Stadiums as Economic Development Tools

The Fact Behind the Fiction

Costs and Benefits

• Benefits – Enjoyment of the activities in the stadium– Enjoyment of following the teams– Prestige

• Secondary Benefits– Increased wages or employment

Costs

• Opportunity costs– What is given up by choosing this project?

• Money spent could have been used on other projects whose returns are unknown.

• Secondary Costs– Business attracted comes from somewhere– Lost incomes and employment from other areas– Externalities

Some Common Mistakes in Economic Impact Studies

Confusing Costs and Benefits

Some Common Mistakes in Economic Impact Studies

Valuing Local Spectators Like Out-of-town Visitors

Some Common Mistakes in Economic Impact Studies

Misuse of Multipliers

Some Common Mistakes in Economic Impact Studies

Omitting Opportunity Costs

Some Common Mistakes in Economic Impact Studies

Double Counting

Some Common Mistakes in Economic Impact Studies

Counting secondary benefits but ignoring secondary costs

Some Common Mistakes in Economic Impact Studies

Ignoring External Costs

Economic Research

• Carried out by researchers with no pecuniary interest in the outcome

• Subject to “peer review” process - anonymous review by recognized outside experts

Background

• Examined 37 cities that had a professional football, basketball or baseball franchise over the period 1969-1997

• Accounted for rich set of sports-related events and factors

• Used measures of economic well-being collected and distributed by U.S. Bureau of the Census

Results

• The professional sports “environment” lowered inflation adjusted income per person by a small but significant amount during period

• Workers in a small sector - Amusements and Recreation - earned more

• Offset by lower earnings and fewer jobs in related sectors - retail and services

Explanations

• Substitution in private spending

• “WalMart” Effect

• Substitution in public spending

• World class city and enjoyment from following the team

For more details...

“The Stadium Gambit and Local Economic Development” by Dennis Coates and Brad R. Humphreys, Regulation, June 2000