The Economical Effect of Sports Teams

note: this is pre-rough draft material

Its game day, the streets are backed up with cars that are listening to the radio preview, the bars fill up, the busses are packed, the restaurants except big crowds after the game, and the street vendors line the walkways in preparations for the crowds. The stores are filled with fans purchasing overpriced merchandise. On that same day, in another part of the country, lawmakers are gathering to decide on whether to pass legislation to pay hundreds of millions of dollars of taxpayer money to pay for a new stadium. Like everything else in life, professional sports has a positive economical impact on the community and a negative impact. How does the positive economical impact compare with the negative?   

When talking about how a sports team impacts the economy, one has to start at the beginning; how does the sports team get there? The stadium that a pro sports team plays in is very expensive, in the hundreds of millions of dollars, and in rare cases, such as the new Yankee Stadium and the new Cowboys stadium, over 1 billion dollars. The funding for new stadiums requires money from the both the owner and the city. The Cowboys Stadium, which is the largest domed stadium in the world, has the largest column free interior in the world, and has a high definition television screen 60 yards long, was paid mostly by the owner, Jerry Jones (Munsey and Suppes); while the proposal for a new Seattle Supersonics stadium would have required 500 million dollars of taxpayer money (Baxter); comparatively, the Rose Garden in Portland, built in 1995, required under 40 million dollars from the taxpayers (Munsey and Suppes). Although they vary in cost, all stadiums have this in common, the tax payer payers a large part of the equation and whether they get a return on the investment is something that can be argued.

From an economical standpoint, deciding whether or not it is worth it to build a new stadium depends on whether the potential economic benefits of the new stadium outway the cost of building it. While it is true, business around the stadium can do well on game day, but football teams play at their home stadium for 8 regular season games, and all sports have very long offseason; off seasons where the stadium often sits empty. Don Drury of the Hamilton Spectator writes, “Consider the new Yankee and Citi stadiums in New York City. Who hangs around in the Bronx or Brooklyn to shop? The area around Boston's Fenway Park is not very nice when the Sox are not playing. Detroit's Tiger Stadium was located downtown and was surrounded by a dump (Drury).” He continues to talk about businesses around stadiums and how they fair, “BMO Field in Toronto, arguably the most wildly successful stadium in Canada, has not created any new business near it. Think of Ivor Wynne Stadium and the businesses it has established over the years. Where are they? If anything, the stadium hurts some surrounding stores on game days. The area around Percival Molson (McGill University) Stadium in Montreal hasn't changed appreciably since the arrival of the very popular Alouettes… For a stadium to "spark" development, and limited at that, it requires a continuous stream of attendees on many more event days than could be held here in Hamilton. Neither location will create any development, at all. They would benefit a few businesses near the stadium on game days, but not sustain any business (Drury).” The new stadium build may indeed have a very small effect, if any, on the economy.

In addition to this, the dollars spent on sports team may be end at a net of zero.  When people spend money on a sports team, they are simple choosing one entertainment option over another. David Marasco writes argues, “How is that money (the money supposedly generated from sports teams) generated? Most people have entertainment budgets, and the $100 they spend taking the family to the ballgame is $100 that they don't spend on movies or bowling later on in the month. Nobody seriously thinks that we should raise taxes and spend millions on bowling alley or movie theater subsidies (Marasco). This sentiment is repeated by economist Brad Humphries, who was hired by the Sonics to convince the city that the team contributes nothing to the economy, he states that "When a team leaves, they don't take that consumer spending with them ... it simply gets spent on other entertainment activities (Brunner)."  He also further discussed that the “team (Supersonics) would have "no detectable economic impact" on the greater Seattle area,” and backs up his claim by studying the economies of every relocation of the last 40 years, and has found no significant impact (Brunner). While many people have many different interests, there enough options to keep people interested in entertainment with no sports team.

In addition to possibly not positively affecting the economy, sports teams may actually have a negative effect on the economy. Humphries was commission by the Cato Institute of Washington DC to find how a pro sports team would affect the economy—in this case, it was in 2004, when the Montreal Expos were preparing to move to Washington DC and become the Washington Nationals. He found that “The net economic impact of professional sports in Washington, D.C., and the 36 other cities that hosted professional sports teams over nearly 30 years, was a reduction in real per capita income over the entire metropolitan area,” as well as a statistically significant negative impact on the retail and services sectors of the local economy, including an average net loss of 1,924 jobs (Mitchell). Another negative economic effect of a pro sports team is leakage—money being spent in an economy being leaked out into another economy. Professional sports have lots of leakage, as their biggest expense, the players; normally do not spend most of their money in the city they play for, but rather in their hometown (Marasco). Leakage is a big problem, because while it is supporting an economy, it is not supporting the one where the stadium is.

