Baseball Teams and Facilities on Neighborhood Economies new ball park represents an investment in the future. It becomes a matter of good business practice. A state-of-the-art facility reflects a community’s confidence in its potential. Cities want to be regarded as big league or first class. It is a matter of pride. Major league baseball remains a significant factor in the quality-of-life equation. No community today wants to lose a franchise. It would send the wrong message to business and industry that might have an interest in it. — Gene Budig, American League President, 1999
The epigram above is reflective of just how important baseball is to the American economy and its culture. Professional baseball in general has experienced some difficult times in recent years, with fan attendance being adversely affected by skyrocketing ticket and concession prices and repeated strikes by players who already enjoy exorbitant salaries. Nevertheless, the sport of baseball remains America’s pastime, and studies have shown time and again that there are a wide range of benefits to be gained whenever a community makes an investment in bringing a baseball team and their associated facilities to their neighborhood. To this end, this paper provides an overview of the rationale for communities wanting baseball teams and their facilities in their neighborhood, followed by an analysis of some typical examples from recent years. A discussion of current and future trends in the impact of baseball teams and their facilities on neighborhood economies will be followed by a summary of the research in the conclusion.
Review and Discussion
Background and Overview. According to Rich (2000), today, the United States is the unrivaled center of a multi-billion-dollar sports business. “The transmutation of sports into a billion-dollar business is one of the true epics of American capitalism. Professional athletes can now make millions of dollars playing a game they learned as a child. They are performing in stadiums that would be the envy of the ancient Greeks and Romans” (1). Many of the newer sports facilities go far beyond the traditional concepts, and now comprise mini-cities that feature a wide range of activities besides merely watching the ball game. In fact, Rich points out that these new stadiums are a signature of their host cities, but it seems no one is satisfied yet. “Even as these stadiums are getting bigger and fancier, no one associated with professional sports seems to be satisfied. Cities are now competing with each other to build elaborate and more expensive stadiums and arenas. These structures are monuments to the centrality of sports in American culture and to how wealth is expressed through sports” (1).
There are a number of other indications of the continuing popularity of sports and those who play them as well. “Since the beginning of the twentieth century,” Guthrie and Jozsa report, “sports have assumed a growing role in American culture” (3). Millions of Americans watch and listen to daily broadcasts of baseball games and their results, as well as the minutiae involved in the sport. Millions of other fans enjoy their weekly games at ballparks located in cities, towns, and suburbs across North America (Guthrie & Jozsa 1999). Other examples include America’s fascination with sports figures and their peccadilloes that continue to dominate American headlines, and a more recent trend has avid fans discussing a vast array of sports topics on talk radio and prime-time television programs. “Even minute changes in the operation and ownership of teams receive top billing in the press. Small wonder then, that reporters, analysts, and scholars contribute to the popularity of sports and stimulate the public’s seemingly insatiable appetite for information concerning the conduct and decisions of athletes, team owners, and league officials” (Guthrie & Jozsa 1999:3). Based on the above, it is little wonder that there is such a prevailing spirit of “build it and they will come” dominating the American landscape today. “If new stadiums and arenas have economic value — and I believe they do — the market will see that they are built” (Keating 1997:55). As it turns out, though, there are some very good reasons for a community wanting a baseball team besides its popularity rating; these are discussed further below.
Sports Team Facility Financing: Is it Worth the Taxpayers’ Money? The manner in which the sports facilities have been financed in the United States has been highly varied, but of the thirty National Football League (NFL) teams, for example, twenty-seven play in publicly owned stadiums. “This paradox of a privately owned enterprise that is subsidized by taxpayers will most likely continue” (Rich 2000:1). It will likely continue because not only is there a lot of money to be made, Americans love sports – especially baseball — and probably always will. In fact, even the critics of taxpayer-financed baseball stadiums admit that there is much to be gained if a community approaches the project right: “Indeed, prior to the 1960s, privately built and owned facilities were the rule. In 1950, just one major-league baseball park was government-owned. Today, only seven ballparks are privately owned, and even some of those received government subsidies” (Keating 1997:54).
