Taxpayers 1, Billionaire 0

  • December 8, 2016

The citizens of San Diego have rejected Dean A. Spanos’, San Diego Chargers owner, plea for public funding of a new stadium for his team of highly-paid mercenaries.

Proponents of publicly-financed stadiums claim that the stadium will attract visitors from outside of the metropolitan region. These visitors will not only spend money at the stadium but also on gasoline, motels, and restaurants. This spending will reverberate throughout the economy and generate even more spending; such increased spending is called a multiplier effect.

The proponents ignore the substitution effect. Even if the stadium magically appeared, having a professional sports team means that other leisure and recreational vendors face greater competition. Residents might have chosen to go bowling or to motion pictures more frequently, if they had not spent their money on the sports team. Given the fact that they chose to attend a sporting event over going bowling, we can deduce that the dollars spent on the sporting event gave them more satisfaction or happiness than from going bowling; this result, however, does not measurably boost the economy by much. The substitution effect, therefore, means that spending on the sports team is not a clear-cut net gain to the metropolitan area.

As for those out-of-town visitors, there is a similar substitution effect. However, there are off-setting effects; if a sporting event promises to draw a huge crowd, some potential out-of-town visitors (who were planning to go to a museum, for instance) may stay away to avoid the crowds. Local citizens, too, may leave town in anticipation of avoiding the crowds.

Proponents of building a stadium often tout the jobs created and the subsequent spending. Player salaries are often the bulk of the payrolls generated by a sports team. Many of the players, however, do not reside in the city and may not pay much in local or state taxes or for consumption purposes. Players may spend much of their salaries in their home towns. Such spending does not trigger any multiplier effect in the team’s locale. Many of the other people on the payroll may be part-time and low-paid.

To bolster their case, team owners seeking funding from citizens often hire high-priced consultants. I have nothing against high-priced consultants (I even aspire to be a high-priced consultant), but the job is fraught with ethical quandaries. “He who pays the piper, calls the tune,” is apt. If a team owner hires you to conduct a study regarding the economic “impact” of a sports team in a metropolitan area, the expectations are that you will come up with a favorable report.

Contrast that with academic writing. Economists study economic effects of stadiums in metropolitan areas. If they are judicious and ethical, they choose assumptions that bias the results against their hypothesis (such as stadiums benefit metropolitan areas). By doing so, if they find statistical results confirming a positive effect, then they have confidence that their finding is robust.

Consultants make assumptions about the strength of the multiplier. A more optimistic multiplier biases the consultants’ estimate in favor of building the stadium. Opponents can choose to use a pessimistic multiplier to support their argument that the stadium will not benefit the local economy. Sports economists have examined economic impact analyses of sports stadiums. According to Rodney Fort in his Sports Economics textbook, “The general verdict on EIA (economic impact analyses) is that they overstate the value of economic activity.” This may surprise people, who are stuck in traffic before and after a game at the local stadium; surely the crowd is boosting the local economy. “Typically, EIA claims of new impacts are just rearrangements of activity that would have occurred anyway. The implication is that EIAs have been produced primarily by proponents to overstate the benefits of subsidies.” Other economists found that having a professional sports team in the local economy is not associated with higher economic growth rates.

Most people either do not have the training or the ability to conduct sophisticated economic analysis studies. Possession of specialized knowledge confers power; such knowledge should induce practitioners to use it in an ethical fashion when giving advice on policy.

Unlike the 1950s, when voters were happy to approve public funding for stadiums, voters in the new millennium have proven to be less willing to do so. Perhaps after sixty years of constant dunning, the owners have worn out their credibility.

The views and opinions expressed are those of the author and do not imply endorsement by UNIBusiness or the University of Northern Iowa.


More from our blog

See all posts