It's easy to love shiny new buildings, and even easier when they
are believed to be harbingers of local economic development. That's
the pitch when it comes to stadiums, multiuse arenas and convention
centers. But is it a strike?
Little attention is paid to the profitability of the superstructures
themselves. Facilities rarely repay their construction costs, still
many are fortunate to simply cash-flow in a given year. Rather,
these facilities are designed to be spending magnets for the citycommunity
loss leaders, if you will, similar to the way a grocery chain underprices
soda to get people into the store. Once they've got you in the store
for sodaor in this case, in the city for a ballgame or a trade
showyou'll likely buy additional items to make up for the
store's initial loss on soda.
As such, the main arguments in favor of publicly financed stadiums,
arenas and convention centers stress the economic activity created
outside, rather than inside, the walls of these facilities. While
such benefits are real and legitimate, they are often inflated and
oversold. "I think that's absolutely the case," said Mary Bujold,
president of Maxfield Research, a Minneapolis firm. "Cities have
blinders on to see whether the data [on local impact] is good."
Pick a number
Current research indicates that stadiums and arenas have a particularly
bad track record when it comes to delivering on promises of community
economic windfalls. University researchers Mark Rosentraub and Mark
Swindell found that three decades worth of studies "lead to the
inescapable conclusion that the direct and indirect economic impacts
of sports teams and the facilities are quite small" and do not create
much in the way of new jobs or economic development.
There is little research on the economic impact of minor league
teams and their playing venues. Queried via e-mail, Rosentraub said,
"Given the relatively small to nonexistent benefits from team sports
at the higher levels, one should not expect anything or very, very
little from minor league activities."
A Brookings Institution book on sports teams and stadiums noted
the economic impact of a minor league baseball team is "equivalent
to a large pet shop" in terms of revenue. A 1994 report investigated
the impact of a $6 million stadium for a minor league baseball team
in La Crosse, Wis. The report estimated total new annual spending
at about $500,000, noting the impact was "substantially smaller"
than claimed by stadium proponents. It suggested that public subsidies
for such projects "should be carefully studied."
Convention centers tend to offer more bang for the public dollar.
"[On] the convention side, you get a lot more economic impact,"
said John Kaatz of Convention, Sports & Leisure International of
Minneapolis. "The sports side is less."
The reason for this is convention centers tend to attract more
people from outside the region and state, which brings a larger
amount of new spending to the community. But there is also a limit
to that argument.
"As market size decreases, the strength of that [economic development]
argument becomes shaky," Kaatz said, mainly because smaller markets
often do not draw a significant number of visitors from outside
the region. Nonetheless, smaller markets continue to use the argument,
which Kaatz said "is a reflection of the fact that the whole [convention
center] phenomenon has been generated from larger cities, and the
argument has filtered down to smaller cities."
Analyzing the analysis
Advocates of new venues often attempt to define a project's economic
impact on the community in dollar terms. Although each type of facility
has unique considerations, the economic impact of stadiums, multiuse
arenas and convention centers involves many of the same factors,
and their proponents are often guilty of the same mistakes.
Problem number one is that too many studies rely on "models and
assumptions that are wrong," Kaatz said. "[The models] are simply
For example, most analysis includes average spending estimates
for local and nonlocal event goers. These figures are usually provided
by local or national associationsfor example, the hotel lobby
or convention and visitors bureauswith an interest in these
facilities. Using this data in his own work, Kaatz said it was not
uncommon to revise these spending estimates downward.
Compounding any errors in average spending are estimates on the
ratio of out-of-town attendees, who are assumed to spend significantly
more on meals and lodging than local event goers. And the trifecta
for some reports on economic impact is the inclusion of spending
multipliersthe number of times a dollar will be spent or turned
over once it is brought to a community. Kaatz said he's seen reports
with multipliers as high as six; he believed a more reliable multiplier
was about two on the high end.
These factors can lead to significantly different conclusions.
Fargo, N.D., recently proposed building a new multiuse arena to
host college hockey and other events. A study of the proposal by
Maxfield Research estimated the direct economic impact of the facility
at between $3.8 million to $4.4 million; a second analysis by a
local university economist tagged the impact at $8.8 million to
$15.3 million. Much of the gap stemmed from differing assumptions
regarding out-of-town attendees and their spending habits. Voters
apparently were unimpressed by the conclusions of either study,
as a $48 million referendum on the facility last year "got thumped
pretty bad," according Pat Zavoral, Fargo city administrator.
Impact reports typically ignore several other important factors.
The most important are what economists call "substitution effects"where
spending for one activity merely replaces spending on other previous
activities. While new entertainment options do likely bring in some
new spending, advocates often mistake economic activity (all spending
related to a sporting event or convention) with economic impact
(new spending that otherwise would not have taken place).
