There are stadiums for professional sports teams all around the country, and it used to be that team owners paid to build them. In the latter half of the 20th century, taxpayers started paying for stadiums. On this week’s Overton Window podcast, we talk with University of Michigan-Flint economics professor and Mackinac Center Board of Scholars member Chris Douglas about how this changed over time, and what to do about it in the future.
Douglas says sports teams learned the value of an ultimatum. “Teams figured out that they could threaten to move to another city if they don’t get their existing city to build them a brand-new stadium,” he says.
The Baltimore Colts moved to Indianapolis in 1984 without much warning to Baltimore residents. “Once teams start moving around, policymakers in the host cities feel like they have to keep teams at home, and if it takes building a brand new stadium to do that, that’s what they will do,” Douglas says.
This is going on with the Oakland A’s right now. Las Vegas has approved $500 million to build them a stadium if they move.
The teams cash in on the image and prestige of the sport when looking for handouts. “You want to be a major league city, they’re sort of a cachet there,” Douglas says — noting, however, that if you ask regular people to name all the cities with a Major League baseball team, they’re likely just to name the biggest cities in America.
He also says there’s a perennial desire to redevelop downtown. The flight into the suburbs has city leaders asking what they can do to get people back to the central part of the city to eat, shop, and do all the stuff that people used to do downtown when cities were more centralized.
“The problem with that is that there just aren’t enough games in a season. You look at the NFL, the most heavily subsidized sports league, which is ironic since it’s the wealthiest. But there are only eight home games in a season, which means the stadium is closed 98% of the year,” Douglas says.
Even the sport with the most games, baseball, has only 81 home games. That means the ballpark is still closed most of the year. Walk near a stadium most days and it is generating less economic activity than anything else that gets used for the whole year.
Nor do these deals induce extra development around stadium districts, which is often part of the pitch for subsidies. When owners asked for Little Caesars Arena stadium subsidies in 2016, its developers argued that hotels, restaurants, condos and apartments would be built around the stadium.
“None of that is happening. In fact, Olympia Development has come to the state and said that if they actually want this development, they are going to need a billion dollars of extra taxpayer subsidies,” Douglas says. “That these sports arenas really don’t lead to economic development of the surrounding areas is simply because they’re closed far more than they’re open.”
Economists have looked at the economic impacts of sports stadiums and concluded that they don’t pay off for local governments, state governments, or taxpayers. Douglas suggests this is an example of the problem with concentrated benefits and diffuse costs. Wealthy, politically important team owners have a huge incentive to ask for subsidies, while the people paying for them do not have a strong incentive to fight them.
Which is also why, when voters are asked directly to approve stadium subsidies, they often vote against them. Douglas points to voter rejection in Seattle and other cities in the 1990s. “But what would happen is the state government would just go right behind the back of voters and put forward a funding package, anyway,” Douglas says.
Perhaps because professional sports are so visible in American life, people grossly overestimate their economic importance. Douglas points out that instances like the 1994 baseball strike allow economists a good look at its influence. “Major League Baseball was about the size of the U.S. envelope industry,” Douglas says.
People shouldn’t interpret that comment to mean that the envelope industry is huge. “The four professional sports in Metro Detroit are less than one percent of the Metro Detroit economy,” Douglas says.
“Letting a team move will have absolutely no economic impact,” he says. “Look at the revenue generated by a sports team, it primarily goes to the sports team owner, with the rest going to the players and the remainder to the part-time workers — food-service workers and janitors.”
Stadiums subsidies aren’t the only costs to cities. Communities must also pay to provide extra police protection on game days, and often special water and sewer deals to teams for their use of city services. In addition, stadiums are often owned by the city government or a nonprofit and thus become exempt from the property taxes that private owners pay on their property.
Douglas thinks more cities should call out owners for bluffing about moving the teams. Outside of professional football, where teams don’t play many games and collect a share of a lucrative national broadcasting contract, sports teams make their money from the local market. They have paying fans where they are and would have to build the same in a new market. “You can’t legitimately threaten to move because you’ll be moving to a much smaller market,” he says.
Douglas started digging into the issue when he was teaching an elective class in sports economics to lure in some more summer class students. “Sports economics runs the gamut of economic issues; macroeconomics, microeconomics, labor economics, public finance, so it’s a good way to get students interested in economics as a while,” Douglas says.
Still he notes that getting rid of stadium subsidies seems to be outside of the Overton Window right now. “I don’t think there are a lot of people in Michigan who would say that the Tigers still belong in Tigers Stadium. That having them move to Comerica Park was a mistake,” Douglas says.
It doesn’t have to be this way, and Douglas is not sure whether taxpayer are willing to keep forking over money for new stadiums. “I go through waves of optimism and pessimism. My wave of optimism is that it seems like people have wised up to the fact that the Olympics are a waste of money,” Douglas says. “I think people recognize that it’s really stupid to build facilities that are used for two weeks then sit empty afterward.”
“My wave of pessimism comes from the fact that these subsidies seem larger than ever,” Douglas says. Every new stadium seems to be built with at least some taxpayer funding, and the value of those seems to be increasing.
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