Skepticism justified on government spending for arenas, stadiums and pro sports franchises

The proposal to spend $175 million or more of taxpayers’ money on a new arena in Quebec City has created a new controversy for a federal Conservative government that has had its fair share of troubles over the course of the past year.

It’s an emotional issue to be sure.  Some Conservatives hope that it will help the party hold on to valuable Quebec seats in the next election. For Quebec City residents, the proposal reignites the dream of the NHL eventually returning to their hometown, while for western Canadians it conjures up more troubling memories of a time when Quebec was seen as the beneficiary of federal favouritism.

If Quebec City succeeds in winning federal backing for a new arena, it could increase pressure on Ottawa to spend more money to help draw the NHL back to Winnipeg and to build new arenas in Edmonton and Calgary. It could all get very expensive, very quickly.

Are public subsidies for professional sports facilities and teams money well spent, or a drain on the public treasury that helps governments win votes in a way that a similar commitment to education and research and development could never hope to do?

Let’s see what those who have done the research have to say:

  • Charles Santo of Portland State University’s School of Urban Studies and Planning noted in a 2005 article for the Journal of Urban Affairs that “context matters” in determining whether or not public subsidies for sports facilities have had a positive effect on a community.  He noted that “stadiums set in downtown locations are more likely to generate ancillary spending before and after games than their suburban counterparts” and that “a new team might also generate some economic benefit… if it causes local residents to spend money inside the local economy that they would have otherwise spent elsewhere.”
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  • Economists John Siegfried of Vanderbilt University and Andrew Zimbalist of Smith College noted in a 2002 article for the Journal of Sports Economics that “there are few empirical conclusions on which a broad array of economists agree so strongly as the absence of local economic development effects of sports facilities” and that when governments help finance new professional sports facilities, they “realize only a small, if any, direct financial return—which in any case is dwarfed by the debt service, maintenance, sanitation, security, and opportunity costs incurred.”
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  • Siegfried and Zimbalist also noted that the professional sports teams that reside in these new stadiums, arenas and ballparks can drain revenue away from other parts of the local economy:
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“Most consumers have a relatively inflexible leisure budget. The more time and money that is spent on a sports team, the less is available for golf, bowling, amusement parks, restaurants, theater, or concert halls. And although some expenditures on local sports teams substitute for imports (e.g., replace out-of-town travel), a lot also replace alternative leisure expenditures in the community where the team is located. The net effect of a new team or stadium on consumption in the team’s local community is likely to be close to zero, although sports teams cause a substantial rearrangement of leisure spending within the local area (Coates & Humphreys, 2000).”

  • Economists Dennis Coates of the University of Maryland and Brad Humphreys of the University of Alberta, in a 2008 working paper, strongly criticized the assumption that public financing of professional sports facilities leads to economic development. While leaving the door open for the possibility of intangible benefits, they wrote that economists are nearly unanimous that “stadiums, arenas and sports franchises have no consistent, positive impact on jobs, income, and tax revenues” and that subsidies to build and operate professional sports facilities are “difficult to justify”.
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  • Peter Asselin, in another review of the evidence for a 2006 Rutgers Journal of Law and Urban Policy article on the effects of public financing of pro sports facilities in Philadelphia, found that the politicians are among the biggest beneficiaries of new sports facilities:
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“Local politicians who either seek accolades for enticing new teams to their cities or seek to avoid the stigma of losing a team on their watch argue that new stadia result in local economic growth. The citizens are serenaded with claims that building a stadium will create jobs, increase tax revenue, attract business, and improve tourism. The public subsidy, they are told, will pay for itself.”

“However, the majority of research indicates that the presence of new stadia and teams have no significant economic impact. Most independent economists agree that the number of jobs created after the construction phase has ended is minimal, and these jobs are seasonal, unskilled, and low paying. Publicly funded stadia also come at a great cost to both local and federal taxpayers. Moreover, spending at the stadium and in the area is likely shifted from other forms of local entertainment and therefore does not create a net benefit. Lastly, using public funds to subsidize stadium construction limits the availability of funds for essentials such as education, police, streets and water.”

 
Remember those points the next time the issue of public funding for arenas, stadiums and sports teams comes up in the news.

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About theviewfromseven
A lone wolf and a bit of a contrarian who sometimes has something to share.

7 Responses to Skepticism justified on government spending for arenas, stadiums and pro sports franchises

  1. johndobbin says:

    I don’t know that anyone can make the claim that there are big economic gains from building arenas. Conversely, I don’t believe that a well utilized arena loses big economically either.