Because there is a lot of money involved in enticing a professional or amateur sports team to relocate to a community, it is important to identify what is at stake before community leaders will be able to make an intelligent decision as to whether such an appropriate is appropriate for their unique requirements. Certainly, beyond the added prestige that a winning professional (or amateur) baseball team brings to a community, there are also some sound business reasons for a municipality to want a baseball team and their associated facilities located in their neighborhoods. The willingness of some cities to subsidize sports facilities was clearly reflected in the campaign slogan for a new stadium for the San Francisco 49 ers: “Build the Stadium — Create the Jobs!” (Noll & Zimbalist 1997:35). The proponents of locating baseball teams and facilities in local communities point to four primary reasons for doing so:
1) Simply building the facility creates new construction jobs;
2) There is a significant positive impact associated with sporting events and the people who attend games or work for the team will generate new spending in the community, thereby helping local employment;
3) a baseball team can help attracts tourists and businesses to the host city, further increasing local spending and jobs;
4) the total of this increased new spending has a “multiplier effect” as this additional local income causes still more new spending and further job creation. According to Kelly and Shropshire, the multiplier effect is a figure that represents the number of times that a single dollar spent in a specific geographic area will be spent again or “rolled over” in that same area.
The multiplier effect model assumes that subsequent recipients of the initial dollar are somewhat more likely to spend it again in that same region than elsewhere. Consequently, the more spending that occurs, the more employment and other economic measures improve, thus increasing the value of the indirect impact. The multipliers are usually developed through statistical estimates based on annual state and regional employment changes; the multipliers used in the past to calculate indirect economic benefit have ranged widely from approximately 1.5 to 3.2 (Kelly & Shropshire 1995).
The proponents of baseball teams and their associated facilities therefore maintain that these initiatives inevitably result in a sufficient amount of economic growth for the community that they are virtually self-financing; the initial subsidies for these incentive programs are later offset by revenues from ticket taxes, sales taxes on concessions and other spending outside the stadium, as well as additional property tax increases resulting from the stadium’s economic impact (Noll & Zimbalist 1997). According to Gene Budig, president of the American League, “A new ballpark means security for many working men and women. It provides needed jobs and has a direct impact on the local economy. Major league baseball means millions of dollars for its member communities” (in Rosentraub 1999:130). Although estimates vary from region to region, most baseball clubs place their economic impact at well over $200 million a year. Budig suggests that, “This, in fact, is a conservative number” (in Rosentraub 130). The direct benefits of locating a baseball team in a community include revenue from stadium rent, concessions, parking, advertising, and luxury boxes. “Indirect economic benefit is determined by estimating the indirect impact of those direct revenues on the geographic region” (Kelly & Shropshire 1995:14). According to Chapin (1999), Seattle, Detroit, Washington, DC, and a number of other cities throughout the country can attest firsthand as to the economic benefits of sports teams. Most American cities have invested heavily in large, recreation-oriented projects, including sports facilities; these initiatives are designed to bring millions of visitors into their cities. “This activity drives the economy with spin-off businesses in the form of restaurants and retail stores. In addition, it usually brings vitality back to districts that were perceived as unsafe after dark just a few short years before” (339). Despite these glowing reports, Keating (1997) cautions that not every community has enjoyed the same level of success as the studies have suggested.
