Flawed Logic of Taxpayer Subsidies for Sports Stadiums

July 10, 2006

The city of Springdale, Arkansas appears to be taking a page from Kevin Costner’s famous line “If you build it, they will come.” But at least Ray Kinsella didn’t need a government handout that raised the local residents’ taxes to build his field of dreams. The latest attempt to try and deem baseball a public good in need of tax money comes to us courtesy of WREG-TV in Memphis.

Springdale residents are to vote Tuesday on whether they want a one-percent sales tax extended to build a 50 (m) million-dollar baseball stadium.

Three questions will be on the ballot. If all three are approved, the city will be able to pay off one bond issue, start a sell a second set of bonds and build the ballpark.

Backers say the city will be able to field a Class Double-A minor league baseball team if the stadium is built.

Officials have said they expect to get the Wichita Wranglers of the Texas League if the city provides a stadium. In Wichita, officials are making an effort to save their team. The effort includes proposed renovations to the Wranglers’ 75-year-old stadium.

As history has shown over and over, the economic benefits of fighting with other cities in trying to lure sports franchises are almost always non-existent, or in many cases negative. The main question to ask when addressing the question of whether government should tax residents in order to fund any project is whether this good would be under-produced by the private sector? In other words, are there significant benefits (on net) from a minor league baseball franchise that would not be captured by ticket fees, television, etc.?

Often times in these debates, the issue is framed in a distorting manner. The proponents of government funding will typically put forth estimates of the economic activity that will be generated as a result of the team locating in such a location. Two problems exists with this type of reasoning. One is that they typically do not ask whether or not the government funding was necessary for that economic activity to occur in the first place. And second and most importantly, the proponents totally ignore the economic principle of opportunity costs. That is, is there some better government program that this one cent tax could fund? Or just as worthy of a question, would the economic benefits be greater if that one cent per dollar spent was left with the residents to decide how to spend it rather than government central-planning that is based mainly on what industries the lawmakers want to be credited with bringing to the area?

Citizens and policymakers need to realize that sports stadiums are not public goods, and that just because it may appear that a stadium will “create” jobs or generate economic activity, one must ask the question of what has been foregone in order to generate these “jobs” or this economic activity.


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