    In terms of the old Winnipeg Stadium and Arena, I believe the city and the citizens were well served by their construction. It is my view that no one in the private sector would have built these facilities and yet they have served as cultural and sports venues for decades.

    As to Harper’s play on the arena in Quebec: It is not going to gain traction unless there is a major private investment and economic plan for using the facility afterward.

    The MTS Centre in Winnipeg had that private backing in place and an economic plan to be viable in the years thereafter. It also had the benefit of filling a city block that was left empty following the demise of Eaton’s.

    One negative aspect of the MTS deal was the confusion in how the deal was fashioned. It wasn’t entirely transparent. I voted against Glen Murray in part because of the arena deal. Even today can be a bit confusing figuring out the ownership of True North and with a possible NHL team coming to the city, I am still not sure of the financial wherewithal of the group to afford the team. My personal view is that the group will approach the public sector for an expansion of the MTS Centre.

    I might add I didn’t disagree with a major public investment for the Eaton’s site. I know many people mourned the loss of the old building but not once did I hear a plan for the facility that made sense economically to revitalize the structure.

  2. Stan Wilkes says:

    They pay for themselves

  3. theviewfromseven says:

    Thanks, John, for your comments.

    The MTS Centre issue was one of those debates where both sides were right in their own way. Leaving the former Eaton’s site in limbo for any longer than absolutely necessary wasn’t acceptable in the early 2000s when, as a visitor from Toronto once commented, our downtown looked as though somebody had fought a war there. Add to that the limited options for using the site for other purposes: the True North proposal was by far the most serious one on the table.

    At the same time, the MTS Centre’s critics were right to point out that the arena would do little more than to revitalize just that one block. Professional sports facilities generate an erratic pedestrian flow: very high when an event is taking place, and next to nothing when there isn’t. Low-margin businesses like restaurants and retail stores need a more stable flow of foot traffic past their front doors to survive, and can’t count on nearby sports facilities to generate steady cash flow.

  4. johndobbin says:

    My view is that the MTS Centre has been helpful to several restaurants in the area such as Tavern United, Elephant and Castle, Boston Pizza, etc. I’d even venture to say that a number of hotels in the area have probably done reasonably well renting rooms for sports and concert events.

    I agree with you that the MTS Centre by itself hasn’t revitalized the area. However, there are a few indications that some people are adjusting their business models to benefit from the amount of people who do go to the facility fairly regularly.

    The 4Play Sports bar was a much better fit for the area than a nightclub open only three nights a week. The Bodies exhibition across the street in the old A&B building ought to bring many people. Perhaps they can get the Dead Sea Scrolls next as it is in Minneapolis now.

    My thinking is that the area could be revitalized with the right fit of businesses. The one thing to note is that people won’t come for retailing they can find at the mall. People are looking for things that can’t be found anywhere else.

  5. theviewfromseven says:

    I particularly agree on the final paragraph. A good proportion of the success of Osborne Village and the Corydon Strip owes to the fact that they are alternatives to the sterile suburban mall (and that they are “people places”). Osborne also proves that a place doesn’t have to be free of crime or panhandlers to attract people as long as you foster a welcoming street environment.

    Unfortunately, there is insufficient political will to completely write off the earlier revitalization efforts, which were based on the idea that downtown should become more like the suburbs rather than an alternative to it. This basically guarantees that the remnants of the “suburban downtown” strategy — primarily Portage Place and Cityplace — will continue to get half-hearted support from the public sector because the alternatives of expropriating and redeveloping (too expensive, too disruptive) or revitalizing them as the suburban malls do every 15-25 years (too expensive, and likely little or no return on investment) are equally unpalatable.

  6. cherenkov says:

    Local UofM economist Ian Hudson wrote his thesis on the economics of sports, and also published a paper called “Bright Lights, Big City: Do Professional Sports Teams Increase Employment”. It’s about teams, not stadiums, but they’re related. From the abstract:

    “The analysis concludes that there is no evidence that teams make a significant positive impact to a city’s economy.”

    This is from somebody who wrote a book called “Social Murder and other shortcomings of conservative economics” … just so you know. (Not that Ian’s a bad guy or anything. He’s just got his views.)

  7. Brian says:

    Stan Wilkes, thank you for your insightful post, especially backed by those thoughtful facts, arguments and examples. Well done, sir!

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