Getting Into the Game: Sport as a Stimulus for Urban Economic Development for the Public Affairs Forum Sponsored by the Federal Reserve Bank of Atlanta Birmingham, Alabama on July 17, 2014 By: Robert A. Baade A.B. Dick Professor of Economics, Lake Forest College and President Emeritus, International Association of Sports Economists (IASE)

Purpose: Is commercial sport a catalyst for urban economic development?

COMMERCIAL SPORT IS HEAVILY SUBSIDIZED IN THE US The real demand is for luxury boxes, not more seats. So the average working person is asked to put a tax on their home or pay sales or some other consumer tax to build luxury boxes in which they cannot afford to sit. Frequently, the new stadium is smaller. The working person is asked to be satisfied with “sense of pride” they get from this arrangement, which will last until another team bids more for their players, or until another city bids for the team. Houston Mayor, Bob Lanier Testimony Before the Senate Judiciary Committee November 29, 1995

Stadiums Built/Proposed Number of stadiums

Cost of Stadiums Millions of 2007 dollars

Percentage Financed by Public Percent

Who benefits from stadium subsidies?

Owners?

Players?

Fans?

Proportion of Facilities Financed by the Public and Private Sectors by League and the Impact of New Facilities on Revenues and Incomes by League Leagues building Average total Contribution (%) Incremental Incremental new venues cost ($m)*Public Private revenues ($m) incomes ($m) ______________________________________________________________________________________ Major League Baseball National Basketball Association National Football League National Hockey League (NHL) Shared NBA and NHL facilities

________________________________________________________________________________ Team (year newTeam payrollTotal payrollTotal payrollTotal payrollTotal payroll) stadium opened: t)for year tt - 2t - 1t + 1t + 2 (% of payroll t)(% of payroll t)(% of payroll t)(% of payroll t) ________________________________________________________________________________ Arizona (1998)29.16n.a.n.a (241)(267) Atlanta (1997) (90)(95)(118)(149) Baltimore (1992) (48)(70)(128)(179) Chicago White Sox (1991) (45)(56)(169)(206) Cleveland (1994) (29)(55)(124)(159) Colorado (1995) (28)(74)(112)(138) Detroit (2000) (37)(57)(80)(89) Houston (2000) (78)(106)(115)(121) Milwaukee (2001) (95)(79)(112)(90) Pittsburgh (2001) (42)(51)(73)(95) San Francisco (2000) (75)(86)(118)(146) Seattle (1999) (89)(117)(133)(168) Texas (1994) (92)(110)(100)(111) Average(57)(73)(125)(147) _________________________________________________________________________________ MLB Payrolls ($m) Before and After New Stadiums Built Between 1991 and 2001

______________________________________________________________________________ Team (year newTicket pricesTicket pricesTicket pricesTicket pricesTicket prices Stadium opened: t)for year t t - 2t - 1 t + 1t + 2 (% of prices t)(% of prices t)(% of prices t)(% of prices t) ______________________________________________________________________________ Atlanta (1997) (77)(84)(114)(124) Baltimore (1992)9.65n.a (107)(115)(115) Chicago White Sox (1991) 10.28n.a.n.a (114) Cleveland (1994) (64)(72)(100)(120) Colorado (1995) (75)(74)(100)(107) Detroit (2000) (42)(49)(96)(82) Houston (2000) (59)(66)(100)(94) Milwaukee (2001) n.a. (60)(65)(97) Pittsburgh (2001) n.a. (50)(55)(91) San Francisco (2000) (54)(57)(110)(98) Seattle (1999) (64)(81)(100)(105) Texas (1994) (74)(74)(100)(99) Average16.71(60)(66)(102)(104) _______________________________________________________________________________ Ticket Prices Before and After New Stadiums Built Between 1991 and 2001

Do cities and regions benefit from sports subsidies?

Ex ante analysis Minnesota lawmakers heard last month that a $954 million Vikings stadium would employ 8,000 construction workers another 5,400 people supported by construction-related spending and 3,400 in the new facility. Team vice president Lester Bagley called it a "significant jobs and economic stimulus package." (Associated Press, March 5, 2009)

Ex ante or prospective analysis is difficult. Precise estimates require extensive knowledge on the way different sectors of the economy interact. Despite the best efforts of economists, a model that explains urban economic growth within acceptable margins of error eludes the profession. That reality makes all ex ante analysis somewhat suspect.

Why ex post analysis is necessary to evaluate the efficacy of commercial sports subsidies?

Empirical Results

Year of Study Team, Facility, or EventArea MeasuredImpact ($millions) 1992NBA All Star GameMetro Orlando35 a 1995Summer Olympic GamesMetro Atlanta5,142 b 1996Cincinnati Reds (MLB) – Old Stadium*Metro Cincinnati158 c 1996Cincinnati Reds – New Stadium*Metro Cincinnati192 c 1998Arizona DiamondbacksMetro Phoenix319 c 1999Super BowlSouth Florida (Miami, Dade and Broward Counties) 396 d 1999Boston Red Sox (MLB) – Current Stadium* Metro Boston120 c 1999Boston Red Sox – New Stadium*Metro Boston186 c 1999San Antonio Spurs (NBA)Metro San Antonio 71 c 1999Summer Olympics DallasMetro Dallas4,000 e 2000Houston Rockets (NBA)MetroHouston187 c 2001World Cup SoccerCountries of Japan and South Korea 24,800 (Japan) 8,900 (S. Korea) f Economic Impact Estimates Provided by Boosters for Selected Teams, Facilities, and Events

Quality of life and compensating differentials arguments Economists know the price of everything and the value of nothing. ---Oscar Wilde

What do contingent valuation studies tell us?

Compensating differentials Entertainment village in Ottawa, Canada: Project would include offices, restaurants, bars, apartments, hotels for area near Senators’ arena

The new Yankee Stadium in New York

Conclusions and policy implications The sum total of the evidence does not suggest that sport subsidies standing alone produce social value in excess of their social costs. As part of a larger redevelopment plan, expenditures on teams, facilities, and sports mega-events may induce an increase in economic activity in the urban core, but that may come at the expense of other parts of the metropolitan or regional economies.

Finally, since the preponderance of evidence does not support the notion that subsidies for sport alone can serve as catalysts for economic development, subsidy debates should focus on the public benefits as they relate to the enhanced quality of life imparted by teams, facilities, and sports mega-events. Future research should focus on techniques for estimating the hedonic component of subsidies for sport, and both the contingent valuation method and estimates for compensating differentials show promise in that regard. Moon Landrieu may have been right: It is the very building of it that is important, not how much it is used or its economics.