There are however, there are economists that see things differently. Seattle hired economist Lon Hatamiya countered the prevailing economic opinion, stating that “the Sonics contribute $188 million a year to the local economy through payroll, ticket sales and other consumer spending. If the Sonics leave, “that spending "may go away.” There is no certainty that money will continue to be spent here... Much of that impact would shift to Oklahoma City (Brunner)." The Sonics, the same team that hired Humphries to show that the economy would be no different in Seattle if the team moved to Oklahoma City, “commissioned a study that showed the Sonics' arrival would contribute more than $170 million a year to the state economy. The study was used to persuade Oklahoma lawmakers to approve $60 million in payroll-tax rebates for the team (Brunner).” Although very solid numbers are brought up, one must wonder of the biases that these parties bring to the table. Both want something; the city of Seattle wants to keep the team, so they will show number that help their side, while the team wanted to play in Oklahoma City, so they presented number that helped their case, although they contradicted themselves when and spoke in completely opposite terms when arguing against staying in Seattle.

In addition to an economic loss in a team leaving, it may also have a physiological effect on a city.  While the economic activity generated by the teams is substantial, the greatest impact of their relocation would be psychological (OUR OPINION: Business' task: Save Braves, Economy). Economist Brad Humphries admits that presence of a sports team had intangible benefits, such as a “sense of pride (Mitchell).” This sense of pride is evident, as after the Seattle Supersonics announced they would move to Oklahoma City, a group of fans sued the team (BROTHERSON v. PROFESSIONAL BASKETBALL CLUB, LLC). The fans believe that the owner intended to move the team from the beginning and did not make a good faith effort to keep the team. They felt that the owner Clay Bennett flat out lied to them.

This pride was also evident in the Cleveland browns move to Baltimore. That particular move was the first of its kind, as after numerous lawsuits, the team colors, logos and history stayed in Cleveland. Cleveland eventually acquired an expansion team that reclaimed the Brown’s name, colors, logo and history. The city felt a sense of accomplishment and pride in reclaiming something they lost, as demonstrated by this plaque in the Brown’s new stadium: “We proved that the Browns belong in Cleveland, the home of the greatest fans in the world…OUR TEAM…OUR NAME…OUR COLORS (Weinberg).” That particular deal was unique in sports, as normally the teams that move are because of a lack of fan support, normally the team would take all the colors with it. Such in football when the St. Louis Cardinals moved to Arizona, when the Los Angeles Rams moved to St. Louis, when the Los Angeles Raiders moved to Oakland—all those teams kept everything about themselves—names, history, colors, even uniforms. The Super bowl the Raiders won in Los Angeles is kept in the Oakland Raiders team history. The same way in basketball, when the Charlotte Hornets moved to New Orleans, they kept the name Hornets; when the Vancouver Grizzlies moved to Memphis, they kept the same name and history. A total of 16 people attended a rally to stop the Houston Oilers from moving to Tennessee—comparatively, Cleveland Browns fans protested outside owner Art Modell’s house, sued and flew airplane banners (Weinberg). Clearly, no economist would tell them that having a team isn’t worth the trouble.

The Cleveland Browns situation is also interesting, not only for how the team moved, but why. Throughout the 1980s, the Cleveland Browns were perennial playoff contenders, sold out every game, yet were still losing money (Weinberg). It is situations like this perhaps, that have many owner reluctant to invest too much money in a stadium, as even with the team is successful, losses can incur.  An executive with the Blazers called the team a broken economic model, and would be impossible to work without a public-private partnership because no business person can sustain losses of that kind. It is difficult for teams to garner too much revenue because of lease agreements for the stadium and massive revenue sharing in pro sports. This requires teams to need the help of cities to help out with financing.

Strictly from an economic stand point, it makes little sense to build a stadium for a sports team. They are very expensive and almost every economist fell as though the team contributes nothing positive to the community. And funds generated would have simply been used elsewhere in the entertainment industry. In addition, the funds invested into the team do not stay in the community. Teams continue to build stadiums, cities continue to approve despite their negative economical impact. Why is that? Are teams in denial, or do they feel the intangible benefits make having the team worth it. From an economic view, the answer is no, it not worth it—but people don’t always take the economic view of things.