Midwest Economy Blog

Sports Franchises and Urban Development

February 12, 2007

Are there worthwhile benefits to large urban economies from professional sports franchises and events? Critics are especially hostile to the idea of tax breaks, incentives and other public subsidies to sport franchises and events. At best, they claim that local spending on sports events displaces local spending on other activities, with no net impact on expenditure or income. Worse, they claim that public monies spent or foregone to subsidize sports franchises or events could have otherwise been more productively spent on enhanced public education or the like.

In rebuttal, there is another school of thought that posits that the changing nature of urban economies has heightened the value of recreational amenities as a draw for coveted workers. As the productive basis of city economies has shifted away from the manufacturing and distribution of goods, and towards a greater focus on information exchange by skilled and educated workers, some policy analysts argue that the successful workplace location is now driven by where people want to live rather than by its strategic location for moving materials.

In some instances, major league sports teams and professional sports events, such as the Super Bowl, can be counted highly among cities’ “public goods” amenities that attract and retain productive workers. In this, sporting events may be among several amenities whose sum total is more than the some of the parts because a large city’s varied restaurants, museums, cultural diversity, arts, and sports all go into making it “an interesting and exciting place to live.”

The measurable evidence on this effect is sparse, but several statistical studies have found favorable impacts. A thorough and balanced review of studies has been conducted by Mark Rosentraub. No doubt that many subsidies are ill-conceived. But Rosentraub concludes that the net value of a sports investment by the public sector rests on its context and the particular outcomes for the city and county making the investment. For example, the placement of publicly-subsidized stadiums in downtown areas have been found to help enliven and revive struggling downtowns. Another study found that Indiana residents valued the intangible benefits of having the Indianapolis Colts sufficiently to justify public subsidies. And in a statistical study across metropolitan areas, Jerry Carlino and Ed Coulson found that households tend to pay higher housing rents in metropolitan areas that choose to host sports franchises. Apparently, the value of nearby sports activity affects land and housing congestion that arises as greater population is attracted to such sports-minded places.

Among the most intangible, most difficult-to-measure benefits attendant to sporting events are the advertising or marketing values associated with the opportunity to re-cast a city’s image to a national or international audience. Places whose images become distorted or unfairly known due to their past travails may especially view large sporting events as valuable in setting the record straight.

In particular, an enhanced image may be helpful as businesses consider investment decisions and as workers consider various recruitment offers. The City of Detroit, for example, went to great pains and took great pride in successfully hosting the Superbowl XL in their new stadium situated amidst extensive downtown renewal.

This year’s two Super Bowl contestants, Chicago and Indianapolis, likely welcomed the media coverage of their cities deriving from both the Miami telecast and from national pre-game media hype. Chicago has been working to boost its image as a national and global city having superior amenities and functionality. In fact, it is one of two U.S. cities still vying to host the 2016 Olympic Games.

Meanwhile, Indianapolis has been pursuing sports-minded economic development for quite some time. During the 1970s, the city began to boost its support for amateur sports facilities and events, meeting some success in hosting the Pan American Games in 1987 and, among other things, it is now the headquarters locale of the National Collegiate Athletic Association. During times when high-profile events are not taking place in Indianapolis, its sports facilities are often in use by young athletes who come to town (often with their families), patronizing the city’s hotels and restaurants.

Despite scoldings by the majority of public policy analysts, many of which are well-founded, some cities still see gold in them thar’ games!

The views expressed in this post are our own and do not reflect those of the Federal Reserve Bank of Chicago or the Federal Reserve System.

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