Having a professional sports team in your hometown can be an excellent source of local pride, a form of community entertainment enjoyed by broad cross-sections of the population, and in some cases, even a deeply rooted part of your region’s history. And of course, most professional sports teams are enormous financial entities, many worth well over a billion dollars, employing thousands, and generating additional millions in ticket sales, concessions, merchandise, and more.
But how much of this money really goes back into the local economy? Do professional sports teams actually contribute to the community? Do those expensive stadium deals and massive sports complexes pay for themselves and then some?
Well, the answer is that it’s complicated. Every team has a unique relationship with its host city. The Green Bay Packers are actually owned by the city of Green Bay and its residents fan, which means that the organization’s fortunes are deeply entwined with those of its fan base and the local economy. Teams like the Dallas Cowboys and the San Francisco 49ers are enormously popular with fans across the nation, which means that merchandising sales are pretty substantial everywhere, but the profits from those sales are rarely if ever seen by the communities that these teams call home.
And then there are those teams who have been actively courted to new host cities–take for example the Las Vegas Raiders or the Los Angeles Chargers–who have been the beneficiaries of recently publicly subsidized stadium construction projects. Such enterprises often come with big promises about the inevitable economic boost that the surrounding community will experience as a consequence of both the new construction and the long-term presence of this money-making enterprise. But do publicly financed stadiums actually bring improvements to their local economies?
And what about teams that win championships? How has a tradition of winning economically benefited local fans of the New England Patriots, the Philadelphia Eagles, or the Los Angeles Dodgers? We’ll do our best to address these questions here below as we probe for a deeper understanding of the economic relationship between professional sports teams and the local economies that surround them.
If you’re wondering how all of this relates to the enormous salaries enjoyed by professional athletes, feel free to check out our study of sports salary inflation over the decades. Otherwise, read on for a better understanding of how the presence of a professional sports team does and does not benefit the local economy.
Spoiler alert: courting a sports team can actually be a bit of a mixed bag for the local economy, especially when taxpayers are footing the bill.
An Overview of the U.S. Professional Sports Market
Professional sports are more than just fun and games here in the United States. Indeed, it is big business, and perhaps bigger here than anywhere in the world. Indeed, the size of the U.S. sports market by revenue is greater than that of Europe, Africa, and the Middle East combined. But just how big a business are we talking about here?
Well, a report from Statista measures “the sports market size in North America from 2009 to 2018, with forecasts from 2019 to 2023. In 2018, the North American sports market had a value of about 71.06 billion U.S. dollars. This figure is expected to rise to 83.1 billion by 2023. The market is composed of the segments gate revenues, media rights, sponsorships and merchandising.”
Statista also breaks this revenue out into distinct categories, noting that merchandising is projected to account for $15.4 billion in revenues in 2023, while sponsorships are projected to represent $20.65 billion in earnings. Statista identifies media rights as the fastest growing segment of revenues, noting that this source skyrocketed from $8.5 billion in 2006 to $20.14 in 2018. The report attributes the rapid growth to dramatic proliferation of cable, streaming, satellite and digital media options and outlets for viewers.
So clearly, there’s a ton of money in American professional sports. But how much does this revenue benefit the everyday consumers who share local communities with their sports teams? Do these teams, which often enjoy such close historical and cultural ties to their hometowns, actually contribute to the local economy? Or do these many billions of dollars simply benefit a small segment of extremely wealthy team owners and corporate entities?
Well, on the surface, it would seem that the latter is true, that the bulk of this wealth remains in the hands of those who are already wealthy. However, as we’ll discuss later in this article, there are some exceptions to this rule. As it happens, most of those exceptions require your local sports team to actually be good. (My apologies to all you New York Jets fans out there).
Publicly Subsidized Stadiums and Property Value
Technically, fans of the New York Jets have one advantage over some of the other teams out there–not on the football field of course–but with regard to the cost of the football field. The Jets actually share their stadium with the New York Giants…which sounds kind of demoralizing.
But at least Jets fans haven’t been sold on the largely false premise that building a taxpayer funded stadium is good for the local economy. Evidence suggests that this premise is essentially a myth, but it’s one that continues to carry credibility. So why is that?
