Economist: Sports' Economic Impact Difficult to Predict

Fueled by rising revenues from sales of luxury suites, the number of stadiums built for professional sports in the United States surged in the late 1990s. Franchise owners and stadium builders realized that revenue from suites could generate significant funding for expensive arenas.

While this trend improved the estimated return on investment in stadium projects, it remains difficult to quantify the new arenas spillover benefits to a larger community. For despite the considerable brainpower in the field, economists have never devised a model to explain urban economic growth accurately, said Robert Baade, the A.B. Dick Professor of Economics at Lake Forest College and president emeritus of the International Association of Sports Economists.

Speaking at a July 17 Public Affairs Forum at the Atlanta Fed's Birmingham Branch, Baade suggested ways that communities can improve the return on public investment in stadiums. It is important to attract out-of-town spending, he said, and to do that stadiums need to offer a unique experience. Locations with a historic element have been particularly successful—think Wrigley Field in Chicago and Fenway Park in Boston, two iconic, century-old baseball parks, Baade added.

Major sports facilities should be built with the needs of the surrounding community in mind. They shouldn't be islands in a sea of paved parking lots, Baade advised. Rather, new arenas should be integrated with other amenities to maximize the broader benefit. Also, facilities built strictly for sports will sit idle much of the time, so if the facility can be used more frequently it will bring more benefit, he said.

Debates should be broader than just economics
Debates about public funding of stadiums should focus not exclusively on economics but also on whether there is a quality of life payoff, Baade said. A critical consideration in funding sports arenas, then, is, "What will the facility add to your community?" he said.

For some communities, teams and stadiums bring prestige or a sense that "we have arrived," the economist pointed out. "Who could imagine Green Bay without the Packers?"

Baade also commented on hosting events like the World Games, an international competition featuring sports that are not included in the Olympics. Birmingham is bidding to host the games in 2021. Bidders for the World Games must be able to hold the games using existing infrastructure. Bringing visitors to a city without building facilities is a much less risky scenario than investing heavily in new venues, Baade said.

Questions about the wisdom of funneling tax dollars into sports arenas are far from just academic. Across the country, nearly $20 billion, about half of it public funds, has been spent building stadiums since 2001, Baade noted.

Public Affairs Forums feature noted speakers who offer insightful economic perspectives on emerging public policy issues that affect the U.S. and regional economies. This year, the Atlanta Fed will hold half a dozen forums throughout the District.