Stadium Scams
This column was written by Duncan Currie.
Harkening back to "the early 20th century," Raymond Keating, chief economist for the Small Business and Entrepreneurship Council and a New York Newsday columnist, recalls that "sports facilities were once private ventures. Team owners bought the land and privately funded their stadiums. What a novel idea!"
His sarcasm is warranted. In the modern era, professional teams have typically relied on taxpayer dollars to build glitzy new stadiums and arenas, often threatening or pursuing eminent domain action to cheaply clear out anyone who stood in the way. According to a May 2005 article in Reason magazine, "Sports economists estimate that half of the post-1990 stadium and arena construction has involved eminent domain - and even when it wasn't invoked, it was understood that condemnation could be a last resort if the teams encountered stubborn landowners."
In recent years, franchises such as the Dallas Cowboys, Indianapolis Colts, Minnesota Twins, Washington Nationals, and New Jersey Nets have all at least raised the prospect of using eminent domain to expedite their stadium and arena plans. But the practice has a long pedigree. In the 1950s, shortly after the Supreme Court upheld Fifth Amendment property takings designed to eliminate "blight," Pittsburgh invoked eminent domain to build Civic Arena (now called Mellon Arena). This meant bulldozing an African-American neighborhood known as the Lower Hill District. When George W. Bush owned the Texas Rangers, the city of Arlington exercised eminent domain to build a new ballpark. (Liberal columnist Nicholas Kristof later decried it as "a sordid tale of cronyism, of misuse of power, of cozy backroom money-grubbing.")
Supporters of publicly financed stadium construction promise a windfall of economic development, guaranteeing increased tax revenues and more jobs. But have the revenue-enhancing and job-creating benefits of stadiums been oversold?
A decade ago, economists Roger Noll of Stanford and Andrew Zimbalist of Smith College edited a book that examined specific projects and crunched the numbers. "In every case," they later wrote,
"the conclusions are the same. A new sports facility has an extremely small (perhaps even negative) effect on overall economic activity and employment. No recent facility appears to have earned anything approaching a reasonable return on investment. No recent facility has been self-financing in terms of its impact on net tax revenues. Regardless of whether the unit of analysis is a local neighborhood, a city, or an entire metropolitan area, the economic benefits of sports facilities are de minimus."Based on an exhaustive study of cities with professional football, baseball or basketball, two economists from the University of Maryland, Baltimore County, concluded that, "taken as a whole, the sports environment tended to reduce the per capita personal income in the city by a small but statistically significant amount." Dennis Coates and Brad Humphreys later expanded their research and found that "the economic benefit from sports facilities and franchises appears to be concentrated in a small sector of the economy and comes at the expense of other sectors of urban economies."
After reviewing the "independence evidence," Minnesota State University economist Phillip Miller reported that "the existence of sports teams and stadiums in a metropolitan area causes consumers to redistribute their spending within a metropolitan area. At worst, it can actually decrease earnings and employment in their metropolitan areas. Hence, neither the existence of sports teams nor the construction of sports stadiums provide a catalyst for economic development in terms of employment and output growth."
Take the Metrodome, home of the Minnesota Twins and Minnesota Vikings. As the Minneapolis Star Tribune has observed, when it "opened in 1982 at a total cost of $68 million, its boosters predicted that the stadium would be a magnet for new construction in a part of downtown that hadn't seen new private investment for years. Instead, the building boom of the 1980s and 1990s in downtown Minneapolis bypassed the Metrodome neighborhood. 'We put a stadium in the middle of nowhere and nothing developed around it,' economist Art Rolnick said of the Metrodome. 'If these things are magnets for economic development, what happened?'"
Of course, if you're a huge sports fan - as I am - you might calculate the metrics differently. "There's this enormous benefit out there that doesn't get measured," Coates told me. "If you say, 'There is an enormous amount of happiness brought to the community by this facility,'" well, "there's no dollar value attributed to that." Though it can't be quantified, an intangible feeling of satisfaction is perhaps the primary public benefit that stadiums offer.
Still, the resistance to "sports welfare" can be fierce. In Brooklyn, for example, local residents have howled about the planned exercise of eminent domain to build the Nets a new basketball arena. This has prompted a messy legal battle, with opponents of the $4 billion Atlantic Yards project angrily denouncing Nets principal owner (and real estate tycoon) Bruce Ratner, whose firm Forest City Ratner is the developer. Several affected property owners have filed a lawsuit challenging the proposed use of eminent domain. A federal district judge ruled against them in June, but the plaintiffs are appealing.
Like any good sports mogul, Ratner insists his Atlantic Yards development will provide an economic boon to the city. In time, he may be proved correct. But the historical evidence suggests that new stadiums and arenas rarely deliver the type of revenue gains and job growth that is expected.
Just ask Jerry Bell, president of Twins Sports Incorporated, and thus a fervent promoter of the new Twins stadium. Bell admitted in a 2005 interview with the Star Tribune that, "at some global level," economists are "obviously correct" that publicly subsidized stadiums generally do not produce public financial benefits. "I don't think the economic argument turns it one way or another, so why go there?" Bell said. "If there are side benefits, great. If not, so what?" He should pose those questions to Minnesota taxpayers.
By Duncan Currie
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