Well, politics are a factor. Civic leaders will often go to great pains to attract new or relocating sports teams. And why not? The move is always popular with local publics, and inevitably comes with lots of big promises about how these publics will benefit. But the reality often pans out quite a bit differently.
In spite of the glowing promises, these billion dollar deals are rarely ever the boon to local citizens that they proclaim to be. A study from the Economics of Governance Journey examines these promises in relation to the public-private partnership between Major League Baseball’s Atlanta Braves and Cobb County, Georgia over the construction of Truist Park, which opened in 2017.
The study explains that “Local governments often justify subsidizing sports stadiums as economic development projects that have positive returns on investment. If this is true, economic and quality-of-life spillovers that are capitalized in local property values ought to generate additional tax revenue for host municipalities through increased property assessments. This analysis uses the synthetic control method to estimate the effect of a new publicly-funded professional baseball stadium and team relocation on property assessments in Cobb County, Georgia. Cobb assessment values did not increase relative to other metro-Atlanta counties following the stadiums’ announcement or opening, which is inconsistent with the stadium having a positive fiscal impact, even with its desirable location and accompanying mixed-used development.”
The study goes on to note that these findings are largely consistent with similar past studies in other settings, which suggest that building a stadium in a specific region has not proven to raise property value for nearby homeowners. This undermines one of the most frequently brandished claims by those who campaign vigorously to see stadiums built in their own communities.
Indeed, as an article from Marketplace indicates, it is often a popular political proposition to bring a professional sports team and its arena into town. Moreover, notes the article, it is nothing less than political suicide to let a team leave town for a new home. This is the type of event that can have a seriously deleterious impact on local civic pride, not to mention electoral support for those who allow it to take place on their watch.
But on the other side of the coin, says the article from Marketplace, the impact on the local economy from courting and constructing a stadium is actually one thing that the vast majority of economists can actually agree on. There is pretty broad consensus that the local economic impact of building a stadium is actually something next to nothing.
The article suggests that if, for instance, all five professional sports teams left the city of Chicago tomorrow, the loss of local revenue would actually be a fraction of 1%. Experts compare the loss of a Major League Baseball team in a major metropolitan city to the closure of a small department store.
The loss of revenue to the community and its residents would be minimal, say researchers.
But why is that exactly?
Local Residents Have Limited Entertainment Budgets
Well, according to the Marketplace article, it has a lot to do with the way that local residents are budgeted. According to Marketplace, “Economists say the biggest reason sports teams don’t have much impact is that they don’t tend to spur new spending. Most people have a limited entertainment budget, so the dollars they are spending when they go to a game is money they would have spent elsewhere, maybe even at a restaurant or small businesses where more money would have stayed in the community.”
Simply stated, bringing a stadium to a local community doesn’t suddenly create more disposable income for residents. Even if those disposable dollars are spend in the stadium or surrounding area, this does not translate to a sudden infusion of more spending money.
Not only that, but the Marketplace article cautions that some residents might even choose to avoid the area surrounding a sports complex due to the crowds, difficulty of parking, and elevating cost of experiences in its proximity. In other words, the article suggests, “rather than draw people to a neighborhood, games can actually repel them.”
For some local businesses, the construction of a stadium could actually spell financial difficulty–a strong contrast to the supposed multiplier effect.
Indeed, the Marketplace article observes that the local economy of the Inglewood section of Los Angeles actually saw a slight boost when the NBA’s Lakers departed the low income urban area for the Staples Center in downtown Los Angeles. The implication is that people tended to spend their money on local enterprises in the absence of the opportunity to send their money attending Lakers games.
In other words, those living in the neighborhood and surrounding areas didn’t suddenly have more money to spend on going out when the Lakers played in their backyard. Instead, they were more likely to spend their money on tickets, concessions, and merchandise sold inside the arena than on going out to local restaurants and bars. In this instance, the multiplier effect proved to be something of a myth.
But does that really matter? After all, all that money still goes into the local economy, right?
Revenue Made From and Within a Stadium Is Rarely Returned to the Local Economy
So how can that be? Clearly, sports teams generate an enormous amount of economic activity. Many of these organizations are worth well over a billion dollars–even the kind of mediocre teams. With ticket sales, concessions, and merchandise generating millions every day, how is it possible that teams aren’t infusing their local economy with some portion of those daily millions?
