More Sports Economics... How Much are You Willing to Pay?

Continuing on with some more sport economics, this article explains the prices paid by the public when a team stadium is introduced and subsidized by the city. I found it very interesting that so many stadiums have been built in the last 20 years. On average, over half of the teams in the MLB, NFL, and NBA have received new stadiums. The argument is about whether these stadiums should be subsidized by the public, for private gains. Some economists argue that it hurts the local economy by lowering personal income. Others say that it is increasing the worth of the city and providing positive economic leisure benefits. I agree that stadiums are an important part of a local economy. Everyone here in Utah knows what the Delta Center is even if they don’t follow sports at all. The problem with subsidies is if a team happens to relocate and the public is left with the tab. This article about the Astrodome provides more information on the downside of stadium subsidies.


Patrick said...

It's interesting how the recession has affected various sports. The NBA borrowed $175 million to support struggling teams. The NFL sold out 45 of their first 48 games in 2009. Tennis had record attendance at the US Open. Soccer and NASCAR has seen decreased sponsership, while Arena Football canceled their entire season. On the local level, there have been partial cuts in various school programs to avoid having to completely cut a program.

Dr. Tufte said...

The problem with using something like the Delta Center as an example, is that you're ignoring opportunity costs.

Take something like the new baseball stadium in Minneapolis. Taxpayers are on the hook for about $350 million of its cost. Yes, it will provide benefits - just as the Delta Center has and does.

Here's the thing. The benefits are easy to measure. The costs are less obvious, but easy to measure. All we have to do is multiply the price tag times the WACC or some other reasonably appropriate interest rate. In this case, perhaps we get a cost of $35 million per year from 10% per year. Will the team generate that much net benefit to the city? That's almost impossible: the owners are getting as much benefit as they can, and they're not getting anything close to that level of yearly asset appreciation.