Stadium subsidies are back in the headlines and this time because of a new report by the Tennessee nonprofit research organization, the Sycamore Institute.
The report, Stadium Subsidies in Tennessee, examined government subsidies for sports venues in the Volunteer state. What researchers found is that Nashville lawmakers plan to spend more than $1.8 billion on sports complexes, including $1.5 billion on a new NFL stadium for the Tennessee Titans. The report’s findings are alarming not only because of the eye-popping price tag, but also because a large chunk of the funding will come from state and local taxes. For instance, 68% of the proposed funding for the new Titans stadium will come from Tennessee taxpayers, which would make it the largest government subsidy for an NFL stadium in American history. This is in contrast to other recent stadium projects like the 2017 Mercedez Benz stadium in Atlanta, where 88% of the funding was private.
The report also provides a breakdown of public funding allocations for several smaller projects. These include $200 million for a multi-purpose venue in downtown Nashville, $55 million for a new Tennessee Smokies Ballpark, $43 for a new Chattanooga Lookouts Ballpark, a $17 million grant for state raceways, and $5 million for work on CHI Memorial Stadium, home to the Chattanooga Red Wolves minor league soccer team.
Unfortunately, as with the Titans stadium proposal, most of these projects overwhelmingly rely on public tax dollars for funding. This is a problem because these costs quickly add up, and frequently saddle taxpayers with long term financial obligations. For instance, less than one third of the total $80 million needed for the Tennessee Smokies ballpark will come from private sources. As previously mentioned, $55 million will come from public tax dollars. Similarly, local and state sources will cover more than half of the construction cost of the Chattanooga ballpark.
Several other takeaways are noteworthy. First, governments continue to subsidize sports venues largely because they believe new sports stadiums will “attract or retain professional teams” and generate other community benefits such new jobs, and additional revenue streams.
The problem with this way of thinking is that sports stadiums rarely generate enough economic activity to justify such large government subsidies. In other words, even when additional business is generated, through what economists refer to as the “multiplier effect,” it usually comes at a great cost to taxpayers.
For example, a new sports complex may well create jobs and increase consumer spending, but it usually involves significant opportunity costs. Consumers may simply choose to spend their money at the sports arena rather than at the movies, or at a local restaurant. Similarly, had government officials not spent taxpayer dollars on a sports stadium, they may have spent it on something else such as infrastructure upgrades or new public services. Meanwhile, new taxes are often still needed to finance the construction of a major sports arena, which in a few short years may be considered dated anyway.
Another key takeaway is that some benefits, like civic pride and tourism, are hard to calculate. It is therefore plausible that the advantages of a new sports stadium may overshadow any potential negatives. However, even if this is the case, there is no guarantee a professional sports team will remain in the city long enough to fully utilize the stadium in question and realize the complete benefit of the investment. Frequently, the desire of an owner, or the lure of even greater subsidies elsewhere, are all that it takes for a team to relocate. When this occurs, taxpayers are frequently stuck with the bill.
One recent example was in 2016 when the Rams football team left St. Louis for Los Angeles. City residents were left with $144 million in debt and maintenance costs associated with the then named Edward Jones Dome. Another example came in 2017 the Raiders football team moved from Oakland to Las Vegas. City taxpayers remain on the hook for $350 million in Coliseum renovations that won’t be fully paid off until 2025.
Sports stadium subsidies remain popular because they offer city officials an easy way to share their vision of the future with constituents and promise them something that is both public and visible. However, the long-term economic effects of acting on this vision cannot be fully known for several years. And when that time finally arrives, it is the taxpayer who will bear the costs associated with the project. Everyone likes a shiny new sports stadium with all the bells and whistles that come along with it, but that does not make it an economically prudent investment. This report should serve as a warning to other state and city officials considering similar stadium subsidies that there are many factors to consider before making a long-term investment with taxpayer dollars.