Subsidized Soccer Stadium Proposal Deserves a Red Card

June 11, 2008

D.C. officials and soccer team D.C. United are in negotiations regarding a $150 million to $225 million subsidy for a new soccer stadium at Poplar Point. Area economists, organized by the D.C. Fiscal Policy Institute, released a joint statement arguing that the subsidy is a waste of public funds and is unlikely to stimulate much economic activity. While a new stadium may shift some spending from Maryland and Virginia into D.C., the cost of the proposed subsidy is too great to justify the meager increase in spending.

A government subsidy is only justifiable when it benefits society as a whole, not one specific industry. Supporters of the stadium subsidy claim that it will create new jobs, but the relationship between job creation and economic growth is not as intuitive as it may seem. Economists Andrew Zimbalist, Roger Noll, and 15 others did a case study on the economic effect of building sports facilities on hosting regions. They found that in every case, the sports facilities were horrible investments with returns far smaller than costs, and that economic growth spurred by these facilities were negligible. Zimbalist and Noll explain why:

Economic growth takes place when a community’s resources-people, capital investments, and natural resources like land-become more productive. Increased productivity can arise in two ways: from economically beneficial specialization by the community for the purpose of trading with other regions or from local value added that is higher than other uses of local workers, land, and investments. Building a stadium is good for the local economy only if a stadium is the most productive way to make capital investments and use its workers.

In short, building stadiums must not be the best way to give taxpayers the biggest bang for their buck.

Economist Brad Humphreys arrives at a similar conclusion, “The primary benefit of the public subsidy goes to the owners of the team and the players of the team, and a small bit probably goes to the fans of the team.” If this stadium subsidy happens, what’s next? Will politicians start supporting subsidies for theme parks and movie complexes under the same rhetoric of creating new jobs?

Of course, having a soccer stadium may produce some good for society. Sports generate disproportionately high media coverage, indicating a public preference for the sports-related. Taxpayers might be willing to accept higher taxes and lower public services in return for a subsidized stadium. But is that fair for those who are not fans and would derive little utility from a stadium? In an ideal world, only fans who want the stadium should have to pay. But tax dollars are paid by everyone, and it’s hard to separate a tax dollar paid by a fan wanting to subsidize a stadium from a tax dollar paid by someone who doesn’t. So fans pressure politicians into supporting the subsidy, while non-fans protest against it (or do nothing).

Having a stadium for the District’s soccer team may also provide residents with intangible assets like civic pride, which is difficult to value in terms of money. Perhaps a small gain in pride really is worth hundreds of millions of wasted tax dollars. Probably not.

All considered, a soccer stadium that will only be used 20-30 times a year cannot be the best way to spend 150 million taxpayer dollars. Why not just give the $150 million back to D.C. residents to “subsidize” the city’s high cost of living? Necessity precedes luxury.

For more information on the economics of subsidized sports stadiums, refer to Roger G. Noll and Andrew Zimbalist’s book, Sports, Jobs, and Taxes: The Economic Impact of Sports Teams and Stadium.

More commentary on this issue.


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