ARE PRO SPORTS TEAMS WORTH IT? CITIES ARE PAYING OUT BILLIONS TO WOO PRO SPORTS FRANCHISES, BUT DESPITE THE HOOPLA, TEAMS DON'T DO MUCH FOR LOCAL ECONOMIES.
(FORTUNE Magazine) – The National Football League cultivates its image of toughness--of pain, power, speed, and aggressiveness. But the toughest games this year aren't being played in Dallas's Texas Stadium or at Green Bay's Lambeau Field. The most vicious hits are being delivered in the larger arena of politics and finance, where cities are battling cities across the U.S.A. to obtain or retain NFL franchises. There is little evidence that they understand the economic impact of what they're doing.
In 1995 alone, cities and states issued half a billion dollars' worth of bonds to build stadiums and arenas, according to Securities Data Co. Billions more are in the pipeline as teams in all major sports vie to extract money from city fathers desperate to play in the big leagues. Right now, football has the field, and it's staging a most excellent spectacle. Two teams moved out of Los Angeles this season, the Raiders to Oakland (attracted by $100 million in stadium renovations) and the Rams to St. Louis, (which built a $270 million domed stadium as bait). Nashville has lured the Houston Oilers for next year with a proposed $290 million package. The biggest game--the off-field Super Bowl--is Cleveland vs. Baltimore, a classic matchup between gritty cities full of professional football lore, rabid fans, and citizens willing to pay.
The Browns--a football team whose glory days ended before many of today's players were born--have been in Cleveland since 1946, and the city is trying hard to hang on to them (see next page). But the Browns' owner has already agreed to move the team to Baltimore. Why? Baltimore is not only offering to construct a $200 million stadium--it will allow the team to keep all the revenue from it, including ticket sales, concessions, parking, luxury suite rentals, billboard advertising, and anything else that marketers can concoct. One of the biggest prizes is the proceeds from the anticipated sale of so-called personal seat licenses, which give purchasers a lifetime right to buy season tickets every year. These can sell for $4,000 apiece or more--and that doesn't include the ticket price. For a team like the Browns, that means tens of millions.
How can cities and states justify throwing money at sports teams, which, after all, are successful private enterprises that routinely pay average athletes six-figure salaries and earn fat returns for their owners? Well, as Maryland Governor Paris Glendening said in November upon announcing the second coming of football to Baltimore (they lost their old team, the Colts, to Indianapolis in 1984), the Browns will "not only bring excitement, enthusiasm, and team spirit back to Baltimore, but will have a tremendous economic impact as well." Indeed, a state of Maryland report says a football team would add $123 million a year to the economy.
But Baltimore's total output of goods and services is $73 billion, according to Regional Financial Associates, an economic consulting firm. So even if that state report were correct, the team would account for less than 0.2% of economic activity. In fact the team's impact is probably wildly overstated. "There's a lot of misinformation on what these teams bring in," says Robert Baade, a Lake Forest College economics professor and critic of sports-impact studies. Like virtually all researchers who don't have politicians looking over their shoulders, Baade finds that professional teams don't do diddly for the local economy.
CRITICS CHARGE that most dollars spent on sports would be spent locally even if the teams weren't around--at theaters, say, or amusement parks or restaurants. Net additions to an economy happen only when people come from outside the area to see a game. Governments promise that the outsiders will come, but the assumptions they use are akin to those a quarterback makes when throwing a pass into heavy coverage just before getting sacked (for you non-sports fans, that means a decision reached hastily and under pressure, with more weight given to the potential favorable outcome than to the risks). The Maryland study, for instance, assumes that 20% of fans would come from outside and stay one night at a hotel, spending money at restaurants and stores as well. But the definition of an outsider includes people who live thirty miles away--easy commuting distance. Take it from us: They're not going to stay over.
Well, at any rate, say the boosters, a team brings millionaire athletes to the area--and surely it helps attract companies as well? Another bad call. Cleveland City Councilman Pat O'Malley notes that not one Brown player lives in the city. "All this money doesn't do anything for Cleveland's rank and file," he says. "Public schools are closing, and other city needs are not being taken care of." And, says Lawrence Moretti, a principal at PHH Fantus, a location consulting firm, "a sports team is a neutral in relocation decisions." Promoters also like to point to all the jobs created by stadiums and arenas. But it's really peanuts, or rather peanut vendors. "They're seasonal, temporary, low-income jobs," says Cleveland State University professor Norm Krumholz.
Citizens in some cities are starting to think critically too. In Cincinnati a group of naysayers has collected 88,000 signatures to force a referendum in March on higher sales taxes the county seeks to finance separate football and baseball stadiums. Total tab: $520 million. In Seattle, voters in September defeated a sales tax increase designed to help finance a new baseball stadium.
So should team owners worry that taxpayers will put a stop to this game of musical chairs? Nope. Despite the Seattle vote, county and state legislators bypassed the electorate--increasing taxes on things like rental cars and restaurant meals--to finance the stadium. When it comes to something as important as sports, apparently you can't let too much democracy get in the way.