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Selling the Game: Estimating the Economic Impact of Professional Sports through Taxable Sales

January 1, 2008

This study uses government tax collections data to measure the impact of sports stadium construction on economic activity.

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This study, written by Lake Forest College assistant professor of economics Robert A. Baade and College of the Holy Cross professors Victor A. Matheson and Robert Baumann, uses government tax collections data to measure the impact of sports stadium construction on economic activity.

Studies conducted by sports subsidy supporters often suffer from methodological problems and make unrealistic prior economic assumptions, Baade and the researchers write.

“A typical ex ante economic impact study used by league and event promoters estimates the number of visitors an event or team is expected to draw, the number of days each spectator is expected to stay in the city, and the amount each visitor will spend each day,” Baade and the researchers wrote. “Combining these figures, an estimate of the ‘direct economic impact’ is obtained. This direct impact is then subjected to a multiplier, usually around two, to account for the initial round of spending recirculating through the economy. This additional spending is known as "indirect economic impact." Thus, the total economic impact is roughly double the size of the initial spending. While such an estimation method is relatively straightforward, academic economists have been quick to point out the failings of such ex ante studies, as they often rely on poor methodology and also suffer from several theoretical problems.”

There is little to no positive evidence of a causal link between sports stadium construction and increased economic activity, Baade and the researchers write.

“Professional sports leagues, franchises, and civic boosters have used the promise of sports franchises, new stadiums and arenas, and all-star games or league championships as an incentive for host cities to construct new stadiums or arenas at considerable public expense,” Baade and the researchers wrote. “In the past, league- and industry sponsored studies have estimated that mega-events such as the Super Bowl and all-star games increase economic activity by hundreds of millions of dollars in host cities. Similar studies claim that new stadiums or franchises also can have hundreds of millions of dollars of annual local economic impact. Our detailed regression analysis of taxable sales in Florida over the period from 1980 tomid-2005 fails to support these claims. New stadiums, arenas, and franchises, as well as mega-events, appear to be as likely to reduce taxable sales as to increase them.”

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