Stadiums, teams not an economic winner for cities

January 20, 2021

Sports stadiums don't do much for the areas in which they're built. (AP Photo/Kelvin Kuo)

Despite sports teams and public officials touting the economic benefits of professional sports and new stadiums, neither major nor minor league teams generate substantial economic development for their metro areas, according to recent research in the Journal of Sports Economics.

Previous studies have shown that sporting venues and tenants don’t generate enough economic impact, or new economic activity, to offset public subsidies, though few have included minor league teams, which may create an omitted variable bias. 

“When somebody is trying to build a minor league baseball stadium, they’ll make the same exact arguments as major league baseball, which is it will generate economic impact and economic redevelopment, and they will do all these amazing things,” said Nola Agha, a co-author of the research and an associate professor at University of San Francisco. “Now, if you believe that, that means all along … we should have been including minor league teams as well, because minor league teams exist in major league cities as well.”

To analyze the economic development, or the increase of business infrastructure, from new sports teams and stadiums in a metropolitan area, Agha and her co-author, University of San Francisco professor Daniel Rascher, used the U.S. Census Bureau’s Statistics of U.S. Businesses database, gathering employment, establishment births and establishment deaths for every metro area. That data was then compared to the presence, entry and exit of teams in the MLB, NBA, NFL, NHL, MLS and WNBA, as well as in their corresponding development leagues.

The researchers noted that “in reality, it is messy to measure teams and stadiums,” with multiple teams in multiple leagues in the same city, often with different venues, and that new stadiums do not always coincide with team entry. However, Agha and Rascher controlled for these challenges, modeling each team change with various entry, exit and presence variables.

“And so what you really want to know is what’s the net gain,” Agha said. “And especially now, when we look at major league sports, they’re mostly building replacement stadiums, which means they’re often moving them from one side of town to the other, and in that case, again, we’re going to see a shift in business activity and in jobs.”

However, in each of the 43 metro areas in which a new stadium was built and a new team entered between 2004 and 2012, Agha and Rascher wrote, “there appears to be no statistically significant impact on establishment growth from team entry.”

Additionally, the researchers found that building new stadiums “was related to a negative and significant impact on the percent change in net employment of about 1.5 percent.”

In fact, Agha said, while moving a stadium from one part of a city to another benefits businesses in the new location, the area around the old stadium is often left struggling. 

Additionally, connecting the popularity of a team to its economic contributions may artificially inflate the actual impact that sports has on a metropolitan area.

“It’s a common claim that just because people went to the game that it’s doing something for the community,” Agha said. “But if those were people who lived in the community and, you know, instead of going out to dinner and having some great wings that night, they went to the ballpark, there’s no increase in economic activity. It’s not bringing people to the community. It’s just shifting money around.”

The only place where metropolitan areas saw economic development gains, according to Agha and Rascher’s research, was during the construction period for a minor league team in a smaller market.

Agha initially got into studying economic impact after growing up in Sacramento, California, and hearing the Sacramento Kings constantly ask for money for a new arena while the city was still paying off debt for the old facility.

“And I went to a high school where we had no money,” Agha said. “I mean, they closed the bathrooms all day long because they couldn’t afford toilet paper … it was terrible.”

Because of this, Agha said she’s always been fascinated by the public policy implications of spending money on sports stadiums.

“If you spend a lot of public money on stadiums, you’re not getting a lot in return,” she said. “In fact, you’re probably getting nothing in return. And so I really want, from a public policy perspective, [for] people to consider what are better alternative uses of public money.”

Agha said her findings are likely not surprising to other economists and academics, but despite the amount of research dedicated to the economic impact of sports, reality has yet to break through to the wider populace.

“Inevitably, when I meet anybody across the planet and they ask what I do … every single person is surprised that there’s no improvement,” she said. “There’s no benefit from having teams or spending money on teams. So it’s certainly something that is absent from public discourse but very, very consistent within the academic community.”

The study “Economic Development Effects of Major and Minor League Teams and Stadiums,” published Nov. 28, 2020 in the Journal of Sports Economics, was authored by Nola Agha and Daniel Rascher, University of San Francisco.

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