Public Funding of Football Stadiums

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?