Flag on the Play: The Case Against Public Subsidies for Professional Sports Stadiums

By: Grey Beaubien

Photo by KAMIL KRZACZYNSKI/ AP

Professional sports in the United States are in the middle of a building boom. In the four major U.S. sports leagues — the National Football League (NFL), the National Basketball Association (NBA), Major League Baseball (MLB), and the National Hockey League (NHL) —  eight new stadiums or arenas have been built since 2020. These facilities cost an estimated $3.3 billion combined, including $750 million in public funds (Bradbury et al.).  State and local governments are showing no signs of slowing down, approving subsidies of $380 million for the Oakland Athletics MLB team,  $500 million for the Milwaukee Brewers MLB team, and $1.26 billion for the Tennessee Titans NFL team (Passan; Newcomb; Bushard). There is an additional $13 billion in outstanding stadium construction and renovation proposals from professional sports teams and cities as of October 2024 (Bradbury et al.). This is money very poorly spent. More than 30 years of economic research has reached the  “universal” conclusion that public subsidies for professional sports facilities do not generate significant economic benefits (Bradbury et al.). These subsidies are funded through a variety of tax instruments, each with its own flaws. However, state and local governments are trapped in a collective action problem and continue to shower professional teams with eight and nine-figure sums for new stadiums under the guise of economic development. Instead, policymakers should prioritize spending on high-need areas, such as education, housing, infrastructure, and public health.

Stadium subsidies’ inefficiency is based on one core fact: stadiums and arenas do not generate new spending but merely redistribute existing spending within the jurisdiction (Bradbury et al.). Most revenue generated from professional sports venues comes from local residents who have fixed budgets for leisure and entertainment. An increase in spending at a new football stadium results in decreased spending at a local bowling alley, movie theater, bar, or restaurant and no net increase in a jurisdiction’s tax revenue. Special tax instruments that state and local governments use to pay for stadium subsidies often obscure this fact. 

Two of the most common methods of paying for stadium subsidies are special tax districts and visitor taxes (Hoffer et al.). Special tax districts, which increase the sales tax in and around a stadium or arena, draw from local residents who comprise most of the stadium district’s customers. As a result, special tax district revenue comes at the expense of other local revenues. Visitor taxes, or taxes on hotels and rental cars, are appealing because they appear to divert the tax burden of paying for the stadium onto visiting fans. However, hotel rooms and rental cars only generate revenue when occupied, so a tax can put downward pressure on the underlying cost of these services and shift some of the tax burden to local hotels and rental car companies. The connection between hotel guests, car renters, and stadium visitors is also tenuous. A 2023 report in the Journal of Policy Analysis and Management found that “most stadium spectators are residents who do not stay in hotels, and most hotel and car rental customers do not attend stadium events” (Bradbury et al.). As a result, visitor taxes make it more expensive to visit a city and force local businesses dependent on tourism to lower their prices in response or cope with the loss of the marginal visitor.

Even the prospect that a venue will generate new tax revenue by attracting “mega-events” such as a Super Bowl or Final Four does not change this calculus. For example, a 2021 study found that “The 2017 Super Bowl in Houston increased local hotel revenue by $44 million above what it would have been absent the event. That means the 2% hotel occupancy tax assessed to fund Super Bowl host NRG Stadium translated to roughly $880,000 in additional tax revenues, which represents less than 0.3% of the $310 million in public funds used to construct the new venue in 2002” (Heller and Stephenson). This one-time tax revenue bump recouped a tiny fraction of the stadium subsidy cost. These tax structures and others like them are a fiscal illusion that obscures the fact that the hundreds of millions or billions spent on a professional sports stadium will mean hundreds of millions or billions not spent on education, housing, infrastructure, or public health.

Often, this evidence is not enough. Strong incentives push state and local governments to continue subsidizing expensive stadium projects despite the near certainty of poor financial returns. The first is the monopoly power of professional sports leagues. Since 2016, five teams in the four major sports leagues have moved or plan to move cities. This includes the Rams, Chargers, and Raiders in the NFL, the Athletics in the MLB, and the Coyotes in the NHL (ESPN). All five of the relocations involved the incentive of publicly financed facilities. City and state officials concerned about backlash from fans over losing a beloved franchise often feel they have no choice but to capitulate to a team’s request for public stadium investment. Second, stadium subsidies have concentrated benefits but diffuse costs. Researchers at Kennesaw State University, the University of Maryland, and West Virginia University found that “Stadium subsidies transfer wealth from the general tax base to billionaire team owners, millionaire players, and the wealthy cohort of fans who regularly attend stadium events” (Bradbury et al.). The organizations lobbying for public funding to build stadiums have a lot to gain from hundreds of millions in government subsidies, but each individual taxpayer has much less to lose from a marginal increase in taxes. This situation has all the hallmarks of a collective action problem (Moore). Each city would be better off spending less money on new professional sports facilities but is worried about the risk of losing its team to a city that is willing to pay.

