Is there any economic justification for government stadium funding?
Local economists hear that question a lot lately. For most of us, the answer remains an emphatic no. That may not mean much, however, to the Minnesota Legislature or to local city councils.
I, personally, think stadium funding is extremely bad public policy. But I recognize that my antipathy to public funding goes beyond economic rationality. One can find some economic justifications for stadium subsidies. Let me try to present both sides of the issue.
The basic argument for government funding of anything is that when some good or service has substantial positive externalities, government action may make society better off. Private firms in free markets won’t provide police or fire protection, sewage treatment or public health departments because there is no way to limit the benefits of such initiatives to their paying customers.
The United States had professional baseball for decades before anyone thought it essential for government to pay most of the cost of stadiums. In the days of Babe Ruth, Lou Gehrig and even Mickey Mantle, fans would pay to see their heroes. Gate receipts paid team and stadium expenses.
Given the billions of dollars that contemporary TV networks and fans are willing to pony up for pro sports, it is hard to argue teams would not exist without publicly funded stadiums. Players earn millions, yet the market price for professional teams of all kinds continues to appreciate faster than other assets.
Clearly, municipalities created the current environment where teams demand and get public money. In recent decades, more and more teams were lured from one city to another with promises of publicly financed stadiums that would maximize owner revenues. Owners learned the lesson fast and turned it into an extortion game: “Give me a better stadium to increase my revenues and the value of my franchise or I’ll find someone else who will!”
Giving in to this blackmail involves the same waste of resources for society as a whole as using government money to lure automobile — or motorcycle — factories. But some people and some individual units of government may benefit from some deals.
Restaurants, bars, hotels and parking lots see more business when there is a pro sports team. Many residents like having a local team to cheer. These considerations motivate political support for public subsidies, particularly if structured so that “somebody else” seems to be paying most of the freight.
One other factor gets little attention. Out-of-control player salaries are part of the problem. States, like Minnesota, that have an income tax, get 8 percent or more of those fat payrolls. If a team moves, those revenues are gone.
Economists are right when they say that if the government spent as much money on anything else as on a stadium, it would provide similar economic stimulus to local economies and probably less net stimulus than if the dollars stayed with taxpayers in the first place. But if citizens really value having a local team and are willing to pay the taxes, so be it.
© 2004 Edward Lotterman
Chanarambie Consulting, Inc.