A Tale of Two (More) Sports Stadiums
The proposals to spend $800 million to build two more sports stadiums in the Minneapolis area are based on economics that favor team owners over taxpayers and citizens.
by Jerome F. Winzig
Last week, two of the major league sports teams in Minneapolis/St. Paul put forth another round of proposals for publicly-funded sports stadiums to replace the Hubert H. Humphrey Metrodome. The Minnesota Twins, proposed a $300 million, 42,000-seat baseball park, while the Minnesota Vikings, proposed a $500 million, 68,500-seat football stadium located at the University of Minnesota.
If these two stadiums are ever built, they would bring the number of major league sports arenas in the Minneapolis area to five. The other three, the Target Center in Minneapolis, home of the Minnesota Timberwolves' basketball team, and the Xcel Energy Center in St. Paul, home of the Minnesota Wild hockey team, were also build with public subsidies.
Does it really make sense to spend $800 million to build two more sports stadiums? Will these arenas really generate enough new revenues to justify their enormous cost? To earn a ten percent return on this investment would require $80 million in new revenues. That means higher prices for tickets, food, and beverages. In addition, additional new tax revenues will be needed to pay for the public infrastructure changes that are not included in the estimates.
It seems as though the frenzy for sports stadiums has lost complete contact with reality. The current baseball/football stadium in Minneapolis is only 19 years old. After it went into service in 1982, the old Metropolitan Stadium that it replaced, built in 1956, became the first modern baseball park to be abandoned. Minneapolis could become the first metropolitan area to forsake two consecutive modern stadiums.
These $800 million proposals are the latest evidence of increasingly massive spending on sports facilities. During the 20th century (through 1998), more than $20 billion was spent on major league stadiums. Almost $15 billion of that was in the form of government subsidies to four major league sports, baseball, football, hockey, and basketball, and over $5 billion (in 1997 dollars) was spent in the last decade of the century. And plans are underway for at least $13 billion in additional construction.
Advocates of government subsidies for professional sports claim that cities reap significant economic benefits by building stadiums and attracting professional teams. However, Dennis Coates and Brad R. Humphreys, economists at the University of Maryland - Baltimore County, conducted a study of all 37 U.S. cities that had one or more professional football, basketball, or baseball franchises during the 1969-1996 time period. Their study had two important results:
- "The professional sports environment in the 37 metropolitan areas in our sample had no measurable impact on the growth rate of real per capita income in those areas.
- The professional sports environment has a statistically significant impact on the level of real per capita income in our sample of metropolitan areas, and the overall impact is negative."
Coates and Humphreys concluded, "The evidence suggests that attracting a professional sports franchise to a city and building that franchise a new stadium or arena will have no effect on the growth rate of real per capita income and may reduce the level of real per capita income in that city.
So why are they built? Perhaps the reason lies elsewhere. In their book, "Pay Dirt: The Business of Professional Team Sports," James P. Quirk and Rodney D. Fort report that franchise values for teams sold in the 1970s and resold in the 1980s rose at annual rates of 12.5 percent for baseball, 12.3 percent for basketball, and 11.5 percent for football. For teams sold twice in the 1980s, the rates of increase were 23.5 percent, 50.2 percent, and 19.2 percent, respectively.
In other words, subsidized sports stadiums are very good for the owners of the major league teams they house, but not so good for the cities and states that pay for them. That's food for thought for Minneapolis, St. Paul, and Minnesota as they mull over the latest $800 million stadium proposals.