Sunday, September 14, 2014

PF Sep/Oct 2014 - Public Subsidies for Pro Sports - Pro

Resolved: On balance, public subsidies for professional athletic organizations in the United States benefit their local communities.

For part one of this series, click here

The Tangible Benefits

The text book study, so to speak, of the relation between professional sports and economic development was written by Robert Baade of the Heartland Institute. Even though the study was completed in the 1990's it is still widely cited as an authoritative reference.  The Heartland Study identifies three economic impacts from public subsidies of professional sports.

Baade 1994:
Stadiums, arenas, and professional sports can bring three sources of economic benefits to a metropolitan area: direct expenditures, indirect expenditures, and “psychological” benefits. Direct expenditures present the money spent by the professional sports franchise, its employees, and its patrons. As James Quirk and Rodney Fort explain,
These direct expenditures-on restaurants, hotels, transportation, souvenirs, food, and the like-are received as income ‘by metropolitan-area businesses. These businesses and their employees then spend a fraction of this income on other goods and services within the metropolitan area, and those businesses and their employees spend a fraction of their income at other metropolitan-area businesses. The process continues, and the second, third, and subsequent rounds of spending constitute the indirect expenditures that benefit a region. Since direct expenditures result in indirect expenditures, the direct expenditures are said to “multiply” through the economy. Economists attempt to quantify this effect by calculating a “multiplier.” For a given level of direct expenditures, higher multipliers indicate higher levels of economic impact. In addition to direct and indirect expenditures are “psychological” benefits, which are less easily quantified. Some have suggested, for instance, that television coverage of a city’s professional sports teams encourages businesses to locate there.
The procedure that is used to estimate the economic benefits provided by a team or a facility is first to estimate the direct expenditures by the team for goods and services in the city, and then to add to this expenditures by fans on goods and services (other than game tickets) purchased in the city, together with expenditures by players on purchases of goods and services in the city. The resulting sum is the amount of direct expenditure benefits to the city provided by the team.

Baade then goes on to quantify his ideas in a fairly comprehensive statistical survey across several projects. As a result of his regression analysis, he finds no compelling evidence to suggest there are advantages to public subsidy of professional sports stadium projects.  Indeed, while public funds may be allocated in other ways to subsidize pro sports organizations, for the most part stadium projects, such as renovations or new construction are huge investments costing tens or hundreds of million dollars and they do not seem to pay back.

Looking strictly at dollars allocated versus dollars returned to the public based on certain very subjective multipliers to estimate the "trickle-down" effect on the local economy, the evidence suggests the projects either barely break even or loose money.  Long term results are not quantified.

This evidence begs the question, if these projects are losers, why do governments support them and voters approve them?  Of course, Con may try to suggest wealthy special interests are in play which skew the estimates of return and make it appear the projects will be well worth it. Clearly the team owners have nothing to lose and everything to gain.

The Intangible Benefits

Another oft cited paper is the Groothuis paper which is unique because they looked at the city of Pittsburgh and surrounding county which invested hundreds of millions dollars to subsidize professional teams in football, baseball and hockey. The Groothuis study included a survey of residents and attempted to quantify the benefits of civic pride which successful sports franchises evoke.

Groothuis 2004:
The data and analysis in this paper indicate that major league sports teams generate widely consumed public goods benefits for the residents of their cities. A majority of both users and nonusers agree that sports teams generate civic pride for their city, indicating that civic pride benefits consist largely of passive, nonuse benefits. But we find that only a minority of respondents support public funding for football and baseball stadiums or for efforts to keep the Penguins in Pittsburgh. Sports-generated civic pride does not appear to be something a majority of Pittsburghers are willing to pay for with public funds. These results suggest that the motivation for government subsidy of teams and stadiums is twofold. First, because a minority of respondents is willing to pay higher taxes, a classic public choice explanation is suggested. The minority supporters organize because they receive high nonuse benefits from professional sports, but they still pass on much of the cost to the majority whose nonuse benefits are less than the cost of the project. The other explanation is based on the public good of civic pride, and the results provide some evidence in support of that explanation. The results indicate that people who believe the Pirates and Penguins generate local civic pride, a nonexcludable public good, support public subsidy of the baseball and hockey teams. This support is not limited to those who actually attend games, but comes from nonusers, as well. To the extent that such public goods exist, subsidies can enhance efficiency. The support growing from sports’ role in creating civic pride may make the job of forming an interest group coalition to extract economic rents from the majority easier. Because civic pride to nonusers reduces the net cost of a subsidy to teams and stadiums, the opposition to such subsidies may be lessened, improving their chances of passing.

As with the Baade study, nearly ten years prior, Groothuis found little direct economic benefit to justify such projects on the basis of net dollars gained versus gross dollars spent. But he did suggest the role of civic pride in voter approval.  Civic pride is one of those intangible things that obviously have no dollar value.

It seems, the public was responding to the issue of allowing subsidies more with their hearts than their minds. I would characterize it as kind of faith that because I am happy and proud to have a professional sports team in my city I believe it must also be economically beneficial to my community.  The Wysong research in 2009 in fact, hints at a relation between civic pride and belief in positive economic impacts even when the numbers seem contradictory.

Wysong 2009:
Overall, though, the results of this study indicate that regardless of fan status and gender, both economic and non-economic (i.e., pride) beliefs had a positive influence on one’s vote for public financing. If a respondent believed the new stadium would have an economic impact on the city, they were more likely to vote in favor of public financing. If a respondent believed the new stadium would make them proud, they were more likely to vote in favor of public financing.

