Pro Sports as a Public Good
... Many different arguments have been used to advocate government funding of professional sports. Roger Noll and Andrew Zimblast write in their book Sports, Jobs, and Taxes, that “although the details of campaigns for sports facilities differ from city to city, the basic case for subsidizing them is the same everywhere.”[i] They outline the three consistent arguments in favor of subsidizing stadiums. The first is that stadiums generate new jobs. Secondly, cities with major league teams attract more business. Finally, it is argued that additional tax revenues and lease payments make building stadiums an investment in the long term.
When the city of Nashville attracted the then Houston Oilers to move, they did so with a brand new $200 million dollar stadium. Consider the words of Nashville Mayor Phil Bredesen as he advocates this public works project:
First, the economic impact, which does not totally justify the investment but justifies a piece of it. Second, the intangible benefits of having a high-profile NFL team in the community at a time when cities are competing for attention is a positive. Third, it is an amenity that a lot of people want. We build golf courses and parks and libraries and lots of things because people in the community want them, and certainly there are a substantial number of people who what this. Fourth, the location of the stadium represents the redevelopment of an industrial are close to downtown, certainly a positive in its own right and a significant factor in the public mind. Taken together, it makes a very compelling argument for going ahead with this.[ii]
This argument broadly misses the point. As Hazlitt affirms over and over again in his Economics in One Lesson, one must look beyond the seen to the unseen. What is the alternative use of all the resources that go into the construction of the stadium? Certainly the stadium construction and operation will provide jobs during the immediate act of construction, but the opportunity cost of public construction is more than the resulting benefits. There is no net gain through the construction of a stadium.
In independent studies of the impacts of stadiums, there are almost no instances in which stadiums were shown to lead to a measurable increase in the economic well being of a city. Cleveland’s Jacobs Field, built in the 1990s, has been one of the most successful sports venues, having season long sellouts. Yet when economists Ziona Austrain and Mark Rosentraub studied the impact of the stadium on the local economy, they determined that its construction had no impact on the growth of income and employment in the Cleveland area.[iii] There has been no documented correlation between stadium construction and growth of income and employment in any study on the subject, while countless others have shown that stadiums have done little to increase employment.
The mayor of Nashville also brought up the major league city argument. These are, as the mayor articulated, the intangible benefits of stadiums. This is a surprisingly popular argument. In the late 1970s proponents of building the Metrodome for the Twin Cities area used the tagline, “Without the Vikings and the Twins, we’re just a frozen Omaha.”[iv] Martin Schneider repeated the remark twenty-five years later saying, “Without the Brewers, without the Bucks, without the Packers, we ain’t nothing but Nebraska”[v] This line of reasoning confuses the cause and effect that brings about stadiums.
In the early twentieth century, cities were not responsible for the financial viability of sports franchises. In his history on the professional sports industry, Phil Schaaf writes that cities were the only source of fans and revenue. “Teams had one source of income, ticket sales. In order to make that revenue stream both viable and reliable, the sports facilities needed to be in cities and accessible.”[vi] Teams could only afford to exist in large cities with enough people and businesses to support them.
The implication of the major league argument, however, is that having a major league team makes some cities more desirable than others. “Omaha is not Minneapolis for a multitude of reasons.”[vii] It is the multitude of reasons that provide the conditions for sports teams in Minneapolis and not Omaha. Roger Baade observed in 1987 that adding major leagues teams to a city has done little to change its economic status.[viii] During the 1970s and 1980s Omaha had an NBA team, the Kings. This in no way made it a point of pilgrimage for corporate America. Likewise, when LA lost two different NFL teams, it didn’t make it less of a city. Businesses and factories didn’t follow the sports teams away from the city.
Consider the relocation of the Brooklyn Dodgers. In 1955 the Dodgers won the World Series, the following the year the Dodgers still had one of the best teams in baseball, had a strong fan base and was profitable. Yet the team’s owner, Walter O’Malley moved the team to Los Angeles. New York had two other teams already competing with the Dodgers, while Los Angeles didn’t have any. Once there, O’Malley privately financed $22 million Dodger Stadium that instantly became one of the best ballparks in all of Major League Baseball.[ix] The Dodgers where successful in California because of the already existent economy in Los Angeles, not vice-versa.
Another aspect raised by Mayor Bredesen of Nashville is that locating a stadium in a rundown area will upgrade it. This is empirically untrue. Quirk writes, “One thing that major American cities have no shortage of is depressed downtown areas, and there is no shortage either of proposed solutions… almost all involving large infusions of public money.”[x] The few instances where a new stadium and revitalized downtowns seem to correspond are instances where depressed areas were already experiencing economic growth. This includes the construction of Camden Yards and the $90 million America West Arena in Phoenix.
