Economics and Politics of Public Financing of Professional Sports

At the Freakonomics blog, Dave Berri, a professor of economics at Southern Utah University, has a piece up today on the decision by the city of Sacramento to provide a large amount of public financing for a new NBA arena for the Kings:

The Sacramento Kings will continue to exist. This week, the City Council approved a plan to finance a new home for the Kings in Sacramento. The price tag, though, is pretty steep. The arena will cost $391 million, and $255.5 million will be coming from the city of Sacramento.

Opponents of this plan – and there were just two on the nine-member Council – noted that sports arenas don’t provide much economic benefit. Furthermore, they questioned why public money should be given to a private business.

As Councilwoman Sandy Sheedy – who voted no – observed: “This city is on the verge of insolvency. As far as I know, we still technically qualify for bankruptcy under federal law.”

Proponents of this plan, though, argued that this plan will create jobs and economic benefits. And it was this argument that apparently persuaded the majority.

So we have two perspectives and one question: Do sports generate jobs and economic growth?

The short and simple answer to this question is "no." In a 2011 review of public subsidies for professional sports Baade and Matheson (here in PDF) summarize their findings:

Improving citizens quality of life is clearly an important goal for public policy makers, and there is evidence that sports are a valued amenity for local communities. Evidence of significant direct economic benefits from sporting events, franchises, and stadiums is lacking, however. While public-private partnerships can be justified on quality of life grounds, voters and public officials should not be deluded by over-optimistic predictions of a financial windfall. Sports may make a city happy, but they are unlikely to make a city rich.

There is plenty of evidence that facilities built for mega-events, like the Olympics or cup competitions, turn into "white elephants" and economists are in general agreement that public subsidies of professional sports cannot be justified on economics grounds. Despite this plethora of evidence, politicians continue to justify such subsidies on economic grounds, leading to what economist Stefan Szymanski has called "hypocrisy of the highest order."

Whenever there is an allegation of "hypocrisy of the highest order" that should direct our attention in one direction -- to politics. Public financing of professional sports continues not because it makes sense in economic terms, but because it is politically popular. At Freakonomics, Berri explains in the case of Sacramento:

I think the jobs argument is not the main issue motivating the proponents.

If we look back at this debate we see another motivation for the supporters of this arena.  A year ago, it looked like the Kings were going to depart Sacramento for the city of Anaheim.  In response, Kevin Johnson – the Mayor of Sacramento (and former NBA All-Star) – staged an immense effort to keep the Kings in Sacramento.  That effort culminated in the city of Sacramento giving $255 million to a new arena and it is important to emphasize, that money is not just coming from basketball fans.  These are funds the city could have used for other projects.  Therefore, this money is coming from people who may not even like the product sold by the Kings and the NBA.
Such a story clearly suggests that the Kings used the threat of re-location to elicit a substantial subsidy from the people of Sacramento.  Although the Kings do not have much economic impact on Sacramento, the Kings do make basketball fans happy.  And if they departed, those same people would be very unhappy with Kevin Johnson.  Consequently, the Mayor has an incentive to do what he can to keep the Kings in Sacramento (although it not entirely clear if making the non-basketball fans unhappy is good politics).

What we have here is a classic case of the politicization of expertise, in the sense that arguments grounded in values -- in this case the intangible and non-economic value to a community of a professional sports franchise -- are smuggled into a debate ostensibly about cold, hard dollars and sense. By making the arguments about economics, it is as if we believe that all of those intangibles can be somehow ignored.

Because economics is malleable enough to make pretty much any outcome sound plausible, arguments about the economic benefits of public subsidies for professional sports give an air of credibility to the debates. Ultimately however, it is the experts and democracy that suffer the consequences of such politicized debates. Changing the focus of the debates from economics to all those other things that we value may not change the outcomes of such decisions, but they would make the deliberations more consistent with the effective use of experts and a healthy democratic process of decision making.