In his essay, “We Wuz Robbed! The Subsidized Stadium Scam” (1997), Keating says, “Only team owners and players clearly benefit from these taxpayer subsidies, because they are relieved of the costs of stadium financing. Indeed, annual debt-service costs can run into the tens of millions of dollars” (55). These savings in costs only serve to help the baseball owners and players though. A report from Financial World cited by Keating noted that revenues for baseball teams with new stadiums increased by almost 40% the year a new facility opened. “The Cleveland Indians and Texas Rangers both moved into new ballparks in 1994; according to Financial World, their franchise values rose by 67% and 37%, respectively, between 1991 and 1996” (Keating 1997:56). At the same time, the franchise value of teams experienced in the league on average actually declined by 5%; furthermore, in 1996, each of the five baseball teams that opened new ballparks in the 1990s paid its players an average salary that exceeded the league average by 28 to 51% and each of these clubs was ranked in the top 10 for total 1996 salary levels paid by baseball teams (Keating 1997). Given the fact that these players and their support staff and facilities are also contributing to the local economy through the multiplier effect, though, this reasoning seems somewhat flawed. Pressing his point, though, Keating argues that, “Taxpayers in the future will not easily escape this economic hoax. Taxes levied to pay for stadiums raise private-sector costs, diminish incentives for working, investing, and risk-taking, and slow economic growth” (57). A 1994 Heartland Institute study conducted by Lake Forest College economics professor Robert Baade investigated economic 30 years’ worth of economic data for 30 cities with stadiums in the U.S.; in 27 of these cities, Blaade found no positive economic impact from new stadiums and in three cities, there was even a negative impact. Based on his study, Baade concluded, “If the opportunity cost is included in cost-benefit considerations, public investments in stadiums may be more than just insignificant; they may be negative” (Keating 1997:57). A review by Rouse conducted in 2001 found a number of similarly minded critics as well.
Citing various authors, Rouse points out that almost half of the nation’s 115 major professional sports franchises were either receiving new or renovated facilities or had requested them; by the early 1990s, 77% of the sports facilities in the country were government owned; and the benefits to local economies cannot be considered to be the same as benefits to local government treasuries. Rouse questions the economic impact of sports teams and their facilities on local economies by pointing out that such public subsidies result in a form of corporate welfare. “But ‘private’ stadia,” he says, “such as those housing the San Francisco Giants and Washington Redskins, also have public costs. Stadia accessories — including government funded highways, off-ramps, rail connections, and parking lots — are financed by taxpayers” (Rouse 2001:630). This author concludes that approximately 40% of new sports facilities construction is paid by taxpayers. These analyses, though, may not take into account all of the relevant economic factors associated with sports teams and their facilities.
Some independent analysis shows that even in the cities where taxpayers are required to pay an inordinate amount of support for a baseball team, they stand to gain in the long-term because of the multiplier effect, even at a very small rate. For example, between 1987 and 2000, Keating estimated that taxpayers paid almost 60% of the $12 billion or more that was spent on new stadiums and arenas in the four major league professional sports (not counting the hundreds of millions more for minor-league ballparks in the United States). If the above assumptions concerning the economic impact of a baseball team on a community can be considered valid, though, the taxpayers in these cases would receive some type of return on their 60% investment during this 14-year period. An application of the multiplier effect based on the foregoing estimates of 1.5 to 3.2 from Kelly and Shropshire is provided in Table 1 and Figure 1 below.
Table 1. 60% of $12 billion or $7.2 billion invested over a 14-year period, or approximately $.51 billion a year [not adjusted for inflation]) in billions – 1987-2000:
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 Total $0.51 $0.51 $0.51 $0.51 $0.51 $0.51 $0.51 $0.51 $0.51 $0.51 $0.51 $0.51 $0.51 $0.51 $7.14 $0.77 $0.77 $0.77 $0.77 $0.77 $0.77 $0.77 $0.77 $0.77 $0.77 $0.77 $0.77 $0.77 $0.77 $17.85 $1.63 $1.63 $1.63 $1.63 $1.63 $1.63 $1.63 $1.63 $1.63 $1.63 $1.63 $1.63 $1.63 $1.63 $29.99
Figure 1. 60% of $12 billion or $7.2 billion invested over a 14-year period, or approximately $.51 billion a year [not adjusted for inflation]) in billions.
