Conversations on Politics, Policy in the Golden State

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By Roger G. Noll

Are Publicly Financed Sports Facilities a Good Investment?

Cities hosting a pro sports team periodically face similar experiences. As a sports facility approaches its 20th birthday, team owners will complain that the building is obsolete and the team will move unless the city subsidizes a substantial part of its replacement cost. The basis for the obsolescence claim is that the team is unable to compete effectively because other teams have better (subsidized) facilities that generate more revenue.

Some voters support subsidies for sports facilities because they are intense fans. But these fans do not constitute a political majority. Therefore, teams try to create majority support for subsidies by commissioning �economic impact� studies that claim sports facilities generate hundreds of millions of dollars and thousands of jobs per year. Extensive economics research, however, concludes that cities do not capture sufficient economic benefits from sports facilities to offset substantial subsidies.

A public investment can increase local income and employment by increasing the productivity of local workers and output that is sold outside of the local community. Sports facilities generate little or no additional income and jobs for a city because there is no substantial effect on productivity or exports.

Local residents account for almost all the attendance at sporting events because most professional teams sell nearly all of their tickets as season tickets. There are only a handful of seats available for out-of-town tourists. And those tourists who do attend games are usually in town for other reasons. Moreover, most of a team�s revenue goes to a small number of highly paid employees � players, coaches, front-office executives and owners � who are usually not local residents.

These facts have two implications: expenditures on attending games are mostly substitutes for other local entertainment and recreation (not exports), and most of these revenues are paid to people who live elsewhere (imports). Almost all the employment for local residents by sports teams are in low-wage, part-time jobs.

Economic impact studies argue that other events in a facility, or increased business near the facility, generate substantial local economic benefits. These other events include concerts, conventions, and other sporting events. A key assumption is that these events will occur only if a new facility is built. In reality, football and baseball stadiums only host a few other events because they are not good venues for other attractions. Basketball and hockey arenas do host more events, but if a community has venues that are comparable in size and seating configuration, adding another facility won�t result in more events.

Spillover benefits for a local neighborhood from a newly constructed facility are rarely substantial. One goal of a new facility is to capture business associated with attending a game inside the building, which increases the profits of the team.

The fact that sports facilities do not generate growth in income and employment does not lead to the conclusion that teams should not be subsidized. But the only valid argument for a subsidy is that the value of having a local team exceeds the cost of attracting and keeping it in town. Each citizen can decide whether the thrill of having a home town team is worth the cost, but citizens should not expect to capture any additional economic benefits.

Roger Noll is a Professor Emeritus of Economics at Stanford University. The opinions in this article are presented in the spirit of spurring discussion and reflect those of the author and not necessarily the treasurer, his office or the State of California.

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By Barry Broome

Sacramento�s Golden 1 Center is Much More Than a Sports Arena

On average, building an arena and moving a basketball team five miles down the road does not generate new economic activity. Sacramento�s Golden 1 Center, however is not one of those average, poorly-planned boondoggles. Rather, it is a strategic investment in downtown Sacramento that targets a number of fixable but nagging issues that have thwarted the city�s downtown resurgence. By addressing those problems, the arena will drive significant new economic activity and more importantly, change the entire Sacramento brand.

Downtown Sacramento has been saddled with numerous public assets that have performing poorly for years. The Downtown Plaza Mall and the K Street pedestrian mall were eerily empty most evenings. After work hours, surrounding parking lots were woefully underused because people never considered this an area to congregate and engage in public life. Finally, nearly empty regional transit cars clanged through the streets shunned for being too dirty and too dangerous.

The Golden 1 Arena is having enormously positive impacts on all of these assets. By filling up the parking lots at night the city is reaping in new revenues that help pay for the arena. Regional Transit counted 20,000 additional riders the arena�s opening weekend, and since then about 10% of event attendees have arrived by RT. This traffic is introducing public transit ridership to entirely new audiences, helping Sacramento to wean itself from its dependence on cars and helping pay for the cleaner cars. By bringing in new ownership and event management the Golden 1 Center is set to dramatically upgrade the quality of events compared to the old, tired Sleep Train arena. Acts like Paul McCartney and Maroon 5, two of the shows in the arena�s first month, promise to raise awareness of Sacramento and bring in out-of-towners (and their dollars).

The arena is also catalyzing millions of dollars of major private investment in the surrounding area. These include the Downtown Commons an entirely renovated outdoor shopping district, a new 250 room Kimpton Hotel, and a revitalized K Street at the entrance to the arena.

Yet, these benefits only scratch the surface of what the Golden 1 Arena, by making a bold statement of what Sacramento is and can be, achieves. As the only LEED platinum arena in the world, it demonstrates Sacramento�s leadership on sustainability. Through its distinctive design, public art, and welcoming benches, it creates a new civic center for the City inviting people to walk through, sit, watch, and be seen.

All great cities have great areas where people convene � Times Square in New York, Place St. Michel in Paris. Their value is priceless. It will take time for these benefits to be seen, but the enthusiasm is already palpable. I invite you down to experience it for yourself.

Barry Broome is President and CEO of the Greater Sacramento Area Economic Council. The opinions in this article are presented in the spirit of spurring discussion and reflect those of the author and not necessarily the treasurer, his office or the State of California.