Who benefits from the presence of professional sports teams? The implications for public funding of stadiums and arenas.

State and local governments have become increasingly responsible for financing many of the new arenas and stadiums demanded by professional sports teams (Olbermann, 1997). While local officials have a long history of efforts to attract team to their communities, the task of securing the funds needed to build the required playing facilities is relatively new. During the early years of professional sports through the 1950s, most teams played their home games in a privately owned stadium or arena. Team owners wanted little involvement from the public sector in their business affairs. Later, when publicly funded facilities became more common, the teams and other users paid rental fees that helped offset the public sector's capital and operating costs for the facilities (Swindell, 1996).

It has now become commonplace for cities, counties, and states to use a combination of broad-based taxes (e.g., sales and property taxes) or special taxes (e.g., taxes on alcohol and tobacco consumption, hotel rooms, and car rentals) to help bad or operate these facilities. In most cases, team owners receive the vast majority, if not all, of the revenues produced by each facility. There are some privately built arenas and stadiums, but these are the exception. Arenas and stadiums have become large capital responsibilities for most of the governments that host one of North Americas major sports franchises; several local governments now have invested more than $500 million in these facilities.

With more than 50 of North America's metropolitan regions hosting at least one of the 134 big league franchises, few urban residents are unfamiliar with the arguments that advocates use to attract electoral support to raise taxes to build a facility. Mayors and governors argue that teams and the facilities they use (1) generate economic growth through high levels of new spending in a region, (2) create a large numbers of jobs, (3) revitalize declining central business districts, and (4) change land-use patterns. Proponents also focus attention on intangible benefits, including civic pride, a high-profile image and identity and national and even international publicity. Advocates for the building of facilities frequently note that the image of many cities is frequently defined by high-profile teams and sporting events. The celebratory atmosphere created in a city when a team wins is another "Intangible" benefit even for people who do not attend games. In a society where sports are a dominant cultural icon, teams do create a level of recognition that generates pride for residents of a community (Kotler, Haider, and Rein, 1993; Baade, 1996a, 1996b; Rosentraub, 1996; Danielson, 1997).

As both the number of publicly subsidized facilities and the scale of public-sector expenditures have increased, policy analysts have evaluated the expected economic benefits. Such analysis has shown projected economic returns to be greatly exaggerated, overly optimistic, or simply incorrect. For example, many economists note that most of the expenditures by fans are merely a transfer of their discretionary recreational dollars from other activities (Baade and Dye, 1988; Baade, 1994; Rosentraub, 1997a; Noll and Zimbalist, 1997). Baade's work suggests that expenditures for sports facilities are not associated with regional growth, and Rosentraub's studies illustrate the small scale of the returns to cities and downtown areas from investments in sports facilities. Although the building of many new facilities in downtown areas has attracted millions of visitors to areas previously avoided by most residents, there is no evidence that these facilities have significantly changed employment or residential location patterns. Employers still seek more suburban locations for their businesses, and their employees still prefer outlying areas to inner-city locations for their residences (Rosentraub, 1997b). This is not to suggest that growth and development do not occur in downtown areas. Rather, more growth occurs elsewhere, and the overall distribution of jobs and residences has been virtually unaffected by the presence of sports facilities.

If the economic returns from teams and their facilities cannot justify the rather large investments made by the public sector for sports facilities, can the intangibLe rewards from the presence of teams warrant the investment of public resources? Civic pride, reputation, and image certainly are important factors for a city's overall development. Sports teams could make a substantial enough contribution to the quality of life and people's perceptions of their community to justify the use of tax money to build or maintain the facilities that attract teams. Although there is an abundance of data analyzing the direct and indirect economic impacts of teams, there is very little information that permits public leaders to quantify their intangible benefits.

Using a survey administered to more than 1,500 respondents in the Indianapolis metropolitan area, we were able to measure the extent of these intangible benefits and identify who receives them. This particular survey was designed to measure the intangible benefits of the Indiana Pacers, the Indianapolis Colts, the Indianapolis 500, the local museums, and other civic assets in the Indianapolis area. There is little reason to believe that the impact of such facilities in other communities would be significantly different. Indeed, Irani (1997) suggests that there is a great deal of similarity across communities in fans' enjoyment of sports. The information presented here describes the recipients of the intangible benefits from teams and provides insight into alternative financing arrangements that public officials should consider when deciding how to pay for the public sector's share of the costs for building facilities. This plan could help public officials respond to team owners' appeals for tax assistance based on the benefits teams actually generate and the facilities they use. Before turning to the survey results and the alternative financing model, we will first review the factors that have led to the recent level of public participation in the financing of sports facilities and the studies that indicate that teams generate few direct economic benefits.

Why Do Sports Teams Receive Locational Incentives?

Providing locational incentives to businesses is a long-standing practice of state and local governments. Tax abatements, low-interest loans, job training, and facility and infrastructure development have been some of the incentives offered to influence the locational decisions of firms (Kantor, 1995). With professional sports teams now a coveted asset, the size and scope of public subsidies are escalating (Rosentraub, 1997a). The owners of sports franchises can demand public assistance because the number of regions that want teams has dramatically outstripped the supply of franchises. The increase in the nation's population and wealth has led many economists and students of professional sports to conclude that as many as 25 additional franchises could be created by the leagues given the financial performance of existing teams (Ahmad-Taylor, 1995). However, because the four principal leagues are able to constrain the supply of teams, a virtual bidding war between cities for these scarce assets has broken out.

Even though team owners sometimes acknowledge that the subsidies they receive are related to the scarcity of franchises, owners' demands for public assistance is more often framed in terms of the fiscal pressures that have changed the economics of professional sports. For example, player salaries have escalated rapidly as a result of athletes earning the right to sell their services to the highest bidders (free agency). Frequently, these high bids come from teams in the largest markets (New York, Los Angeles, Chicago, etc.). Since the leagues protect the power of teams in these markets to veto the creation of new franchises or the movement of existing teams into their market areas, the owners of these coveted franchises amass large revenue bases and can thus afford the best players. To offset the advantages of large market teams, owners in smaller regions seek public subsidies that will permit them to earn revenues similar to those of the teams in the biggest markets.

Despite increasing costs, bitter political battles over tax support of facilities, and escalating salaries of players, the number of individuals willing to buy teams has not increased (Zimmerman, 1996). The cost of owning a franchise has escalated steadily. For instance, the Los Angeles Dodgers were recently sold for more than $300 million, and when the new owners of any franchise invest that much capital, they frequently want to increase dramatically their access to revenues produced at stadiums. The increased costs of ownership, then, have also been shifted to the public sector and fans in the form of demands for more tax subsidies, higher ticket prices, and higher prices for food, beverages, souvenirs, and other amenities available at stadiums and arenas.

Few would argue with the logic of charging fans, or …