Why Government Should Not Invest Public Money in Sports Stadiums Used by Professional Franchises

In the previous article, we have already come across some of the reasons why the government should not encourage funding of stadiums that are to be used by private franchises.

We have already seen that the entire mechanism of government funding ends up being a regressive tax on the citizens of a particular city who end up subsidizing a particular team.

There are many people who do not clearly understand the economic rationale behind not building stadiums. However, they are well aware of the fact that a lot of professional sports franchises are owned by billionaires and if there was any possibility of obtaining a profit by running these facilities, then the franchise owners have enough resources to do so themselves.

The fact that some of these billionaires are insisting that public resources should be used to build the stadium can be considered evidence that the stadium is not a viable financial project.

However, in order to make the economic logic clearer, we need to spell out the exact logical fallacies in the muddled reasoning and obfuscation provided to the general public. The common arguments given in favor of government funding of such projects have been debunked below.

1. Athletes Spend Money Outside: The distribution of economic benefits in a sporting franchise is set up in such a way that the vast majority of the money is paid to superstar players as well as the top management.

   The bottom-level workers who work in the offices as well as at the stadiums are not paid much. Hence, the end result is that most of the money which is accumulated from fans of the team who are present in the city is sent to the bank accounts of these top personnel.

   It is likely that most of the players as well as the management do not stay in the cities in which they play. It is also possible that they do not spend most of the money they receive as remuneration in the local economy. Hence, if a government builds a stadium, it is actually assisting the team in transferring their economic resources to other cities.

   In the absence of such a stadium, the money would probably have been spent locally and would have helped local businesses. Hence, it can be said that not only does funding a stadium not help in creating economic wealth for the host city, but it can actually lead to the destruction of such economic wealth.

2. Increased Capital Values: It is important to understand that by building stadiums with public money, the local governments are essentially subsidizing the billionaires. The end result is that these billionaires do not have to spend a large amount of money in order to keep running their franchises.

   The additional money that they have not spent keeps on piling up on the balance sheet of these sporting franchises. This increases the notional value of these franchises which many billionaire owners are able to realize once they put the franchise up for sale.

3. Increase in Tourism: Another argument given in favor of government funding of sporting stadiums is that it helps in increasing tourism in the local economy. The logic is that sporting events attract tourists from other cities and help create additional economic activity for the local economy. This may be true for some important games such as the final of a tournament or a match between two popular teams. However, when it comes to the vast majority of the matches, they are watched by the local population itself.

   Tourists who watch such matches generally do not visit the city primarily for sports events. Instead, most of the tourists are already in town for business purposes or to visit their family and end up visiting the stadium. Hence, it would not be appropriate to say that any additional revenue is generated on account of the presence of the stadium.

4. Alternative Projects: Governments generally have a limited amount of funds at their disposal. Also, they tend to have a lot more projects that they can invest in as compared to the funds that they have. As a result, the decision regarding whether or not a stadium should be funded cannot be taken in isolation.

   It has to be taken in relation to the other projects. As a result, there is almost no rationale for investing public money in stadiums. Public money needs to be invested either to obtain maximum returns or for social service.

   If the money is being used to build stadiums, then the end result is that sub-optimal returns are being generated. Also, the government is not doing any public service by undertaking these projects. Instead, they are helping the rich become richer.

5. Branding/Image Benefits: Since there is no direct financial benefit that can be attributed to public funding of stadiums, proponents of such investments often try to obfuscate and mislead the public by stating intangible benefits such as branding and image building. However, there is a significant outlay involved in the funding of such projects.

   On the other hand, branding and image benefits are intangible and hence cannot be used to quantify the outcomes. The proponents of government funding in sporting facilities end up using this vagueness to their advantage.

The bottom line is that if billionaire owners as well as star players have to hold the local municipality at ransom and threaten to relocate to another city, then the project certainly isn’t a good investment.