These few examples are not the norm. The default instance is contrary to the wisdom of the mayor. The Metrodome in Minneapolis is surrounded by parking lots and warehouses, just as it was in 1982. This is in spite of three different teams competing there throughout the year. In Inglewood, the Forum sits in the same environment as it did thirty years after it is built. Quirk writes the “less said about the areas around the LA Coliseum and the LA Sports Arena, the better.”[xi] The problem with locating a stadium in a depressed area is that it brings people there for only a brief period of time during game days. People get brought in but don’t linger, making stadiums an ineffective way to revitalize rundown cities.
Stadiums are also viewed by many as public consumption. Similar to our National Parks, stadiums are seen as an end in itself because the team is valuable to local residents beyond what can be quantified (that can be easily measured.) This moves into the more classic public works doctrine and arguments of externalities, nonrivalrous consumption, and transaction costs.
An externality exists whenever the action of an individual brings added costs or benefits to another individual. Phrased differently, externalities exist when the participants of an action don’t reap all the costs or all the benefits of that action. An example of this can be the nocturnal bagpipe player who waits until midnight in his quiet neighborhood to play. The cost of his action can be seen on the sleepy faces of his neighbors the next morning.
In much the same manner people can experience benefits of other people’s action. A classic example is the construction of a lighthouse along a rocky coastline. The merchants who initially pooled their resources to construct the lighthouse bore all the cost but cannot keep others from receiving the benefits. Every ship will be able to see the lighthouse regardless of their contribution towards its construction.
Government action is called for by both collectivists and individualists based upon these two examples. Even Murry Rothbard, in his book Man, Economy, and State, advocates government action in dealing with externalities. Rothbard advocates that judicial action be taken against those people who introduce costs on others through their actions writing:
In so far as the outpouring of smoke by factories pollutes the air and damages the persons and property of others, it is an invasive act. It is equivalent to an act of vandalism and in a truly free society would have been punished after court action brought by the victims.[xii]
Rothbard calls for judicial action against the externality of air pollution because it is an invasive act. Note that Rothbard does not advocate for a regulatory commission but only judicial action. It is to be handled in much the same way as theft or other property violations.
Paradoxically, the external benefits of an action are used by collectivists to advocate for government public works projects and subsidization. Thomas Cowen writes in The Theory of Market Failures, that the common understanding is that “markets will under produce goods and services whose provision would entail positive externalities.”[xiii] The argument of the collectivist is that the capitalist will just sit and wait for someone else to build the lighthouse. They then conclude that no lighthouses will ever get built and the only solution is that the government must build it.
Yet when the value saved by a lighthouse exceeds the cost of constructing it the private company will build the lighthouse. It becomes in their best interest to construct the lighthouse. The notion that just because people can’t be excluded from consumption of the services a lighthouse offers doesn’t mean that the free market won’t produce a lighthouse.
The argument for government involvement based upon externalities is quite silly when put into simpler terms: that the Government is going to tax everyone to provide for a service because other people could benefit from that service without paying anything at all! Simply because some people can receive positive externalities from an action in no way prevents the actions occurrence. At some point the lighthouse becomes profitable and it will be built.
The other major aspect of public goods theory is nonrivalrious consumption, which refers to cases where “individuals’ ability to consume a good or service is not diminished by allowing additional individuals to consume it.”[xiv] Since nonrivalrious goods are excludable the “failure” of the private property order is not readily visible. What government advocates argue is that since additional consumers can be added with no additional marginal cost these consumers can be “inefficiently” excluded from consumption if the price of the good is higher than their value scales. Since there is no way of knowing exactly what value the marginal consumer has for the good, it is more “efficient” that the government simply supply the goods and services.
This neoclassical view of efficiency diminishes the importance of the individual. It is essential that one starts at the beginning for the conclusions to be sound. That beginning is that people act by apply means, according to ideas, to achieve ends. Individuals subjectively judge their actions as successes or failures that they either profited or lost. So what then is efficiency in light of subjective failures or successes in the individual’s plans?
In the article “The Austrian Theory of Efficiency and the Role of Government” published in The Journal of Libertarian Studies, Roy Cordato writes that efficiency in purposeful behavior is choosing means that attain certain goals.[xv] Conversely, inefficiency is using means that don’t work towards individuals goals. That being the case it is impossible to see “societal efficiency” as apart from the efficiency of the individuals. Austrian Economist Israel Kirzner writes that
Society is made up of numerous individuals…It is therefore unrealistic to speak of society as a single unit seeking to allocate resources in order to faithfully reflect “its” given hierarchy of goals. Society has no single mind where the goals of different individuals can be ranked on a single scale… Efficiency for a social system means the efficiency with which it permits its individual members to achieve their several goals.[xvi]
It is a limited government that allows individuals to pursue their goals in the most efficient manner available. Taxing the citizens to provide for nonrivalrous goods at the marginal cost doesn’t help the individuals be more efficient. Society is in no way made more efficient by the subsidization of nonrivalrous goods and services.
