By Logan Shewmaker
Next time you attend a ballgame, consider for a moment the monumental effort necessary to build a sports stadium. Surely, stadiums are among the most impressive structures ever built. Tourists continue to marvel at the architectural wonder of Rome’s Coliseum. But does that justify public subsidies? Three-fourths of stadiums in the U.S. are owned by local city and/or county governments (and hence publicly funded). Understanding the economic impacts are important to the public discussion about decisions to subsidize them. A host of academic studies call into question the alleged economic benefits of today’s sports stadiums.
The Miami Dolphins recently released information about the planned renovations of Sun Life Stadium. The revamp will include seating reductions and rearrangements, an updated concourse, and a canopy to cover 92% of seats from the south Florida sun. The renovations are estimated to cost between $350 and $400 million, and are to be completed before the 2016 NFL season.
While most of the construction is privately funded by stadium owner Steve Ross, Miami-Dade County has agreed to contribute up to $5 million per year for 20 years from local hotel taxes to fund the project. County Mayor Carlos Gimenez stressed the stadium is not eligible for other public revenues beyond these tourism-related taxes.
Why are local hotel taxes important? Hotel taxes are politically popular because they supposedly relieve locals of the tax burden. With tourists paying for sports stadiums, what’s not to like?
But how much do sports stadiums really improve the local economy? And do the effects justify public subsidies?
One 2012 study by financial services company UBS found little to no effect on local economies from the construction of sports stadiums. UBS attributes this to the “substitution effect.” That is, people generally spend the same amount on entertainment in a given time, so adding a new entertainment venue simply draws money away from existing businesses.
Another study by Florida’s Office of Economic and Demographic Research (OEDR) makes clear that sports stadiums are a bad investment, whether it’s tourists or locals who pay for them. Sports stadiums generate a return on investment (ROI) consistently under 1.0, meaning these investments are a net drain on public coffers.
The OEDR blames this poor performance on the fact that sports stadiums are long-term commitments. “This is problematic, because the long-term economic impacts of these sport teams… are far from clear when the initial evaluation is made.” The OEDR recommends state and local governments focus on shorter-term programs, like the Florida Sports Foundation (FSF) grants that fund only single sporting events that will occur in the near future. The FSF program enjoys a much higher ROI of 5.6, according to their analysis.
If taxpayers aren’t receiving a return on their investments in sports stadiums, it may be better to leave construction and renovation projects in the hands of stadium and team owners. DeVoe Moore Center Professor of Economics Chris Clapp’s research on sports stadiums shows that sports franchise owners reap most of the benefits from construction subsidies. If it’s the Dolphins franchise and stadium owners who will receive the profits from the Sun Life renovations, it may be better that owners bear the costs as well.