Stadium Frenzy Ignores Economics

As the economy bounces back from recession, so is stadium construction in the U.S. The structures cost more than a pretty penny, but few seem concerned about economics.
By @wabbitoid |
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    Exterior rendering of the new Vikings stadium slated for completion in 2016.

    Exterior rendering of the new Vikings stadium slated for completion in 2016.

    The roar of the crowd is electrifying and the bubbling solidarity of the fans cheering on their team swells an intoxicating civic pride. The emotional arguments for professional sports are strong, of course, but is there a solid economic case for building sports facilities?

    The short answer to that question is: rarely. In fact, most cities have given up even trying to argue economics. But that hasn’t stopped a small boom in large stadiums as state and local governments slowlystart to recover from the recession.

    From 2008 to 2010, three stadiums were built to house NFL teams. These are the $710 million Lucas Oil Stadium in Indianapolis, the roughly $1.1 billion AT&T Stadium in Dallas and the $1.6 billion MetLife Stadium in New York. None have been built in the last four years, but two are under construction now — a $1 billion stadium for the Minneapolis Vikings and the $1.3 billion Levi’s Stadium in San Francisco. Another five have been proposed — inBuffalo (estimated cost $1.4 billion),Atlanta ($1.0 billion),San Diego ($1.0 billion minimum), and two tolure an NFL team back to Los Angeles (up to $1.2 billion for both).

     

    Return on investment

    All six projects — assuming there is only one in Los Angeles — add up to about $7 billion for new football stadiums. What kind of return can be expected from such a large investment?

    “All of the independent, scholarly research on the issue of whether sports teams and facilities have a positive economic impact has come to the same conclusion: One should not anticipate that a team or a facility by itself will either increase employment or raise per capita income in a metropolitan area.”

    That definitive statement comes fromAndrew Zimbalist, economics professor at Smith College and author of “The Bottom Line: Observations and Arguments on the Sports Business.” He is considered one of the most reliable critics of these projects, and his arguments have helped change the debate on stadiums.

    The reason the system doesn’t work is because the money that is spent on the team generally comes at the expense of other entertainment options, Zimbalist argues, not increasing economic activity overall.

    That’s not to say that stadiums are always a bad idea, Zimbalist contends.

    “Cities spend millions of dollars to support a variety of cultural activities that are not expected to have positive economic effects, such as subsidizing a local symphony or maintaining a public park. Sports teams can have a powerful cultural or social impact on a community. If that effect is valued by the local residents, then they may well decide that some public dollars are appropriate.”

    Roger Noll, an economics professor at Stanford, is another vocal critic of sports facility spending, but maintains that it’s not always a loss. He points out that by taking advantage of an arena or stadium to host a variety of events, “like concerts and tractor-pulls, all kinds of stuff,” the facility could actually pay for itself.

    “A well-managed arena can be occupied 250-300 nights a year. And they can break even,” Noll said. “And indeed, I don’t think there are very many cities out there who regret having built an arena.”

     

    Milwaukee’s plans

    There are 89 sports arenas in the United States able to hold anywhere from 15,000 and 26,000 spectators. Many are built for a basketball or hockey team but are also the center of a convention complex. One such proposed arena — a potential new home for the NBA’s Milwaukee Bucks — offers an excellent case study of the economics and politics of sports facilities today.

    First proposed in 2012, a replacement for the 26-year old BMO Harris Bradley Center has been a very contentious issue in Milwaukee. The arena stands alone, hasn’t been maintained well by the team and isshowing its age. The initial cost estimate to replace it swelled from $300 million to $400 million, with $200 million coming from team sources and the rest from a proposed sales tax increase. Public opposition to the projecthas become fierce.

    Alderman Michael Murphy of the Milwaukee Common Council requested a study to determine the economic benefits of a new arena, which was carried out by city’s Legislative Reference Bureau. It’s athorough study of arenas in other cities as well as other nearby sports venues.

    It’s probably the most comprehensive study ever done on a sports facility in advance, but it’snot encouraging for backers of the new arena.

    For example, the $357 million that Oklahoma City put into an arena in 2008 to lure the NBA to that city from Seattle was supposed to generate $5 billion in private investment. The report was only able to identify $500 million such investment. It’s not zero, however, and given the right circumstances or a lower civic contribution, it may make sense for a city. But this hasn’t helped make the case for the arena in Milwaukee, which hasbecome a hot issue in the looming governor’s race.

     

    Why so expensive?

    If it is possible for some redevelopment benefit to be realized, any cost-benefit analysis has to tackle the question of cost. Here, the question is almost always: Why are these structures so expensive?

    “It’s the overall size of these things,” saidEric Schreiner, a manager for Hunt Construction Group who has supervised the construction of several facilities. “Owners keep wanting more and newer and better kinds of amenities in them, and it keeps adding to the cost.”

    The total floor area has increased 20 to 30 percent in the last decade as more amenities are incorporated into facilities to capture revenue from fans eating and drinking. In other words, costs have soared as the comprehensive nature of the facility limits the potential economic impact for local independent businesses.

    “We talked to a baseball owner about six months ago who’s looking at renovating a venue, and the plan was to add 25 restaurants and bars,” said Bill Palmer, a vice president business development of Hunt Construction Group.

    “I mean, nobody went to a bar inside a stadium 20 years ago. You went to a game and then you left right after,” he continued. “They try to keep you captured in these venues; they give you as much stuff to do there as you possibly can, so you’ll spend more money there.”

    For all the pressure to build new facilities, generating a positive return is difficult but not impossible. What is new in this sports building boom, however, is that very few arguments are being made based on economics. Civic pride and the image of a city are considered the most important benefits of a new stadium or arena, while economic arguments are very publicly shot down. Limiting the argument to these “intangibles” hasn’t stopped the flow of a tremendous amount of money into new projects, either.

    The views expressed in this article are the author’s own and do not necessarily reflect Mint Press News editorial policy.

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      • xeranar

        It’s a short-term economic boon that should be either done as a fully-public funded and owned affair or strictly private. The fact is the public keeps getting the short end of the stick because we don’t take a percentage of ownership to recoup our cost.