Economics no longer the major factor for sports investment

If the past several years are any indication, there is a growing pushback against committing public funds for stadium and arena development in cities that are home to major league sports franchises. It is understandable that using public money to subsidize facilities for privately owned sports franchises valued at up to a few billion dollars evokes an outraged response. But it is the wrong response because it does not see sports as life-size.

For the past 30 years, professionals, policy makers and public interest groups opposed to local governments committing large sums of money to major league sports facilities have held a few economics-based assumptions as articles of faith:

1. Major league sports facilities — new or renovated — have a limited economic impact on a local economy.

2. Money should be distributed to development projects that can do “the most good for the most number” and not to enriching franchise owners more than the public.

3. Intangible benefits that a franchise provides to a city — civic engagement, “basking in reflected glory,” happiness and so on — are factors that cannot be measured precisely enough to be of reasonable value to the overall economic equation.

The assumptions have held up so far because they have been close enough to reality to be valid. But their time is quickly running out. New, interrelated realities are shifting the priority from economics to society.

One of these realities is that the distinction between residents and taxpayers matters more now than in the past because of the ways people choose to live and work in the knowledge economy. Residents have always been people who live in a place on some long-term basis, just as taxpayers have always been people who make a government-levied, compulsory contribution to state or local revenue. But an important point is that while almost all residents are taxpayers, not all taxpayers are residents. It is important because residents perceive and behave in terms of social impact more so than economic impact, while taxpayers prioritize the economic over the social. So, their perceptions about a city are different, as are their approach to commitments to it. The same goes for cities in the relationship with residents and taxpayers.

Sports and facility infrastructure serves as a source of growth for cities, Atlanta included. Photo by: GETTY IMAGES

Another reality is intangible factors and events that show up in budget projections can be measured with quantifiable accuracy. In more than a few cases, what classical economics does not register about “intangibles” are concepts and tools that behavioral science knows quite well how to use for assessment and management. But the tendency to rely on “established facts” of classical economics means most of what people call an “intangible” ends up being a factor they either have glanced over measuring, don’t know how to get at measuring, aren’t strategically interested in measuring, or maybe all of the above.

A third reality is that economics is no longer the major determining factor for sports infrastructure investment. In fact, the very success of economics that drove the sports facility building boom is now becoming the major restraint. The additional force of social impacts is ushering in a fresh wave of demand for innovative financing techniques, not unlike what was triggered when New England Patriots owners and Goldman Sachs bankers devised funding for development of Gillette Stadium in the early 2000s. What has not yet sunk in yet — and Donald Trump’s win over Hillary Clinton in the U.S. presidential election, on a platform that included infrastructure development, reveals this — is that an era defined by “It’s the economy, stupid” has shifted to one being defined by “It’s the society, stupid.”

Examples of places where this transformation is already pointing in that direction include the Dallas Cowboys, FC Dallas, Texas Rangers, Dallas Stars and Dallas Mavericks in Frisco, Texas; the Tampa Bay Lightning, Tampa Bay Buccaneers and New York Yankees in Tampa; and the Indianapolis Colts, Indiana Pacers and Indiana Fever in Indianapolis. In each of these cases, sports franchise executives and government officials agreed to contribute respective funds to the projects because they realized that improving quality of life is a means to improving economic opportunities. At the same time, they realized that partnership organized for economic performance feeds social pursuits.

Of course, we know that the pessimists have a point: There are sports infrastructure investments that focused on the wrong things and cost the public plenty. And even if that wasn’t the case, it might still be hard to find a soft spot for committing public funds to development projects that involve franchises in control of enough money to pay for things outright. But we also know that sports serve as a source of growth for cities. Along that landscape, the challenge to major league sports facility development is changing from a focus on economic impacts to a focus on social impacts.

Lee Igel is a professor of sports business and management at New York University’s Tisch Institute. He also serves as department liaison to the United States Conference of Mayors – Mayors Professional Sports Alliance.