For the past years, the urban regions of the United States have witnessed a continuous boom in the development of major league sports facilities which, when subsidized by the government, results to the implications of huge costs to taxpayers’ money. Since 1990, almost 70 major league sports facilities were built at a total cost of almost $11 billion. Surprisingly, of the fifty metropolitan locations that hosted a major league team, 43% of these have huge amounts of public money on stadium and arena consumption under the notion that this will bring benefits for the host country (Santo 455).
In examining the costs and benefits of stadiums to the economy, the welfare gain of a stadium should be measured and taken into consideration in order to have a substantial grasp of the economic impact of a stadium on a local economy compared to the costs of a stadium (Irani 238).
This includes private consumption benefits, which involves fans that attend games and the concept of consumer surplus and occurs when the willingness to pay for a ticket exceeds the actual costs of the ticket, and public consumption benefit, which comprises of intangible rewards associated with hosting a team and are related to the concepts of positive externalities and public goods. The latter refers to benefits from local sports teams without participating in the actual event like news programs, businesses and radio shows. With the presence of this externalities, the private benefits undermines the total benefit of these events and investments to local residents (Noll and Zimbalist).
Santo conducted a research on the benefits and justifications of stadium investments using contingent valuation method, a non-market valuation method commonly used in assessing the value of environmental goods in order to determine the magnitude of consumption benefits associated with the sports teams and facilities, on 365 sample households from the Portland area’s 570,000 households limiting sampling error to less than 5%. The findings of the research indicates that, thought the investment in new stadiums may contribute to the growth of a decaying section of a city, the projected benefits are not nearly enough to justify the $235 million (in the case of Portland) local investment that would be required since the efficient level of public investment grounded on projected consumption benefits remains only at approximately $74 million.
Any investment beyond this amount will make public welfare out of track. Since the majority of projected benefits are linked with expected public goods and externalities, rather than games attendance and participation, the financing plan would focus on nonuser revenue sources making the effects indirect (Santo 476). With this, it can be concluded that alternate sources of income having direct effects or cheaper efforts of multiple indirect effects will have better effects and cost-effectiveness than investing in stadium development.
Works Cited
Irani, D. "Public Subsidies to Stadiums: Do the Costs Outweigh the Benefits?" Public Finance
Review 25.2 (1997): 238-253. Print.
Santo, Charles A. "Beyond the economic catalyst debate: Can public consumption benefits
justify a municipal stadium investment?" Journal of Urban Affairs 29.5 (2007): 455-479.
Print.
Siegfried, John, and Andrew Zimbalist. "The Economic Impact of Sports Facilities, Teams and
Mega-Events." Australian Economic Review (2006): 55-91. Print.
