The Negative Economic Effects Of Sports Franchises
September 28, 2000
Professional sports teams and stadiums may have a positive effect on a small sector of a city's economy, but the overall impact is largely negative, according to a study by economists Dennis Coates and Brad R. Humphreys of the University of Maryland, Baltimore County.
Dissecting the economic justification for such projects remains of particular interest to taxpayers and existing businesses because most professional sports construction projects receive substantial governmental subsidies. Coates and Humphreys build on existing studies as they systematically examine data from 37 cities that have or have had professional football, baseball or basketball franchises.
Their findings include:
- Professional sports have a small positive effect on the earnings of employees in the amusements and recreation sectors of the economy -- those working for theaters, race tracks, golf courses and amusement parks as well as the sports franchise.
- Earnings for those working for eating and drinking establishments -- which are typically expected to benefit from the sports franchises -- fall slightly or by about $44 per year.
- Generation of new spending tends to be very localized near the new stadium and does not provide a positive multiplier effect through the rest of the city's economy.
Results of the study call into question the validity of economic multipliers used to assess the overall impact of sports on the economy. "The ripples and earnings creations from the sports environment are like those of a little pebble tossed into the ocean on the tides, inconsequential in any practical sense," Coates and Humphreys write. Also, their evaluation suggests that sports reduce real per capita spending because of substitution effects -- money spent at the stadium rather than in existing businesses -- and because of the creation of new jobs which pay less than the average prevailing wage.Source: Dennis Coates and Brad R. Humphreys, "The Effect of Professional Sports on Earnings and Employment in U.S. Cities," Department of Economics, University of Maryland, Baltimore County, 1000 Hilltop Circle, Baltimore, Md. 21250.
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