In recent months, various National Football League
franchises (primarily the San Diego Chargers and the St. Louis Rams) have
threatened their respective home cities with a move to another locale
remarkably without such a sports team: Los Angeles. With the expressed motive
of receiving public funding for new or enhanced football stadiums, these teams
and their supporters invariably cite many an economic argument for why public
funding for these pieces of infrastructure should be approved. Befittingly,
back in 2001, the St. Louis Fed already published a summary of the economics
behind public funding of stadiums, available here: https://www.stlouisfed.org/Publications/Regional-Economist/April-2001/Should-Cities-Pay-for-Sports-Facilities.
Of course, among the arguments included are the fact that
most revenues from these upgrades or new stadiums stays with the owners of the
franchises themselves, since these franchises usually sign contracts giving
them full benefit over naming rights, concessions, ticket sales, etc. In
particular, the oft-cited argument that these stadiums will benefit their home
cities through increased tourism, spending in the stadium and businesses
surrounding stadiums, and multipliers that amplify the effect of these revenue
increases, is usually a misrepresentation.
After all, it doesn’t require an individual with advanced
training in Economics to consider the issue of opportunity costs. After all, by
investing public money in these stadiums, cities are not only suffering the
direct costs of funding, but also forgoing the benefits of other—often much
more lucrative—alternatives. In particular, many economists point out that the
quoted increases in revenues are often not materialized, as new stadiums do not
inherently cause new tourists to visit these cities that already housed these
sports teams. Moreover, considering the spending of both citizens and tourists
as mostly fixed budget constraints, the construction of a new stadium for an
already-existing football team may potentially increase revenues for the
franchise owners, but only at the expense of other businesses these people
would have spent their money in otherwise. Thus, in short, most economic
benefits—when they even exist—of new or upgraded stadiums are nullified (and
often overpowered) by the costs to the cities that house them. And most
critically, when they do exist, they often stay at the hands of those individuals
who own the franchises, rarely seeping back into the economy that helped fund
them. In short, public funding of new stadiums—in particular when used as a
threat against moving to another city—represents almost entirely public costs
and private benefits. The marginal benefits of other alternatives at the same
marginal costs to the cities that would house these stadiums should make the
refusal of these projects a no-brainer.
Of course, this question spans more than economic arguments
and assumptions. After all, these sports teams possess loyal and committed fan
bases that very much fight for their team’s permanence in their cities. Their
loyalty and commitment is not something I can argue against, but from an economic
and financial perspective, using their and their fellow taxpayers’ money to
fund teams that hold these cities hostage for funds they can easily raise on
their own, and that will have few returns on taxpayers, is not a sound
decision. Research in behavioral economics likely would provide some intuition
behind these fans’ willingness to support these projects.
Lastly, a major
problem is that new stadiums are an unsound investment for cities that already
house these teams. Yet, for cities currently without a team, the introduction
of a football team might actually provide large economic benefits (depending
however, on the profile of the city in question—after all, would more tourists visit LA because of a
football team? One might assume the economic impact of a sports team is largest
for cities without an established tourist base already. Thus, there would be decreasing
marginal increase in tourists as city and established tourist base size
increase. This consideration might in turn extend to an interesting game theory
question: even if San Diego or St. Louis understood that returns to public
investment in these stadiums would not be sufficient, because LA would benefit
from such a move and would likely offer money for it, San Diego and St Louis
effectively have to bid beyond what they would be willing to, just to beat LA.
Cities, invariably, lose in the end. This begs the question: if the NFL can
essentially operate as a legal cartel, and the member teams can use their
influence to extort their home cities, why don’t cities cooperate between
themselves to call the NFL teams’ bluffs, and cooperate so this kind of issue
just won’t happen?
