A Swing and a Miss: How Governments Whiff on Stadiums Deals

Staff

The classic 1989 movie Field of Dreams is known for the line “If you build it, he will come.” The phrase inspires an Iowa corn farmer to build a ballfield amid his crops to facilitate the return of the 1919 Chicago White Sox, especially Shoeless Joe Jackson.

Mayors of large American cities appear to believe movie magic can also happen in real life. If you build a stadium, a professional sports team will come, expense be damned.

Dream on. In reality, stadiums are usually boondoggles for their host cities.

Oakland A’s Move to Vegas?

This issue has become top of mind in Nevada since the state legislature approved a bill last summer to fork over $380 million to the Oakland Athletics for a $1.5 billion stadium in Las Vegas – legislation opposed by many city residents. In May, the Nevada Supreme Court rejected the teachers’ request for a referendum on the A’s subsidy, saying it should have cited the full 66-page law and not just the aid for the baseball stadium.

Schools Over Stadiums is collecting signatures anyway for a 2026 referendum. The teachers’ group will soon need more than 100,000.

The Athletics’ lease in Oakland runs out at the end of this season, and they’d like a new stadium. Wouldn’t we all? Charlie Finley moved the As to Oakland in 1968 because he didn’t like his deal with Kansas City.

Do Stadiums Really Help Local Economies?

Armed with public support, team owners can indeed exert influence over city hall. The public, under the impression that professional sports bring economic benefits to cities, often accepts this dynamic. However, the belief is often misleading, as funds allocated to stadiums replace local entertainment options.

When a Las Vegas family spends $150 on tickets and peanuts at a sporting event, it likely rebalances its budget by cutting back $150 in spending on family dinners at, say, an area Chinese restaurant. It is better off because it prefers sports to chow mein; but the city has seen no change in spending income than before.

There are other possibilities. The family could spend $150 more on baseball and $150 less on goods outside Las Vegas, such as an online subscription to The Robber Barons.

A family’s spending at an A’s baseball game would just be money not spent on entertainment somewhere else in Nevada.

In that case, the stadium would have produced a pure gain for Las Vegas. But it is most likely that the family would simply substitute a baseball game for another form of leisure, such as going to a Vegas Museum, casino or waterpark. That would mitigate the gain to the city and would explain why statistical studies find that building a stadium rarely increases a city’s net income.

Economists’ Thoughts on Stadiums

When stadium competition was at its peak, the Brooking Institution’s Andrew Zimbalist and Roger G. Noll reported that new sports facilities have an extremely small – perhaps negative – effect on the economic activity and employment in an area. That was in 1997.

“No recent facility appears to have earned anything approaching a reasonable return on investment,” the pair said after reviewing a set of diverse case studies by 15 collaborators.

No recent facility has been self-financing regarding its impact on net tax revenues.

“Regardless of whether the unit of analysis is a local neighborhood, a city, or an entire metropolitan area, the economic benefits of sports facilities are de minimus,” they added.

The payoff to the city is paltry partly because sports stadiums are rarely the most practical use of urban space. Investing in infrastructure or education would likely do more to improve city productivity and income than supporting professional sports clubs and their athletes, most of whom live in distant suburbs.

What Happens When Cities Compete Over Professional Sports Teams?

Finally, in the “field of dreams,” cities have been known to give away the farm when granting tax cuts to professional sports teams for new stadiums.

When professional sports teams consider relocating, they often pit cities against one another. Municipalities show each other the same sharp elbows as two companies battling for market supremacy. Where competing companies slash prices to come out on top, cities often cut tax rates for the “customers” they’re trying to woo – sports club owners.

In the vehicle market, automakers may compete for a buyer by bidding down the price of a car until it just covers the average cost of production, guaranteeing no profit for either automaker. They will sell cars because they have millions of customers. But they will not make money.

Taxpayer funded stadiums are a swing and a miss for local and state economies.

For example, suppose that two automakers can produce a car for $10,000 but price it at $15,000. At first, each company profits by $5,000 on a car — the price minus the production cost.

But to lure customers from its rival, each company will cut its price repeatedly, right down to $10,000. In the end, they will sell a lot of cars because they charge a low price. But they won’t profit, because the $10,000 received on each car barely pays for producing it.

In the market for sports teams, the outcome for competitors is even worse. In the typical contest, there is only one customer – the owner of the courted team. And when the owner chooses, say, Las Vegas over Phoenix, Las Vegas ends up paying a heavy price to fulfill the terms of the agreement.

Will A New Baseball Stadium Help or Hurt Las Vegas?

Indeed, Las Vegas is likely to lose money on the stadium. After all, when competing cities bid for a team to relocate, both municipalities must think carefully about what they would gain and lose.

The typical rational offer to a team owner will not exceed the amount of money that the city expects to make. But the owner will accept the best offer, not the typical one. The best offer could pay the owner more than the city expects to make. For the city, it will be a losing proposition. Welcome to the winner’s curse.

If the winning city can expect to be cursed, why does it compete at all? One reason is that the excitement of the contest may overwhelm rational calculation.

But more importantly, a politician knows they will enjoy the short-term gains of landing a sports team and not face the long-term costs that the city will incur long after he has left office.

Taxpayers Funding for Stadiums is a Losing Deal

Long-run costs amount to a pretty penny: renovation costs almost as much as construction.

For example, Kauffman Stadium, where the Kansas City Royals play, cost $480 million (in 2023 dollars) to build in 1973 – and $349 million to renovate in the 2010s.

The Royals are discussing a new stadium that would cost more than $2 billion. They vow to raise $1 billion in private funds. But if they fall short, guess who would be holding the bag?

Kansas City residents appear to recognize a bad hand when they’re dealt one. K.C. voters recently rejected a bid to renew a sales tax to build new stadiums for the Royals and the Kansas City Chiefs football teams.

Many Las Vegas residents are also sensibly skeptical of the benefits of stadium competition. In an Emerson College poll of 500 likely Las Vegas voters conducted a few weeks ago, 52 percent opposed public funds for the proposed A’s stadium, and another 17 percent were undecided.

Short-sighted elected officials, with an eye on political expediency, appear determined to ignore voters’ wishes and leave Vegas residents on the hook for a costly project that could leave the city cursing its “good luck.”

Take Action

Your voice matters. Through your active engagement with elected officials and participation in the democratic process, you can help shape policies that benefit the well-being of all Nevadans.

Here’s your chance to be a part of that process. Write a letter to your legislator and ask them to say no to taxpayers funding stadiums.