The Intrinsic Value of Professional Sports

Having sat through countless Public Forum debate rounds, I would be lying if I told you that intangible values, and feelings win debates. Yet we need to evaluate the benefits of public subsidies on the community and not every benefit is economic.  For example, consider the community park system.  They are built and maintained on public funds and usually have a negative cost-benefit quotient. Even though the community park system does not generate financial payback, the majority of people, whether park goers or not, will support the funding. The reason for public support for these kinds of projects - public pride projects - can be described in terms of scholastic theories.

Scott 2011:
Public Value is a theory and model for public sector management developed by Mark Moore, the Hauser Professor of Nonprofit Organizations at the Harvard Kennedy School and the author of Creating Public Value: strategic management in government. Fundamental to Public Value Moore’s is the underlying principle that it is the purpose of public sector management is to make ‘...a positive difference in the individual and collective lives of citizens’. To achieve this, Moore believes that public institutions must focus on the use they make of the organisational assets at their disposal in the service of end-users- the public...Commentators have variously described intangible/ intrinsic values experienced by individuals as a ‘state of absorption’, or ‘focused attention’ that comes with ‘captivation’, as the ‘deep satisfaction’ that the ‘pleasure’ of seeing an art work or having a cultural experience that is moving and meaningful, as the capacity to explore ‘personal meaning’, and the discovery of ‘personal beliefs in amongst universal truths’, as the provision of a ‘new perspective on the world’ and the uplifting spiritual experiences that address our needs to experience ‘the religious, the numinous and the sublime’

Even though the Scott paper is specifically directed to museum funding the theoretical basis for intrinsic value is pretty much the same and directly applicable to professional sports.  Projects which evoke such intangible value do provide a very important community and individual benefit which is not always quantified in terms of dollar and cents.

The Economic Value of Professional Sports

I suppose that some very persistent Con debaters will hammer the economics of public subsidies, and cry about the government's fiduciary responsibility to spend public funds wisely. And seriously, judge, why should wealthy team owners get richer at public experience so a few can feel good about their community while they drive over crumbling roads through broken down neighborhoods?

I guess then, in the light of such argumentation, and facing perhaps, a very conservative, practical judge, we must at least attempt to provide some economic justifications for public subsidies since for some it may be the only "real" measure of community benefit.

Koehler 2012:
It would be hard to argue that the presence of a team in a city is a bad thing. Professional sports are one of the biggest examples of a public good one can find as one could derive economic utility from being the fan of a team even without ever spending a dollar on the team. Additionally, from the city’s perspective, having a team is almost a form of advertising, a way to put itself on the map as a “major league city” and brand itself among the elite cities of the nation (Noll and Zimbalist 1997). Still, it is hard to put a dollar value on those forms of economic utility and studies have tried to do this for the presence of a team and stadium with some success but little conclusiveness (Johnson et al 2000).

In and of themselves, stadium projects may be losing deals for the accountants.  But what happens when we broaden our perspective and look at the impact of pro sports projects on the surrounding area.  Many cities have experienced a sort of urban blight with crumbling, crime-ridden inner cities and businesses moving out. Cities seek projects which allow them attract private investment into such areas.  The Koehler paper will arm you with the data needed.  For example, Cleveland, Ohio was a perfect example of such a failing urban scene until the public sector financing of the Progressive Field baseball stadium, initiated the Gateway revitalization project which resurrected a dying city.  The 180 million dollar investment in Progressive Field, had little return initially but it lit a spark which soon expanded into increased private investment and revitalization which yielded some 4.1 billion dollars in investment at the present time, including a new stadium for the Cleveland Browns, the Rock Hall of Fame, the development of the Tower City Mall project and other important projects.

I leave you with the following quotation.

An important element missing in the debate is the impact of a sports franchise on a metro area’s quality of life. While difficult to measure, the contribution of a sports franchise to quality of life may exceed more traditional job creation and tax revenue benefits. If so, when quality-of-life benefits are included in the calculation, public spending may not appear to be such a bad investment for some metro areas.

Good luck Pro debaters!

Click here for the Con position


The Heartland Institue, Policy Study, No. 62 - April 4, 1994
Stadiums, Professional Sports, and Economic Development: Assessing the Reality
by Robert A. Baade

Peter A. Groothuis Appalachian State University, Bruce K. Johnson Centre College and John C. Whitehead, Appalachian State University; 2004

‘Build It Here!’ An Examination of Pride Versus Economic Motivations of Citizens Voting for Public Stadium Financing; 2009
Scott Wysong, University of Dallas; Philip C. Rothschild, Missouri State University

Why Do Some Stadium Redevelopment Projects Succeed Where Others Fail? An Analysis Using Macro-Level Trends in Stadium Building
Peter Koehler (Under the Direction of Professor Michael O’Hara)
Lampert Fellowship for Public Affairs, Colgate University, Summer 2012

Jeffrey G. Owen, Assistant Professor, Dept. of Economics, Indiana State University

What Are the Benefits of Hosting a Major League Sports Franchise?
By Jordan Rappaport and Chad Wilkerson

Measuring the immeasurable: capturing intangible values
Marketing and Public Relations International Committee of ICOM (International Council of Museums), Conference Keynote, Brno, Czech Republic, 19th September 2011
Dr. Carol Scott

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