Well, the truth is that little if any of that money feeds into the local economy. Concessions stands are generally staffed by national brands like Aramark while ticket sales are handled by national brokers like Live Nation and Ticketmaster. Stadium sponsorship is typically awarded to multinational banks, brokers and other financial entities. Media contracts are almost invariably made between teams and massive media conglomerates.
In other words, most of the big money involved in professional sporting passes between massive entities without ever trickling down to the people who fill the stands and live in the areas around the stadium.
But what about merchandise. Well, because all teams sell merchandise using league registered logos and trademarks, the merchandise sold inside a stadium feeds into a revenue sharing system. Those sales generally benefit the small billionaire clubs made up of team owners. Of course, an extremely popular team brand can carry benefits for local retailers who profit from the sale of apparel
However, it should be noted that those benefits are not really empirically connected with the act of erecting a billion dollar stadium in a specific municipality using taxpayer money. Local vendors of merchandise profit on sales whether or not the team builds a stadium nearby.
Just how much these local vendors profit, as we’ll discuss in a section below, actually has a lot more to do with the actual on-field success of your team than whether or not that team builds a stadium in your town.
In other words, the aspects of professional sports and stadium construction which draw the most revenue will typically place none of this money into their local communities. So when taxpayers fund stadium building projects, it is rare that they are ever repaid through economic opportunity. As an article from the Berkeley Economic Review notes, these taxpayer subsidies are often elicited with grand promises.
“Unfortunately,” the article notes, “the subsidies have not created the local impact that they promised. To understand why, let’s consider the Atlanta Falcons’ new stadium, which cost $2 billion for construction—$700 million of which was paid by local taxpayers. While proponents may talk about a multiplier effect, several theoretical and empirical studies of local economic impact of stadiums have shown that beliefs that stadiums have an impact that matches the amount of money that residents pay are largely unfounded. The average stadium generates $145 million per year, but none of this revenue goes back into the community. As such, the prevalent idea among team owners of ‘socializing the costs and privatizing the profits’ is harmful and unfair to people who are forced to pay for a stadium that will not help them.”
That’s because it places sports fans in the position of being both consumers of the product and part of the capitalization structure that helps to build this product. Simply stated, as fans, we’re paying twice.
Professional Sports Are Seasonal
Even with the understanding that so much of this revenue will ultimately be returned to an array of multi billion dollar companies, advocates for subsidized stadium projects do offer a number of other arguments to suggest that there will be a positive economic ripple effect for those living and working in the surrounding communities.
The standard argument in favor of constructing a stadium in one’s local community is the impact it is proposed to have on local employment numbers as well as on local restaurants, bars, and businesses. This is called the “multiplier effect” and is meant to suggest that bringing a professional sports team into a city carries a ripple of benefits for all.
The idea is that the construction of this large new economic entity will ultimately translate into jobs and opportunities for nearby small businesses.
On the job front, it is sometimes true that the construction project itself can provide a temporary surge in local employment opportunities. But the surge is typically a short-term gain. Once the project itself is complete, the gains to local employment largely fizzle. A major reason for this is the inherently seasonal nature of professional sports.
Each professional sporting season is only a few months long. So stadiums that are built to house the activities of just one professional sports team will generally cost close to $1 billion for construction, but may consequently host just a few major events in a full year.
As a 2014 study from Bryant University points out, “Sports stadiums cost hundreds of millions of dollars to construct; New York’s Madison Square Garden alone cost $1.1 billion dollars to build. Owners of the franchise claim that the revenue generated by ticket sales, team merchandise sales, and jobs created will outweigh the costs. However, similar to the Olympics, the stadium is rarely used during the offseason. There are no ticket sales or jobs for stadium employees. The stadium is only generating money for about half of the year. The opportunity cost of building a stadium that only functions seasonally, as opposed to starting small businesses that function year round, indicates that the economic impact of the franchise is not necessarily that significant in the long run.”
The math is particularly unfavorable in the case of a sport like football, where there are typically no more than 8 or 9 home games in a single year, and entirely concentrated between the months of September and January. This hardly qualifies as a stable pathway to either boosted employment or a surge in revenue opportunities for local businesses. Indeed, returning to the point made above regarding the city of Chicago, at least a small department store would be open, operational, and filled with employees both daily and year round.
