The Economic Impact of Sports Facilities, Teams and Mega-Events

The United States is in the last throes of a sports facility construction boom. Since 1990 more than 100 of the 122 premier level professional baseball, football, basketball and ice hockey teams have built or substantially renovated the facilities in which they play. Together more than US$25 billion has been or will be spent on these facilities between 1990 and 2010. Billions more have been spent on minor league and university stadiums and arenas. Depending on the details of one’s accounting methodology, approximately 70 per cent of the funding for these new facilities has come from public coffers. Since professional sports teams in the United States are owned by private, and invariably extraordinarily wealthy, individuals, these public dollars amount to handsome subsidies to some of the richest Americans. The predominant method of financing these facilities is through sales taxes, which fall proportionately more heavily on lower income individuals. The sports subsidy trend has also affected Australia, albeit not as intrusively as in the United States, perhaps because there is less private ownership of premier level sporting clubs in Australia, 1 and because the limited number of capital cities in Australia undermines the threat to leave a large city barren of top level sporting competition. Of course, government investment in the 2000 Sydney Olympics was extraordinary, and South Australia lost the Formula One Grand Prix race to Victoria in 1996 as a result of a more favourable government subsidy. More recently, there has been economic competition among several states to host the next club added to the rugby union super league, and governments in Tasmania, the Australian Capital Territory and the Northern Territory have paid money to have Australian Football League (AFL) clubs play some home matches each year in their states. The magnitude of expected economic benefits from staging major sporting events has grown so much as to induce state governments to construct special event organisations to improve their competitive advantage (Gans 1996, p. 300). As recently as August 2006, a leading South Australian business executive publicly challenged the nation to bid for the rights to stage more glamorous international sporting events like the soccer, cricket and rugby world cups because of the alleged huge economic boost that would flow from the events (Malinauskas 2006). These stark facts raise an important question. Why are sports facilities that generate revenues for private citizens and clubs being built mostly with public funds? The most common answer offered by politicians and business leaders is that teams and facilities provide a fillip to the local economy. Such a justification, however, has little empirical evidence to back it up. Policy Forum: Economics of Sport