THE DMC PERSPECTIVE SPORTS STADIUM SUBSIDIES March 2015
Sports stadium subsidies drain economy Dr. Samuel Staley in the Tallahassee Democrat—February 17, 2015
“Asking state economists
to rank the professional sports projects perpetu-
Some Florida state legislators were miffed when state economists failed last January to rank four professional sports projects to help them decide which ones to subsidize. Their criticism is misplaced, and in fact puts state employees in a professionally compromising position. In January, the legislature’s Office of Economic and Demographic Research published a report that demonstrated the analytical futility of ranking these projects. After reviewing eight professional sports venues, staff economists concluded that these projects returned less in tax revenue than the subsidies the state doled out. For every dollar the state spent in tax incentives, the state received just 30 cents for a Return on Investment (ROI) of 0.30. Some have claimed that this is evidence that sports stadiums have a positive impact on Florida’s economy, but this is the wrong way to interpret these number. Professional sports franchises are privately owned, for-profit businesses that exist for the benefit of their owners. They are not essential public services such as schools, police or roads. The only rational justification for subsidizing for-profit businesses is because they generate tax revenue and add to the public treasury, not drain them. This occurs when a ROI is greater than 1.0. The low return from public spending on professional sports franchises is no surprise to economists who have studied this issue for decades. Independent academic studies have consistently failed to find any economic development benefits justifying public subsidies. The reasons are pretty straightforward--dollars spent on sports events substitute for dollars spent on other entertainment within the region. Even the EDR report notes that just 10 percent of attendees at professional sports events are out-of-town visitors.
ates the illusion that these projects are legitimate economic development projects. They aren’t. At best they represent corporate welfare.” - Dr. Sam Staley, Director of the DeVoe L. Moore Center
The big winners from these subsidies are the owners of the sports franchises. In a study of professional baseball teams over a 50 year period, FSU economist Christopher Clapp found that public financing of stadiums enhanced the profits of the private owners but did not improve the quality of the facility or boost team performance. Subsidies for professional sports may have been justified in a bygone era when the state was struggling for private business investment and had few resources at its disposal. As the state was building its brand around entertainment and recreation, policymakers could rationalize subsidizing these venues if done strategically. Now, as the nation’s third largest state generating economic output worth $800 million, subsidies to these businesses are difficult to justify on objective economic grounds. Asking state economists to rank the professional sports projects perpetuates the illusion that these projects are legitimate economic development projects. They aren’t. At best they represent corporate welfare. At worst, they create the perception of crony capitalism where private interests use their political connections to secure private benefits at the expense of the taxpayer. In this case, staff economists have done a commendable job in bringing to light the inefficiency and ineffectiveness of these programs and the hollow benefits of these programs.
The DeVoe L. Moore Center | 150 Bellamy Building, Tallahassee, FL 32306 | 850-644-3848 | http://coss.fsu.edu/dmc/
Sports Stadiums Not Worth Public Subsidies By: Logan Shewmaker—February 5, 2015
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.
Logan Shewmaker Logan is a Research Assistant at the DeVoe L. Moore Center. He is also a student at Florida State University where he is studying Political Science. During his time at the DeVoe Moore Center, Logan has been researching the economic effects of sports stadiums that receive public funding. Primarily, he focuses on the consequences taxpayers face, who foot the bill for many of these projects. Logan can be contacted
[email protected]
at
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.
The DeVoe L. Moore Center | 150 Bellamy Building, Tallahassee, FL 32306 | 850-644-3848 | http://coss.fsu.edu/dmc/
Orlando’s Soccer Stadium Not Worth Public Investment By: Logan Shewmaker—February 19,2015
U.S. Major League Soccer (MLS) is pushing to expand into Florida. Between 2008 and 2013, the average MLS franchise’s market capitaliztion grew 175 percent. The average attendance for MLS games exceeds 18,000, higher than the NBA. “The beautiful game” is growing in the United States, but does MLS growth justify public subsidies? In 2013, Orlando City Soccer Club joined the MLS as an expansion team. The club will hold matches beginning in the 2015 season and compete as the Orlando City Lions. To become a franchise, the MLS prefers teams play in soccer-specific stadiums. Construction costs are significant. Orlando City is currently constructing a new stadiumin downtown Orlando that is expected to cost $110 million in total. But who’s going to pay for it? The franchise itself will contribute $30 million, plus an additional $675,000 annually for 25 years. Twenty million dollars would be subsidized by taxpayers from the tourist development tax fund, along with another $20 million directly from the City of Orlando. The Lions have also requested $2 million dollars in subsidies from the State of Florida, and the proposal is pending before the state legislature. Despite these large outlays, the return to taxpayers is minimal. According to a study from the Office of Economic and Demographic Research (ODR), sports stadiums typically have a return on investment (ROI) of just 0.30, well below 1, meaning that for every $1 invested only $0.30 is gained in added revenue. Research conducted by Assistant Professor of Economics at FSU Chris Clapp concluded that stadium owners ultimately receive the profits from these subsidies. As a recent op-ed by DeVoe Moore Center Director Samuel Staley points out, sports stadiums may be profitable to stadium owners, but they are a net loss in terms of public investment. This begs the question: Is a new stadium in Orlando necessary? A study published in the Journal of Venue and Event Management found that soccer-specific stadiums usually increase attendance, but that proximity to downtown and a good marketing plan are crucial to success. For instance, the Seattle Sounders are by far the most financially successful MLS team, yet they play in an NFL stadium. The Sounders’ “March to the Match” parades on game days have also proved an energizing part of their marketing plan. The Orlando City Lions have already sold 11,000 season tickets for the first season, which will be played in the Citrus Bowl. The Citrus Bowl is the official home of the UCF Knights football team, and has undergone countless renovations, most recently in 2014. Since this shared arrangement is working well, the case for another taxpayer subsidize MLS stadium seems weak based on team performance alone. Construction on the new MLS stadium has already begun, but a new venue may not be necessary for the Lions soccer team. Orlando City Soccer’s “Fill the Bowl” marketing campaign is intended to pack 65,000 fans into the Citrus Bowl for the season’s first game, and given the advanced ticket sales and publicity surrounding it, they may be successful. MLS is growing, but Florida’s taxpayers should not have to foot the bill for their new stadiums, especially when evidence shows such projects have a low return on investment. When the time for expansion is right, willing private investors will be better suited to fund stadium construction. Tax dollars would be better spent on education, infrastructure, or a host of other projects and services before sports stadiums.
The DeVoe L. Moore Center | 150 Bellamy Building, Tallahassee, FL 32306 | 850-644-3848 | http://coss.fsu.edu/dmc/
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Contact Us DeVoe L. Moore Center
The DeVoe L. Moore Center at Florida State University is an interdisciplinary unit in the College of Social Sciences and Public Policy that is dedicated to increasing knowledge and understanding about the role of government in a market economy. The Center emphasizes the study of how government rules, regulations and programs affect the economy and individuals. Bringing the insights of economics, planning, political science, and public administration to the study of state and local regulations is a major focus of the Center’s efforts.
Scholarly research of the Center’s faculty and graduate students generates knowledge that is integrated into innovative undergraduate and graduate teaching and shared with the wider academic community. The Center also conducts outreach activities to inform elected officials and the general public about our research findings. The Center was founded in 1998 as the result of a gift from DeVoe L. Moore, an entrepreneur and benefactor committed to free enterprise.
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