July 30, 2015
Sports stadiums do not generate significant local economic growth, Stanford expert says
Stanford economist Roger Noll says professional sports stadiums do not generate local economic growth as advertised. He also says the stadium costs that NFL teams expect local governments to contribute have fallen due to increased political resistance to subsidies for sports teams.
By Clifton B. Parker
The San Francisco 49ers' new Levi's Stadium, which opened last year in Santa Clara, has played host to several other events, boosting financial viability. (Photo: Mike Brake / Shutterstock
When an NFL team wants to build a new stadium, it often argues that the facility would boost the local economy.
But that is not true, says Roger Noll, a Stanford professor emeritus in economics. A former senior economist for the President's Council of Economic Advisers, Noll is an expert on the economics of sports.
"NFL stadiums do not generate significant local economic growth, and the incremental tax revenue is not sufficient to cover any significant financial contribution by the city," said Noll, a senior fellow at the Stanford Institute for Economic Policy Research. He has written articles and books and given talks on the public financing of sports stadiums.
Currently, stadium proposals for NFL teams are circulating in St. Louis, Los Angeles, San Diego and Cleveland, while San Francisco and other cities and states like Wisconsin are considering public funding for new or improved sports facilities. Local officials in Oakland, Calif., are expected to respond to a "Coliseum City" proposal in August with a December deadline for closing any deal.
Noll said that because football stadiums are used so infrequently – two preseason games, eight regular season games and possibly a couple of playoff games – they do not realize a large economic benefit from those games alone. Realizing this, the San Francisco 49ers' new Levi's Stadium, which opened last year, has played host to several other events, including concerts and college football, soccer and hockey games.
"By comparison, other billion dollar facilities – like a major shopping center or large manufacturing plant – will employ many more people and generate substantially more revenue and taxes," Noll said.
Basketball and hockey arenas are a better deal for cities, he said. "Arenas are used more often."
Stadium proposals analyzed
Noll said that for both football stadium proposals for Los Angeles, the public contribution is accounted for by providing the site, infrastructure, and tax forgiveness, as Santa Clara did for the 49ers' Levi's Stadium.
"These items account for about 20 percent of the cost. In addition, the stadium authority, which is owned by local government, takes on debt that is used to finance stadium construction," he said.
He explained that the financial plan calls for the debt to be repaid from the sale of stadium naming rights, personal seat licenses, rights to concessions and profit from operations.
"If forecasts of these revenues (for both LA proposals) turn out to be optimistic, the local government may be on the hook for some of this debt. The maximum exposure to debt repayment is about $200 million above the $200 million or so for the site, infrastructure and tax forgiveness, spread (with interest) over 25-30 years," according to Noll.
For example, he pointed out, the cities of Oakland and St. Louis are still making substantial annual payments on the debts that remain for now-obsolete stadiums that were built to lure the Oakland Raiders and St. Louis Rams away from Los Angeles in the 1990s.
He expects one or two NFL teams to relocate to Los Angeles, though it's a dicey timing issue for the teams themselves.
"The LA proposals are much further along than the proposals for the Rams in St. Louis, the Chargers in San Diego, and the Raiders in Oakland," Noll said.
The NFL does not want all three teams to move to Los Angeles, he explained, but a decision needs to be made before any of them have a firm commitment for a new stadium in its current home city.
"The stadium debates in Oakland, San Diego and St. Louis reflect hesitancy in these cities to sign on to expensive new deals to keep those teams," he said.
An end to an era?
With public skepticism abounding, Noll said the current wave of stadium proposals may signal the end of an era in which pro teams periodically receive a subsidy to build a large "modern" stadium – as defined by a large number of luxury boxes, concession areas that resemble shopping centers, and a technologically advanced scoreboard.
"The remaining question is what the next era of stadium construction will bring" he said.
One possibility, according to Noll, is that as professional sports generate greater revenues from Internet distribution, real-world stadium attendance will shrink, leading to smaller but more luxurious facilities.
"Another possibility is that all future facilities will be embedded in larger commercial and residential projects, with the sports team being like an anchor tenant at a shopping center," he said.
In other words, if public subsidies for sports facilities continue, they will be used for multi-use developments like the Coliseum City (Oakland) and Hollywood Park (Inglewood) proposals, rather than stand-alone, football-only facilities like Levi's Stadium, Noll said.
Sports and affordability
Can American professional sports leagues afford to entirely pay for their own stadiums and the operations surrounding them?
"Yes," said Noll, "because most teams are owned by wealthy individuals who could pay for their own stadiums. But teams are businesses, and the additional profit to a team that is created by a new stadium is not worth the cost."
Most likely, if teams and leagues had to pay for their own stadiums, the stadiums would still be built, he said, but at a cost that could be repaid from the rights to personal seats, naming and concessions.
"A significant fraction of the cost of facilities such as Levi's Stadium and the proposed NFL stadiums in LA is accounted for by amenities that generate initial interest in the facility, but in the long run do not contribute much to revenues," he said.
When team owners threaten to relocate elsewhere if they do not get a new stadium, community officials should first make a sober assessment of how much a stadium deal will cost, Noll advised.
Most of the details of recent stadium deals and proposals are in the public record, and they establish a rough guideline for how much a city will have to pay to keep or to obtain a team, he added.
"Cities have very little bargaining power with an NFL team. As long as there are cities without NFL teams that are willing to subsidize a stadium, cities will have to pay part of the cost of a new stadium," he said.
Ultimately, Noll acknowledged, cities can decide whether to view these facilities as a form of "public consumption" rather than as financial investments.
Interestingly, he noted, the city of Pasadena turned down a proposal to convert the Rose Bowl to an NFL stadium – which would have meant adding luxury boxes and fancier concession areas, and reducing the number of seats by 20,000.
"In recent years, several cities have simply decided the price is too high," he said.
For more Stanford experts on economics and other topics, visit Stanford Experts.