Pro Sports Great, Just Not for the Local Economy by Dennis Coates
If Forbes’ latest ranking of National Football League franchise values is any indication, the owners of the Oakland Raiders, San Diego Chargers and St. Louis Rams – all competing to move to the Los Angeles area – figure to find a goldmine here. At an estimated $4 billion, the Dallas Cowboys are the world’s most valuable sports team. Large-market teams round out the NFL’s value top five. An L.A. team would be poised to join that top tier.
As Forbes put it, “The bigger your domain, the greater the opportunity to cash in on the fantasy and reality of the NFL.”
Most people believe that pro football would also be a goldmine for Southern Californians – but the economic facts may not support this claim.
To attract or keep a team, cities typically offer perks like public subsidies for a new stadium or tax breaks. Rival stadium proposals in Carson and Inglewood rely on private funding but would likely involve some public costs. Conventional wisdom also says a sports-fueled economic boom will result and more than make up for these costs.
Think of the joke about a fellow looking for his car keys, crawling on his hands and knees under a streetlight. The punch line is that he is looking there, rather than by his car, where he dropped them, because the light is better. Supporters of subsidies usually look under the streetlight for the economic benefits – local income, employment and tax revenue – of stadiums, arenas and professional sports franchises.
But, as independent economists repeatedly point out, not everything that looks shiny under the streetlight is a set of car keys – and, if you really want to start the car, you may have to look elsewhere.
Few deny that sports facilities must be paid for. The issue is who should pay. Usually, but not always, owners argue that they need help for various reasons.
Whatever the reason, they ask the public for help. But the question for policymakers and for voters should be simpler: Will the investment produce a real return? Even when the private sector is funding the project entirely, as is arguably the case in Carson, the public should question whether transferring public land to the private sector for a stadium is the best use of that property.
I co-authored a study in 1999 with Brad Humphreys. It examined the sports environment in every city with at least one NBA, NFL or Major League Baseball franchise at some time from 1969-96. Our findings were clear: Professional sports had no positive impact on an area’s economy, and actually harmed residents’ per capita incomes.
I recently updated the data, added the NHL and Major League Soccer, and examined the full set of U.S. cities, rather than only those with a team. The analysis also benefits from the stadiums and arena-building boom of the ’90s.
The lesson for cities, unfortunately, is the same. The sports environment still has little effect on the financial resources of most people. For example, across all seasons and cities, sports contributes about 0.2 percent to the wage earnings of the typical worker, about $50 per year to someone earning $17,000 a year.
Now, as then, the data disprove the claim that a city can use stadium and arena construction, or the attraction or retention of a professional sports franchise, to enhance the income of its citizens.
There are valid reasons for supporting professional sports subsidies. Millions of people enjoy watching, reading about and discussing their team. For them, the enjoyment of following a team is undoubtedly greater than the costs they bear.
Good public policy, however, requires a comparison between the costs and benefits of supporting the franchise. In the economics of both sports and public policy, resources are scarce and must be put to their best use. Not all subsidies will make the cut.