There are steps available to break this cycle. Fans can and should continue to vote down proposals for publicly funded stadium projects, like the proposal rejected by Jackson County, Missouri residents for the construction of a new Royals ballpark and major renovation of the Chiefs Stadium (Skretta). Federal regulation could close loopholes allowing state and local governments to issue tax-exempt municipal bonds subsidizing large private development projects (Hoffer et al.). Journalists and local news outlets should work hard to educate the public about the opportunity costs of stadium subsidies and challenge claims made by stadium proponents that new professional sports facilities will drive economic growth. Finally, cities can offer scaled-down incentives such as donating low-value public land, facilitating infrastructure, providing planning resources, and waiving fees that more accurately reflect the value of a new stadium (Bradbury et al.).

Finally, policymakers should consider what else could be accomplished with the money spent on stadium subsidies. In Las Vegas, where the Oakland Athletics were given $380 million in public funding for a new stadium, there are over 6,200 children on the waitlist for pre-kindergarten (Mora). An analysis of the Nevada Ready! State Pre-K found a per-student annual cost of $8,410, meaning that the $380 million spent on a baseball stadium could instead pay to expand free pre-K in Clark County to clear the waitlist and maintain the expansion for 7 years (WestEd). In Nashville, where the Tennessee Titans were given $1.26 billion in public funding for a new stadium, housing prices have risen 69% in the past five years, and half of renters are cost-burdened (Davis). A Government Accountability Office report found that the average per-unit cost of affordable housing projects in Tennessee —  meaning for households with incomes not exceeding 30% of the area median — is about $166,300 (GAO). This means that a $1.26 billion investment could pay for the construction of over 7,500 affordable housing units. These are just two examples, but it is not difficult to imagine that there are better uses of public funds than stadium subsidies in every city.

Professional sports teams have an incredible ability to bring a city a sense of shared joy, triumph, and community. But they do not have the ability to defy decades of economic research. Public investments in stadium construction are an inefficient use of taxpayer funds. State and local governments should affirm their commitment to their constituents by focusing their efforts on public policies with a proven track record of improving the lives of all citizens.

The views expressed in this publication are the authors' own and do not necessarily reflect the position of The Rice Journal of Public Policy, its staff, or its Editorial Board.

---

References

“Affordable Housing: Improvements Needed in HUD's Oversight of the Housing Trust Fund Program.” Government Accountability Office, 8 August 2023, https://www.gao.gov/products/gao-23-105370. Accessed 12 November 2024.

Bradbury, John, et al. “Public Policy Toward Professional Sports Stadiums: A Review.” Journal of Policy Analysis and Management, vol. 43, no. 3, 2023, pp. 899-937. SSRN.

Bushard, Brian. “Tennessee Titans Break NFL Record With $1.26 Billion In Public Money For New Stadium.” Forbes, 26 April 2023, https://www.forbes.com/sites/brianbushard/2023/04/26/tennessee-titans-break-nfl-record-with-126-billion-in-public-money-for-new-stadium/?sh=5ec2b17a1a63. Accessed 12 November 2024.

Davis, Molly. “Nashville real estate: High housing costs, low stock hits market.” The Tennessean, 21 October 2024, https://www.tennessean.com/story/money/2024/10/21/nashville-housing-affordability-real-estate-apartments-homes/75107746007/. Accessed 12 November 2024.

Heller, Lauren, and E. Frank Stephenson. “How Does the Super Bowl Affect Host City Tourism?” Journal of Sport Economics, vol. 22, no. 2, 2021, pp. 183-201. EconPapers.

Hoffer, Adam, et al. “Sports Stadium Subsidies: Taxpayers Shoulder a Heavy Burden.” Tax Foundation, 3 October 2024, https://taxfoundation.org/blog/sports-stadium-subsidies-taxpayers/. Accessed 12 November 2024.

“Leaving Arizona: Everything you need to know about the Coyotes moving to Salt Lake City.” ESPN, 15 April 2024, https://www.espn.com/nhl/story/_/id/39940303/nhl-arizona-coyotes-move-utah-new-name-schedule-players-coaches. Accessed 12 November 2024.

Moore, Dan. “Stadium Subsidies Are Getting Even More Ridiculous.” The Atlantic, 8 May 2024, https://www.theatlantic.com/ideas/archive/2024/05/sports-stadium-subsidies-taxpayer-funding/678319/. Accessed 12 November 2024.

Mora, Ozzy. “CCSD: More than 6000 children on pre-K programs waitlist.” 8 News NOW, 8 July 2024, https://www.8newsnow.com/news/local-news/ccsd-more-than-6000-children-on-pre-k-programs-waitlist/. Accessed 12 November 2024.

Nevada Preschool Mixed Delivery System: Cost and Equity Study. WestEd, June 2023.

Newcomb, Tim. “Wisconsin Backs Brewers With $500 Million For Stadium Upgrades.” Forbes, 16 November 2023, https://www.forbes.com/sites/timnewcomb/2023/11/16/wisconsin-backs-brewers-with-500-million-for-stadium-upgrades/. Accessed 12 November 2024.

Passan, Jeff. “Nevada governor signs bill to fund Las Vegas stadium for Athletics.” ESPN, 15 June 2023, https://www.espn.com/mlb/story/_/id/37860762/nevada-governor-signs-bill-fund-las-vegas-stadium-athletics. Accessed 12 November 2024.

Skretta, Dave. “Voters reject stadium tax for Royals and Chiefs, leaving future in KC in question.” AP News, 3 April 2024, https://apnews.com/article/chiefs-royals-kansas-city-stadiums-e9605296b85e91699441e4ba10e83212. Accessed 12 November 2024.