Before basketball games and concerts came to town, for example,
local event goers likely spent at least some of that money on other
things, like bowling, or movies or fishing equipment. Such spending
mobility represents a shift in spending rather than new spending.
Tax dollars have also been used to encourage that shift. Geographic
scope also has to be taken into account. Out-of-towners might simply
be from a nearby town. While that might suit advocates just fine,
it nonetheless offers little new spending in a regional sense, and
scarce public resources have been used to redirect private spending.
Publicly financed venues can also end up competing with the private
sector for event bookings. Missoula, Mont., studied the possibility
of building a large convention center in 1996. A feasibility report
noted that events with 1,000 to 2,500 attendees represented less
than 1 percent of conference events in the region and "there is
substantial competition among cities and towns for this limited
number of large regional meetings." The study concluded that capturing
a small number of big events would not justify the expense of a
large facility, and building a small conference center was "a duplication
of services now being provided successfully by the private sector."
Even more overlooked is the substitution effect in public spendingother
priorities that could have been funded, or taxes simply not collected.
Dennis Coates and Brad Humphreys of the University of Maryland-Baltimore
County have done extensive research on the economic impact of stadiums
and arenas. They conclude in a recent paper that "impact studies
typically do not address alternative uses of public funds. Indeed,
politicians often seem to think that the means of financing the
stadium generates free resources that have no alternative uses whatsoever.
... [R]ules for sensible public investment should apply to stadium
finance as much as they apply to public provision of highways, schools
Public spending on new venues also funnels most of the economic
benefitsnamely increased patronageto lower-wage industries
like lodging, eating and drinking establishments. Rosentraub's research
on private sector employment and payroll in large counties found
that these sectors make up about 8 percent of local jobs, but pay
just 3 percent of all local wages. On the surface at least, public
capital for other initiatives might produce better jobs and wages
for local workers.
Measuring public good
One reason the math does not always add up regarding new venues
is because advocates might be underselling the "public good" benefits
that are hard to measure.
Bujold, of Maxfield Research, said weighing all the pros and conseconomically
and otherwiseis much more complicated than cities typically
undertake, and much of it cannot be easily boiled down to dollar
terms. Bujold said that "a stadium is a kind of community gathering
space. It's the idea that you get this nebulous effect to spur some
community feeling," which she said was "hard to quantify" but nonetheless
can spur a community's economy. "In small communities it becomes
much more important. The dynamics there are entirely different."
Sports teams, for example, create a public good by virtue of the
fact that they often engender community pride, interest and enjoyment
outside of ticket-buying customers (what economists call externalities).
"The magnitude of this benefit is unknown, and is not shared by
everyone; nevertheless, it exists," wrote Roger Noll of the Brookings
How to measure the value of that benefit is an even bigger unknown.
There have been few attempts to measure the "civic value" of sports
teams and their venues, particularly outside of major metropolitan
areas. In one recent case, researchers asked residents of Lexington,
Ky., about their willingness to pay for a new arena for the popular
University of Kentucky basketball team and a new stadium to attract
a minor league baseball team.
By virtue of having an existing facility, the new college basketball
arena represented an opportunity to improve a perceived public good
(Wildcat basketball), while a new baseball stadium offered residents
the choice of having a public good (a new baseball team) or not
having a public good. Roughly two-thirds of Lexington residents
said they were unwilling to pay higher taxes for either the basketball
arena or baseball stadium. Of those willing to pay, almost half
cited their desire to attend games, which the authors stressed was
a private-good motivation rather than a public one.
Other intangible factors must also be considered in the final analysis
of event facilities. Many sources, for example, pointed out that
venues provide court and ice time for local teams or meeting space
for community groupsa public good that doesn't show up in
economic impact reports.
But by the same token, rarely do community groups lead with such
arguments when stumping for a new facility, and in most cases local
interests are served after private bookings. And a few sources also
believed there are better ways to meet the public good portion of
The city of Sioux Falls investigated the possibility of building
a 20,000-seat arena to compete with the likes of the Fargodome.
A recent analysis has led the city to back off such a proposal,
a move that pleased Dan Scott, president of the Sioux Falls Development
"We think you'd be better off building neighborhood sports centers,"
which have comparatively lower overhead costs and much higher use,
Scott said. The city has seen a rapid increase in demand for ice
time at hockey rinks, and existing rinks are "in use from 5 a.m.
in the morning to midnight," he said.
"I'm convinced that you have to use those dollars for facilities
that have constant use," Scott said. "Meeting the need of the sporting
community is a better use of the money. ... I hope that's the direction
we end up taking."
District convention centers weathered the recession,
but the outlook is cloudy. fedgazette, January 2005