Even assuming that a community is heavily taxed to provide the requisite incentives to lure a baseball team to its city, the investment is well worthwhile in terms of the multiplier effect alone. The initial investment of $7.2 billion, or approximately a half a billion dollars a year, reaps significant returns at the 1.5 estimated level (more than doubling the original investment), and positively stellar returns on the taxpayers’ investment at the 3.2 multiplier level with a whopping 418% return on their investment. These rates of return are even assuming the higher 60% rate identified by Keating as opposed to the 40% figure offered by Rouse.
Current and Future Trends. Based on the foregoing, it is abundantly clear that sports franchises and major sporting events will continue to be aggressively pursued by cities, and franchise owners and event organizers will continue to place one community against others in a quest for the best possible deal for the organization’s stakeholders. As was shown time and again in the research, there is a lot of money at stake and the winners will be those who are able to provide team owners with the best mix according to some difficult criteria. “Cities must be willing to evaluate, in a more public way, whether the huge expenditures needed to be perceived as ‘big-league’ are worthwhile” (Kelly & Shropshire 1995:62). Community leaders in the future are going to have to make it clear to their constituencies that there are no absolutes involved in making the decision to lure a baseball team to their city, and the decision as to whether to aggressively pursue a franchise or a major event, despite the influence of economic impact studies indicating substantive benefits, remains largely subjective (Kelly & Shropshire 1995).
In the near-term, at least, Kelly and Shropshire suggest that there will continue to be increasing pressure on communities to build new, state-of-the-art sports facilities just to remain competitive. The broadcast fees being paid to leagues by television networks could even decrease in the future, thereby placing still more pressure on team owners on where to locate (Kelly & Shropshire 1995). Therefore, in order to maintain overall revenues at existing levels, the construction of new facilities will most likely remain the single biggest demand of sports enterprises in the foreseeable future. As one commentator pointed out, “If there’s anything happening today it’s an increasing number of clubs trying to get new facilities, recognizing that their reliance on national media is going to go down” (Kelly & Shropshire 1995:61).
Conclusion
The research showed that just about everyone in the country is a stakeholder in the sports industry – even if they do not want to be. Increasing numbers of sports facilities are being paid for by American taxpayers to the alarm of critics who point to a number of disadvantages associated with the practice. Nevertheless, even a casual analysis of the existing data shows that the resources allocated for attracting and retaining a baseball team, even a minor league team, can reap positive benefits for a community in terms of the multiplier effect and its impact on the eventual return of the community’s original investment. In the final analysis, communities in search of economic revival should listen to Gene Budig and “Play ball!”
Works Cited
Chapin, Tim. (1999). Sports, Jobs, and Taxes: The Economic Impact of Sports Teams and Stadiums. Journal of the American Planning Association, 65(3):339.
Guthrie, John J. And Frank P. Jozsa. Relocating Teams and Expanding Leagues in Professional Sports: How the Major Leagues Respond to Market Conditions. Westport, CT: Quorum Books, 1999.
Keating, Raymond J. (1997). We Wuz Robbed! The Subsidized Stadium Scam. Policy Review, 82, 54.
Kelly, Sharon Pratt and Kenneth L. Shropshire. The Sports Franchise Game: Cities in Pursuit of Sports Franchises, Events, Stadiums, and Arenas. Philadelphia: University of Pennsylvania Press, 1995.
Noll, Roger G. And Andrew Zimbalist. (1997). Sports, Jobs, and Taxes: Are New Stadiums Worth the Cost? The Brookings Review (Summer):35-39.
Rich, Wilbur C. (Ed.). The Economics and Politics of Sports Facilities. Westport, CT: Quorum Books, 2000.
Rosentraub, Mark S Major League Losers: The Real Cost of Sports and Who’s Paying for it. New York: Basic Books, 1999.
Rouse, John. (2001). Stadium Games: Fifty Years of Big League Greed and Bush League Boondoggles. Public Administration Review, 61(5):630.
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