The Case Against Government Funding for Sports Stadiums
The financing of stadiums which is used by sporting franchises can be extremely complicated. The stadium can be leased out from the government by the private franchise owner. Alternatively, the franchise owner can raise finances in order to be able to build the stadium on their own.
In the past, private franchise owners have approached local governments several times so that they can obtain subsidies and use the same in order to build their own stadiums. These subsidies are generally given in the name of improving the local economy.
There is a belief that the presence of sports and a sporting stadium within a city leads to an increase in the overall economy of the entire city.
In this article, we will challenge these beliefs and understand why it is wrong to assume that the existence of a sports stadium provides any benefit to the overall local economy.
- Regressive Tax: There are many critics of stadium subsidies who believe that such spending amounts to levying the most regressive taxes on the people of a region. A tax is said to be progressive, if it increases with an increase in the income of the taxpayer. On the other hand, it is said to be regressive if it decreases with the income of the taxpayer.
Now, when it comes to stadium subsidies, such subsidies are paid from the tax money generated by levying taxes on the common man. However, the benefits of such subsidies are derived by the owners of sports franchises who tend to be billionaires.
Hence, stadium subsidies are a mechanism of taking money out of the pockets of common people and giving it to billionaires, making it a form of regressive tax.
- Localised Benefit: The proponents of stadium subsidies claim that the presence of a stadium leads to increased economic activity in a given area. As a result, the costs incurred by the government end up being recovered in the form of increased indirect taxes.
Also, the property rates in and around the stadium increase. Hence, the government is also able to earn more money in the form of increased property taxes. The statement made above is not completely false. Instead, it is not the complete truth. It is true that there are some types of economic gains. However, these gains are localized to a small radius of two to four miles near the stadium.
The economic impact of stadiums towards a larger geographical area is almost negligible. Many studies have been conducted in order to compare the empirical data of cities which have stadiums present and those which do not and there was no correlation between increased economic activity and the presence of a stadium.
- Reallocation of Spending: The proponents of stadium subsidies claim that the impact of stadiums on the local economy is quite visible. This is because one can observe the increasing number of pubs, restaurants and other tourist attractions in the vicinity of a stadium. However, it is important to note that most of the spending in these businesses is done by local residents. There is no new demand or business activity being generated.
The economic activity is only being concentrated in one economic area. The spending which happens near the stadium could have otherwise taken place in other locations. Hence, there is no real growth in the economy. Instead, there is reallocation of spending which creates the illusion of growth in certain geographical locations.
- Lower Order Jobs are Created: Another argument given in favour of stadium subsidies is that it helps create a lot of jobs. Hence, the government has to pay less unemployment benefits and gains more in the form of taxes from employees. However, this is also not entirely true.
As mentioned above, all economic gains are restricted to the hospitality and tourism related sectors near the stadium. Hence, most jobs created are lower order jobs such as waiters, servers etc.
There are very few (if any) high end jobs which end up being created permanently as a result of the relocation of a stadium. These lower end jobs do not generate much tax revenue and often pay minimum wage. As a result, it is not prudent for the government to spend taxpayer’s money in order to generate such jobs.
Hence, it can be said that when government spends money in order to build sports stadiums for private franchises, they are just spending public money for the private good of a few people.
The problem is that the proponents of such spending i.e. the lobbyists tend to create confusion by creating dubious economic theories. The purpose of these economic theories is to create an illusion that the projects are paying for themselves even though the fact of the matter is that the taxpayer ends up paying for them.
Empirical data has shown clear evidence that more than 80% of the stadiums are subsidized by public money to some extent. The fact of the matter is that economic activity is just shifted from one location to another.
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