The Economics of Sport: What's the Score?

Are professional sports teams and so-called "mega-events" like the Olympic Games a good bet for economic development?

"Usually not," said Dr. Robert Baade, a professor of economics at Lake Forest College, who discussed the economics of professional sports at the Federal Reserve Bank of Atlanta's most recent Public Affairs Forum.

In recent decades, state and local governments have subsidized the construction of numerous state-of-the-art sports facilities, in part based on the belief that it would spur economic development. But according to Baade's research, that assumption is incorrect.

Proponents of subsidized stadiums often rely on economic impact estimates that ignore important realities, he explained. For instance, a large portion of sports revenues go toward players' salaries. But since many players aren't full-time residents of the city in which they play, their salaries are often repatriated elsewhere instead of circulating within the local economy.

Further, households have limited amounts of time and money. So if they spend more of these resources on professional sporting events, they are spending less elsewhere, such as at local bowling alleys, restaurants, or movie theaters. In this sense, professional sports could actually contribute to a decline in economic activity "because so little money, relatively speaking, is being retained within the city to be spent and re-spent again," Baade said.

The economics of sport isn't all bad. One-time events such as the Olympics can bring together disparate parties to agree on a common goal, he noted. "So the real key for making something like the Olympics work is to use it as something a community can coalesce around."