The Opportunity Cost is High
It actually isn’t quite sufficient to suggest that choosing to subsidize a stadium using taxpayer’s money will have no economic impact on its local community. In fact, there’s an argument that the impact could actually be negative.
While members of the local economy are being sold on the so-called multiplier effect, it’s reasonable to deduce that the enormous sum of financial resources placed into the construction of a stadium may well be at the expense of other priorities, some of which might have stimulated far more obvious, tangible and sustainable economic benefits for the local economy.
To this end, according to the study by the Berkeley Economics Review, “a study by Noll and Zimbalist on newly constructed subsidized stadiums shows that they have a very limited and possibly even negative local impact. This is because of the opportunity cost that goes into allocating a significant amount of money into a service like a stadium, rather than infrastructure or other community projects that would benefit locals. Spending $700 million in areas like education or housing could have long-term positive consequences with the potential for long-term increases in the standard of living and economic growth.”
In this regard, cities with economic challenges, infrastructural demands, and with large portions of the population living below the poverty line may well be sacrificing true economic progress in favor of a popular but impractical proposition.
So with all of this in mind, what really is even the point of courting a professional sports team outside of the political popularity of this achievement?
Well, there is a silver lining for those teams that actually bring trophies, titles and parades to their hometowns.
Success Can Improve the Outlook
Indeed, the study from Bryant University concurs with most of our findings–that financing a stadium can have modest, short term benefits but will carry little to no long term positive impact for the local economy. However, the study does make an exception, noting that economic life is somewhat better for those whose teams have a tradition of winning.
According to the Bryant University study, “Another factor that determines the impact of a sports franchise on the economy is the success and popularity of the team. Big-market teams such as the Boston Red Sox, Pittsburgh Steelers, and Los Angeles Lakers are going to have a bigger impact than teams such as the Kansas City Royals, Jacksonville Jaguars, and Charlotte Bobcats. The success of the team plays an important role as well. A team that is consistently making the playoffs and winning championships will draw more fans to the game, sell more team merchandise, and be featured on national television more often than teams that do poorly year after year.”
Or to put it in a way that most sports fans can understand, the Cleveland Browns are probably doing very little to benefit the hard working folks in the urban centers and nearby suburbs of the city on the Cuyahoga River.
On the other hand, the same city did benefit enormously from its relationship with NBA superstar Lebron James. The evidence suggests, in fact, that the aforementioned multiplier effect can be very real in instances where a sports team experiences visible and meaningful success.
According to an article from the U.S. Chamber of Commerce, “Harvard and Case Western University public policy professor Daniel Shoag investigated James’ economic impact on the cities he played for in 2017. He found that James’ presence, and the effect he had on game attendance, impacted the businesses around him. The total number of bars and restaurants within one mile of team stadiums grew by an aggregate of 13% and total employment saw an increase of roughly 23.5%”
Of course, things like the trajectory of a player’s career or the ability of a franchise to bring home championships and sustain ongoing competitive success are difficult to predict and impossible to guarantee. But evidence suggests that those which do experience some level of continuing success are proven to have the so-called multiplier effect.
For instance, the article points to the consistent success of the NBA’s Toronto Raptors, who were formed in 1995 and who surged to relevance with the 1998 draft acquisition of future superstar Vince Carter. The result was a team that consistently appeared in the NBA playoffs in the subsequent years, a pattern which the article from the Chamber of Commerce says served to benefit the local economy in the city of Toronto and its surrounding region.
According to the U.S. Chamber of Commerce, “Toronto’s success has a strong correlation with rising consumer spending, which is benefiting Toronto’s economy. Credit and debit processing firm Moneris reported that transactions in the Greater Toronto Area had risen by 28% and reached a high of 76% as the game ended and fans went to bars to celebrate. The economic boom catapulted by the Toronto Raptors was not limited to just the city itself. The impact was seen in Vancouver, Calgary, and Edmonton as well.”
