Subsidizing Professional Sports Teams and Building New Facilities: Flagship Projects for Urban Renewal or Corporate Welfare?

Abstract

The issue of taxpayer support of professional sports teams and for building new downtown facilities is a contentious one. Proponents argue this practice is beneficial to the community in terms of municipal revenue, economic growth and job creation because new money is spent in the economy. Further, this new money is subject to an economic multiplier effect, which greatly increases the economic impact of the initial expenditures by creating more jobs and more tax revenue for local governments. Thus, the cost to the taxpayer is said to be much less than the benefits. Many scholars refute these claims and, based on empirical research, suggest that quite the opposite is true. They take issue with the idea of team expenditures as new money, and suggest that the economic multipliers are overstated. They also argue that the cost of ongoing subsidies and capital investment in the construction of new facilities are underestimated. Furthermore, the sustainability of teams and facilities must be questioned in light of rapidly escalating costs; both players’ salaries and ticket prices continue to increase. Fierce competition among cities increases teams’ demands for newer facilities and more funding, leaving cities with small market thresholds out in the cold.