Wednesday 5 October 2011

Against spending on stadiums and events

I'm scheduled for Jim Mora this afternoon to chat about the economic benefits, or otherwise, in investment in mega-events like the Rugby World Cup. Here's some of the relevant literature for listeners there who want to check my sources:
  • Zimbalist and Noll. "Sports, Jobs, and Taxes: The Economic Impact of Sports Teams and Stadiums". Brookings Institution, 1997. The book's key findings are summarized here. They come out strongly against such spending, noting that government investments in stadiums are regressive, with the main benefits going to rich folks (players, team owners). The key takeaway for NZ purposes:
    As noted, a stadium can spur economic growth if sports is a significant export industry—that is, if it attracts outsiders to buy the local product and if it results in the sale of certain rights (broadcasting, product licensing) to national firms. But, in reality, sports has little effect on regional net exports.

    Sports facilities attract neither tourists nor new industry. Probably the most successful export facility is Oriole Park, where about a third of the crowd at every game comes from outside the Baltimore area. (Baltimore's baseball exports are enhanced because it is 40 miles from the nation's capital, which has no major league baseball team.) Even so, the net gain to Baltimore's economy in terms of new jobs and incremental tax revenues is only about $3 million a year—not much of a return on a $200 million investment.
  • Dennis Coates's work. he has a lot of papers out on the topic, but the main findings are summarized in this article in The American. Note that Brookings, above, is a top notch center-left think tank; AEI runs center-right. In one telling paper, he finds that strikes in professional sports leagues impose no economic cost on cities that have sports franchises; if the economic benefits of stadiums and sporting events are high, we'd expect serious losses. Instead, there's no effect. Others have found the same thing, or that effects are relatively small.
  • John Crompton, "Economic Impact Analysis of Sports Facilities and Events: Eleven Sources of Misapplication". He lists some of the ways folks fudge the numbers when they want to purport that stadium spending confers large national benefits. It would be mildly interesting to run it as a tick sheet against benefit estimates for the RWC.
  • Baade and Dye, "The Impact of Stadium and Professional Sports on Metropolitan Area Development".
    The evidence presented here is that the presence of a new or renovated stadium has an uncertain impact on the levels of personal income and possibly a negative impact on local development relative to the region. These results should serve as a caution to those who assume or assert a large positive stadium impact.
    See also Baade 1996
  • Paul Walker's summary of the literature
  • And of course Cowen's classic "Should Governments Subsidize Stadiums and Events?". He notes some of the big problems with benefit estimates.
As for this year's New Zealand Rugby World Cup, see these:


  1. What do you think of the idea of not constructing a replacement rugby stadium in Christchurch and instead basing the Crusaders and the Canterbury NPC team at the Dunedin stadium? Possibly the Christchurch-Dunedin railway tracks could be upgraded to allow a 2-4 hour train journey for Canterbury-based rugby fans to travel to/from games?

  2. I'd need to know whether the insurance pays out only if the stadium is rebuilt; that affects the marginal cost of different options...

  3. Listing those 11 fudges:

    "They include the following: using sales instead of household income multipliers; misrepresenting employment multipliers; using incremental instead of normal multiplier coeficients; failing to accurately define the impacted area; including local spectators; failing to exclude 'time-switchers' and 'casuals', using 'fudged' multiplier coeeficients; claiming total instead of marginal economic benefits; confusing turnover and multiplier; omitting opportunity costs; and measuring only benefits while omitting costs."

    Straight out of Crompton.

  4. This is a classic example of why economists rarely succeed as politicians. :-)

    Government-subsidised stadia aren't about economic benefits, they are about pork barrel politics.

  5. @Bill: It's an odd form of pork, though, with the benefits going to sports-enthusiasts...

  6. Link correction: The Crompton paper ("Economic Impact Analysis of Sports Facilities and Events: Eleven Sources of Misapplication") is hosted at a new URL now, (Took me a while to track it down.)