Q+A: How to Pay for a Professional Sports Team’s Stadium

Last month, the Buffalo Bills, the National Football League (NFL) team in Buffalo, New York, agreed to a 30-year lease on a new stadium in the city after much publicized back and forth with Erie County and New York State. Erie County will contribute $250 million, while the state proposed $600 million in the budget for the stadium – upsetting New York residents. A recently released Siena Research Institute poll revealed 63% of voters oppose the $600 million from the state.

In addition to the Bills, a number of NFL teams – such as the Washington Commanders, Denver Broncos, Tennessee Titans, Kansas City Chiefs and Chicago Bears – and other professional sports teams like the Oakland A’s and Los Angeles Angels of Major League Baseball, are considering renovating or building new stadiums.

Joel Maxcy, PhD, a professor in the LeBow College of Business, shared insight into the actual local economic impact of a professional sports team.

Are there economic benefits for cities or communities where a professional sports team plays?

Most of the economic benefits are intangible. For example, civic pride in the team, good feelings for fans, a top-level entertainment option, etc. These benefits are all enhanced when the team is winning. Buffalo, New York is a rust belt city that has been in relative economic decline as long as the Bills have been there. But the Bills bring a large part of the Buffalo, Erie County and Western New York population something to feel good about, something to talk about and enjoy with friends and family, and a connection to the rest of the country and “NFL Nation.” Doubtless there would be much despair if the region lost its team to a better stadium offer from another city. However, translating intangible benefits to financial values is a difficult proposition.

Is it possible to fund new stadium projects without public funding?

Yes, most stadiums and arenas built before the 1950s were privately funded and there are current and local examples to this day. The Wells Fargo Center in Philadelphia was privately financed. However, even if the construction costs are privately financed there is usually public support and spending on additional infrastructure – like additional highway exits or subway stops and public safety around events. One advantage of public funding is that the local government has more control over the stadium’s location, which is important.

Is it more beneficial to renovate an older stadium or build an entirely new one? 

It’s possible that a renovation is a more cost-effective investment. However, in practice, most of the renovation projects have been so extensive that that the costs are comparable to that of a brand-new stadium.

What are some demands from local governments for financial assistance with new stadiums? 

Sometimes, there is an additional or dedicated tax on stadium revenues – e.g., a ticket tax or shares of the parking and concessions revenues. City governments often require signing of a lease, but a lease contract may be and often is broken if the team owner wants to relocate.

Professional teams hint at, or even threaten, to relocate to get concessions from the local government. Is this a good tactic for negotiating? How serious do local governments take these threats? 

Threats to relocate have been an excellent tactic for team owners. The NFL’s Los Angeles market was without a team from 1995-2016, which spurred several new stadium projects as teams threatened to move there. ESPN reported in 2016 that at least 13 different NFL teams, including Atlanta, Seattle, Miami and Cincinnati used the open LA market as leverage for public subsidies for new or rebuilt stadium projects. Ultimately the club owners in St. Louis (Rams) and San Diego (Chargers) moved their teams there in 2016.

The threats to relocate especially in the NFL and NHL have proven to be serious enough that governments have responded with some very generous stadium subsidies.

What would the move of a team do to the local economy it leaves? The new one it enters?

Numerous studies by independent economists have shown there is very little economic effect either way. If not for all the propaganda surrounding this issue, the replacement spending effect should make perfect sense. Spending on sports is largely discretionary entertainment spending by local consumers. If a source of entertainment leaves, consumers will find a replacement for that activity. If a new option enters the market, consumers will shift spending from another activity to the new one.

Spending by visitors, for example those who travel from out of town to attend an NFL game is the only true injection of new economic activity. But visitors’ spending is likely a very small part of a team’s revenues. We’ve done some research around increased hotel stays during big game and event weekends and increases are only marginal. Likewise, the economic losses, should a team leave, would be people who leave the area to spend part of their entertainment budget somewhere else because the NFL team is gone. If there is an impact from that spending, it is a tiny blip in the annual economic activity of a major metropolitan area.

Consider the local example, the Philadelphia metro’s economic activity is estimated at over $1.1 billion in gross domestic product (GDP) annually. The Eagles’ total annual revenue is roughly $500 million, with more than 50% of that coming from league distributions. At best the Eagles’ locally produced revenue is $250 million, or about one quarter of 1% of the metro’s economic activity. So, the marginal impact of people from outside coming to the metro area attending Eagles games is very minimal on the region’s economy as a whole.

What – if any – do naming rights of the new (or existing) stadiums add to the conversation?   

Naming rights are basically an advertisement for the corporate sponsor. It contributes to the team owner’s bottom line and is sometimes applied to the private share of the construction costs.

Is there anything you would like to add?

Government spending is much more often about redistribution from taxpayers to subsidy recipients than the creation of new economic growth, although that may or may not happen. Those recipients range from the war machine (arms industry) and big pharma to team owners and Pell Grant recipients.  A stadium is a capital infrastructure investment for a city or region but is not one that is used many days of the year, in comparison to other public investments such as airports, public transportation, roads and bridges.

New stadiums and their associated sports teams do make many people happy. Teams and their stadiums do provide a significant consumption benefit to a large proportion of the population, and doubtless that benefit spills over to many who don’t spend on tickets to attend games. Nonetheless, if economic impact or growth of the economy is the objective, there are much more efficient ways to spend public funds to accomplish that goal.

Public subsidization of stadiums can make sense, but in recent years stadium costs and subsidies have swelled. The Philadelphia stadium subsidies of 20 years ago were about 50% of stadiums, with construction costs of about $500 million each. Even after adjusting for inflation, this is far less than the current Buffalo stadium and subsidy proposal. Unfortunately, the subsidies are too often sold on the basis of the economic impact lie, rather than the actual benefits. In the final analysis, I think there are much more profligate subsidy examples than stadiums.

Media interested in speaking with Maxcy should contact Annie Korp at 215-571-4244 or amk522@drexel.edu.

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