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Financing Professional Sports Facilities

January 1, 2011

This working paper from the International Association of Sports Economists, written by Lake Forest College economics professor Robert Baade and College of the Holy Cross economics professor Victor Matheson, studies the history and evolution of public

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This working paper from the International Association of Sports Economists, written by Lake Forest College economics professor Robert Baade and College of the Holy Cross economics professor Victor Matheson, studies the history and evolution of public financing of sports stadiums, and how sports stadiums affect local economic development.

Baade and Matheson write that economic projections suggesting sports stadium subsidies suffer from several common errors.

“The first common error is the failure to account for the substitution effect,” Baade and Matheson wrote. “While it is undeniable that sports fans around the country and around the world spend significant sums on spectator sports, in the absence of such entertainment opportunities, their spending would be directed elsewhere in the economy. A night at the ballpark means more money in the players’ and team owners’ ockets, but it also means less money in the pockets of local theater or restaurant owners. Most economists not associated with teams or event organizers advocate that any spending by local residents on local sporting events be eliminated from economic impact analyses.”

Baade and Matheson write that money going into sports stadium subsidies may not stay in the local economy.

“The nature of professional sports is that the athletes generally command as wages a large share of revenues generated by sporting events,” Baade and Matheson wrote. “However, the athletes themselves are typically unlikely to live in the metropolitan area in which they play. Therefore, the income earned by athletes is not likely to re-circulate in the local economy, leading to a lower multiplier effect. In the extreme, spending at a sporting event could actually reduce local incomes, as money is diverted from an activity with a high multiplier, for example a dinner at a locally owned and operated restaurant, towards sports, an activity with high leakages.”

Author
Robert A. Baade, Ph.D., is the A.B. Dick Professor of Economics and Business at Lake Forest College in Lake Forest, Illinois.
baade@lakeforest.edu