Monday, June 04, 2012

Report: pro sports do not return the public resources they take

A recent report from an investment bank of all places cuts through the flack on pro sports and realistically assesses actual impact:
independent academic research studies consistently conclude that new stadiums and arenas have no measurable effect on the level of real income or employment in the metropolitan areas in which they are located. Feasibility studies for professional sports facilities often fail to account for the substitution effect. Individuals generally maintain a consistent level of entertainment spending so money spent on sporting events typically comes at the expense of cash spent in restaurants, on travel, and at movie theaters.

Hence, managing sports and entertainment encumbrance is a zero sum game: sports claim money that will not be spent on other forms of entertainment. And in many cases, the competing forms of entertainment do not have the resources to keep up with subsidized sports:
These same studies also fail to accurately assess the degree to which sports crowd out other types of economic activity. The physical infrastructure of a city, whether it’s a private hotel or a public airport, cannot abruptly increase capacity. As a consequence, sports fans tend to displace other visitors. As acase in point, Robert Baade and Victor Matheson at the College of the Holy Cross have examined the number of visitors to Beijing during the Summer Olympics of 2008. Tourist arrivals for the month of August did not fluctuate year-over-year and the number of visitors to Beijing actually declined on an annual basis. Similar results can be found for Olympic Games held in the US and for such sporting events as the Super Bowl. There appears to be no increase in retail sales, hotel occupancy rates, or passenger enplanements in cities that hosted Super Bowls and Olympic Games, at least in the decade prior to 2003.

These facts undercut the claims of advocates of corporate sports welfare, who insist that public revenues invested in teams are catalysts for secondary business growth. Instead, there is a drain on local resources, a risk for local nontax revenues "available" for debt service (which decreases funding for metropolitan services) but also a critical tipping point for strapped sports franchises:
The use of public subsidies to underwrite the cost of construction for a new stadium or arena was a contributing factor in the rapid increase in the valuation of sports franchises .... This type of growth is difficult to sustain without greater leverage. An uncertain economy, labor strife, and volatility in the financial markets all have taken a toll on some ownership groups in each of the major sports.The leverage employed to meet the asking price for a new sports franchise has undermined the financial stability of some ownership groups. Major League Baseball, the National Basketball Association, and the National Hockey League currently operate franchises directly in place of ownership groups that are facing insolvency. Ironically, these situations may prompt another round of team relocations and another cycle of public sector bidding for professional sports.

The report honestly points out that subsidies for pro sports help a narrow band of people in local communities: wealthy franchise owners and spectators. Otherwise, the benefits do not spread around to everyone like they do with public utilities and transportation infrastructure. And the claims of boosters that all boats rise on the tides of pro franchises are disingenuous and unfounded.

Nashville has already taken the risk with a pro football team and a pro hockey club, and the trade-off for the "prestige" of pro sports and drag on our resources is in place. The political will for rethinking these arrangements seems weak here. For example, Nashvillians seem fine with paying higher stormwater rates while millions from Metro Water subsidize the Titans franchise annually.

Reportedly there are a couple of exceptions where other cities demand that the private sector pull its share of the load for pro sports. San Francisco built a National League ballpark without using public bonding debt, and the city is demanding that their NBA franchise pursue private financing. While tax dollars are being used by Washington DC to subsidize major league ballpark for the Nationals, the taxes are levied on the 1,800 largest businesses, which sounds more progressive to me than drawing on the public resources used by the largest number of people.

I cannot see Nashville pursuing either of these options for fear of inconveniencing the private sector. Mayor Karl Dean would not even levy a fair stormwater fee on businesses, saddling the rest of us with the burden of paying off the largest share. Nashville seems willing to cough up money that other cities are starting to hold on to.

Hopefully, as Nashville moves toward eventually approving a minor league baseball park, we will be more careful about the bill of goods we are sure to be offered due to our reputation for handing money over.

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