Irene Sege, Communications Director for Strategies for Children, recently wrote a blog post at their blog Eye on Early Education on the economic development benefits of sports stadiums vs. early childhood programs.
Sports stadiums are probably one of the least efficient types of conventional business incentives. There have been numerous studies of sports teams and sports stadiums as local economic development programs – for example, the book Sports, Jobs and Taxes, which I reviewed for National Tax Journal.
Why do sports stadiums tend to be inefficient in terms of generating local economic development benefits? I discuss this in chapter 5 of Investing in Kids. First, much of the spending associated with stadiums tends to come from local residents buying tickets and sports-related goods and services. If the stadium had not been funded, much of this spending would have instead gone to spending on other local goods and services. Thus, much of the new business activity associated with the stadium displaces other local business activity.
In contrast, if business incentives are used to attract a new manufacturing branch plant, then almost all the spending on the output of that new branch plant will come from outside the local economy. This new outside spending will in turn generate multiplier effects on the local economy.
A second reason for the usual inefficiency of sports stadium-related incentives is that many of the local jobs associated with sports stadiums tend to be low-wage. Because the jobs are lower wage, any multiplier effects of these workers’ respending the money on other local goods and services will be modest. In addition, the expansion of these low-wage jobs may tend to erode local wage standards.
Of course, some of the jobs associated with sports stadiums are very high-wage: the jobs of the professional athletes. But these athletes are usually not local residents. Most of the spending of these athletes will occur elsewhere.
In contrast, if business incentives are targeted on high-wage jobs that are held by local residents, then the multiplier effects of such jobs will be greater. In addition, increasing such jobs not only helps the local residents who obtain the jobs, but may tend to increase wages at other jobs in the local area.
In chapter 5 of Investing in Kids, I calculate that for each dollar invested in sports stadium related projects, it would be quite plausible that the increase in the present value of state residents’ earnings – which is the book’s definition of “economic development benefits” – could be only 57 cents. Of course, one should add the caveat that the economic development benefits will vary with the specifics of individual projects. There may be some sports stadium projects that do have local economic development benefits exceeding costs. And there may be intangible benefits of sports stadiums other that the jobs and earnings generated. For example, some local sports fans may derive some value from just the presence of a major league sports team, even if they never buy tickets to games. A sports team can be seen as an amenity of a local area. Such amenity benefits of sports teams may justify some local support for sports stadiums. But there is some logic to having the beneficiaries of this amenity, that is local sports fans, pay to finance business incentives related to sports stadiums.
More efficient business incentives will have higher local economic development benefits. In chapter 3 of Investing in Kids, I calculate that well-designed business incentives, that are well-targeted at high-wage business that are “export-base” businesses (sell their goods and services outside the state) will have much higher ratios of economic development benefits to costs. For each dollar invested in well-designed business incentives, the increase in the net present value of state residents’ earnings could plausibly be $3.14.
I also show in the book that well-designed early childhood programs can offer sizable local economic development benefits. Well-designed early childhood programs directly provide local residents with higher earnings, which is my definition of “economic development benefits”, largely by increasing the skills of former child participants. For example, I calculate that a well-designed pre-k program may, for each dollar invested, increase the present value of state residents’ earnings by $2.78. Future blog posts will explore this issue in more detail.
All of this discussion takes a state or local perspective. As I will discuss in future blog posts, early childhood programs look even better from a national perspective, while most business incentive programs look worse. Even when sports stadiums and other business incentives are successful, they tend to redistribute business activity across the U.S., while early childhood programs generate more new national business activity.