Local governments and sports stadiums

Lately, professional sports stadiums have been paid for through public financing more and more. Sports economists, though, have repeatedly stated that this is not an efficient use of taxpayer funding.

JC Bradbury has said a good bit over at Sabernomics about this, and he has a guest blogger, Frank Stephenson, talking about the Gwinnett Braves. Here's the traditional argument:

Adding together the $15,000 annual fee, the season ticket revenue split, and the naming rights, the Braves have paid $671,429 for their first five years in the stadium. A sensible way to compare this figure to the $14.9 million cost of the stadium is to think about the opportunity cost that taxpayers incur by having their $14.9 million tied up in a stadium rather than having it available for other uses. Economists typically measure such opportunity costs via an interest rate. Taking a conservative interest rate of 3%, taxpayers are sacrificing about $450,000 per year in interest in order to construct the baseball stadium. (Higher interest rates would imply a larger opportunity cost.) Since the Braves annual payments have averaged about $134,000 per year, they’ve paid a bit under one-third of the taxpayers annual cost of the stadium. Of course, the taxpayers aren’t really being repaid since the Braves payments go into the capital maintenance fund.

The "no, it does not pay for itself" argument, but something is missing. Fundamentally, there is the issue of the benefit derived from having a local team in terms of attracting and retaining people in the city. People who are more in demand have more options, and if given comparable salary packages when considering cost of living as well as similar advancement for oppurtunity, they may decide to go where the local amenities are more in their favor. Richmond has a symphony orchestra, a ballet company, colleges and universities, good roads, and it is within 2 hours of the beach or DC. But it is possible that someone may look at Richmond and say, there's no professional baseball team, so I will go to some other city instead.

If you think that sounds crazy, ask yourself if you would be willing to attend a large university, say more than 15,000 students, that does not have an NCAA division 1 football team. How much of Virginia Tech's reputation is based on the quality of their students, and how many of their students chose to go there at the margin because schools of similar cost and academic reputation did not have such a successful football team? If you compare schools with similar costs, reputation, often the tiebreaker will be a matter of which one looks like it will be more fun. By the same token, George Mason's applications drastically increased in 2006 during their Final Four run, and what did that do to average SAT scores and high school GPA? But what of their lack of an NCAA football team; how many musicians and music education majors were lost because they wanted to do marching band in college (although to be fair, how many were attracted because they hate marching band?)?