Starting at the beginning one is able to deduce that inefficiencies in society are a result of government intervention in the market process. Kirzner went on to write that:
Interference with the webs and forces that are woven through the market process limits the attempts of participants to coordinate their activities through an engine of remarkable efficiency – the market. The analysis of the market prices can clarify the costs involved through such interference, making it possible for market participants to decide, through the political process, on the extent to which they are willing to lay aside their engine of efficiency for the sake of special purposes of possibly overriding importance.[xvii]
Kirzner is making tow different claims here. He first makes the point that government interference cannot be justified by increased efficiency because only the market process and price system allows everyone the freedom to pursue their subjective ends. In the second half of this statement, after establishing the inefficiency of governmental action, Kirzner adds that there could be other reasons a political body would turn from efficiency.
Economists that spend pages arguing how trivial of an impact sports teams have on the local economy will turn right around and talk of the societal importance of teams. “The cultural importance of major league team sports in American society most assuredly exceeds its economic significance as a business.,,”[xviii] Andrew Zimblast compares revenues of sports teams versus major universities. He cites the top ten universities, who together receive federal grants of over $2.8 billion. This was is in 1994. He then follows this information up writing, “it would be inaccurate to conclude [from this] that sports major league teams are unimportant... One does not need to attend a game or tune in to a broadcast to derive consumer benefits from a local sports team…”[xix] This is a classic externality problem many will argue about sports teams, and a source for calls for government intervention.
Yet the argument against free markets based upon externalities is that the free market will naturally under produce these goods. This is simply not true in sports leagues. There is a lack of supply for the demand of teams sports as cities are trying to outbid each other left and right to get teams. An example was Hartford Connecticut’s bid for the New England Patriots. They offered the ownership of the Patriots a $280 stadium, parking structures, a $15 million practice cite and cost overruns to attract the Patriots out of their Foxboro home, all of it paid for through public funds.[xx] (People will often say this is due to the antitrust exemption that sports leagues were awarded in a 1922 Supreme Court decision, but remember that President Clinton abolished those advantages in 1998 with the Curt Flood Act.) It isn’t monopolies that give franchises so much bargaining power but simply ignorance of the effects of stadiums.
Stadiums do not have the economic benefit that people claim they have. They do not increase employment rates, they don’t make cities corporate power houses, and they most assuredly are not the best investment of money as the crowd out private credit. Furthermore, it is not necessary that the government treat them as a public good. Consider the case example above when Hartford offered the Patriots an amazing facility if they would only move. Despite over $300 million in subsidies the Kraft family opted instead to build a stadium costing approximately $325 million on $30 million worth of land, in addition to the paying remaining mortgage balance on the old Foxboro Stadium, all privately funded. Though sports franchises may fit some more classic molds of public goods theory it clearly isn’t necessary for the government to fund them in anyway. The removal of private funds from the market through taxation simply limits capital for private industries, industries that are much more beneficial in creating jobs, attracting additional businesses, and providing greater returns on investments.
[i] Noll, Roger G. and Andrew Zimblast “Build the Stadium – Create the Jobs.” Sports, Jobs, and Taxes ed., Roger Noll and Andrew Zimblast. Washington DC, Brookings Institute. 1997
[ii] Quoted in: Quirk, James Hardball: The Abuse of Power in Pro Team Sports. Princeton, N.J. University Press. 1999. pg 150.
[iii]Quirk, 154
[iv] Sporting News, October 16, 1995, pg 5
[v] Ibid.
[vi] Schaaf, Phil Sports, Inc.: 100 Years of the Sports Business. Amherst, N.Y. Prometheus Books. 2004.
[vii] Quirk, 155
[viii] Quoted in quirk, 155
[ix] Schaaf, 206
[x] Quirk, 155
[xi] Ibid, 156
[xii] Rothbard, Murry N. Man, Economy, and State. Auburn, Alabama. Ludwig von Mises Institute, 1962. pg. 156
[xiii] Cowen, Tyler. “Public Goods and Externalities: Old and New Perspectives.” The Theory of Market Failures. Tyler Cowen ed., Fairfax, VA. George Mason University, 1988
[xiv] Cowen
[xv] Cordato, Roy E. “The Austrian Theory of Efficency and the Role of Government.” The Journal of Libertarian Studies, Vol. IV. No.4 1980. pg 394
[xvi] Kirzner, Israel, Market Theory and the Price System. Princeton, N.J.: D. Can Nostrand Co., 1963
[xvii] Ibid., p. 309
[xviii] Noll, 57
[xix] Ibid, 58
[xx] Zimblast, Andrew “Football Stadium Folly” The Bottom Line Philidelphia, PA. Temple University Press. 2006
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