But unlike the brief boost that a local economy might receive from a stadium construction project, there is some evidence that a team’s regular appearance in the postseason can carry ongoing benefits for the local economy. The U.S. Chamber of Commerce notes, for instance, that merchandise sales for a given team will see a roughly 24% boost in sales.
Indeed, returning to the Toronto Raptors, their appearance and eventual victory in the 2019 NBA Finals was a huge boon for the team and its surrounding economy. The Chamber of Commerce reports that Game 1 of that series saw the single biggest day of apparel sales in the team’s history.
More than four years later, there is some evidence that the city continues to enjoy the spoils of that one magical run to the championship. To the point, “Richard Powers, a sports marketing expert and associate professor at the University of Toronto’s Rotman School of Management, described the long playoff run to CBC news in Canada as ‘huge for Toronto’ since the long term impact on entertainment and tourism could be up to $1 billion over a 10-year period.”
Naturally, all of this is just a bit anecdotal. But that is exactly the point.
Success May Be Fleeting
It’s impossible to predict anything in life beyond a reasonable doubt. That uncertainty goes doubly in professional sports. Just ask the city of Cleveland. (Sorry Cleveland. We don’t mean to keep picking on you but…well, here we are.)
The city was riding high on the success of the LeBron James era. But the economic boom was only temporary. The city could not have foreseen nor planned for his departure, but the Cleveland Cavaliers immediately fell out of the perennial contention that they had enjoyed with LeBron on the court. It had a very real consequence for the local economy.
Remarkably, says the article from the U.S. Chamber of Commerce, “when James left the Cavaliers in 2010 to join the Miami Heat, the franchise value of the Cavaliers fell from $476 million to $355 million in just one year, according to Forbes.”
The result was also naturally felt in dramatically diminished ticket sales, stagnant merchandising, plunging concession sales, declining viewership, reduced recreational spending and all the other rippling dimensions of recession in the local sports economy. So while the multiplier effect offered some boon to the city of Cleveland and the surrounding area with LeBron James on the team, that same effect disappeared entirely when just this one person left town.
We’ll Buy the Hot Dogs–You Pay For the Stadium
So what’s the point? Well, simply that the benefits rendered by a professional sports team to a local economy are hardly bankable, which makes an upfront investment of taxpayer money a shaky proposition…and yet an exceedingly commonplace arrangement these days.
But the article from the Berkeley Economic Review makes a pretty strong point. The benefits to a local economy can be just as capricious as success in professional sports. And ultimately, this reinforces an unfortunate reality. Taxpayers are constantly helping to finance massively profitable enterprises for people who will both reap all of the profits from these enterprises and who could have easily afforded to finance their own stadium construction.
In other words, the benefits to the local community are a gamble with bad odds. The benefits to the owner of a sports team are basically a sure thing. All of this suggests that the current model in which cities use taxpayer funds to attract sports teams is a poor economic proposition for members of the voting public. This is not to say that we shouldn’t desire our own professional sports teams. It just suggests that our job is to pay for tickets, hot dogs and merchandise–not for stadiums.
As the article from Berkeley Economic Review suggests, university football programs may offer a far more equitable way forward. The article notes that “stadium construction in college sports is indicative of the precedent in professional sports. College sports, especially in historic, blue-blood programs, can affect communities just as strongly as professional sports teams can. For example, the University of Alabama’s football program brought in $174 million in revenue in 2018, which is comparable to professional sports teams. However, Alabama was funded entirely by the school, carefully racking up profits before deciding to invest in a new stadium. Starting something similar in professional sports could lead to a system of self-sustenance and owners considering stadium costs when deciding to purchase a new team.”
With so much concrete evidence to suggest that taxpayer subsidized stadiums rarely if ever yield fruit for the taxpayers themselves, there is every reason to argue that this practice should be abolished. Those who own professional sports teams profit handsomely from their stake in an economy which continues only to swell in revenue. They can pay for their own stadiums.
None of this is to suggest that there’s no connection at all between sports and your financial well being. It’s just that this connection has little to do with your fandom for the local professional team. All of your financial benefits will come from your own athletic endeavors. What do we mean?
Well, it turns out that there’s tons of scientific evidence connecting a healthy, athletic lifestyle with improved earning potential. To learn more, check out our article on how staying healthy can improve your career trajectory and raise your salary.