play in a community?