The Economics of Professional Sports: If You Build It, Will They Come?

EDUCATOR'S VERSION

This lesson printed from:
http://www.econedlink.org/e141

Posted February 20, 2000

Standards: 4, 17

Grades: 9-12

Author: David C. Huseman

Posted: February 20, 2000

Updated: May 21, 2015

DESCRIPTION

Special interest groups are able to have a substantial impact on the political system. Such groups can provide valuable services to individuals and to elected officials. They also can generate substantial benefits to a small minority.

KEY CONCEPTS

Cost/Benefit Analysis

STUDENTS WILL

  • Compare the positive and the negative effects of being a host city to a professional sports team. 
  • Describe the opportunity costs and the resources needed to host a professional sports team. 
  • List the non-economic benefits of professional sports teams on a city. 
  • Describe subsidies on sports teams. 

INTRODUCTION

In many communities a major public policy issue has developed out of the desire of professional sports teams to play in new facilities: To what extent should the public sector subsidize new (or rehabilitated) stadiums and arenas for professional sport franchises? Teams want new buildings because of their revenue potential and would rather someone else paid for their construction. Teams argue public subsidies for playing facility construction are appropriate because of the positive impact professional sports teams provide for a community. Opponents to public subsidies argue professional sport franchises provide little positive impact.

Economists have generally sided with the opponents of subsidies. A good example of the view of economists can be found here  . The activities in this lesson are designed to help students understand why economists generally oppose subsidies for sport franchises and why subsidies may make political sense even if they do not make economic sense.

Special interest groups are able to have a substantial impact on the political system. Such groups can provide valuable services to individuals and to elected officials. They also can generate substantial benefits to a small minority while imposing a small cost on many other people. This can happen because the costs of a particular program may be spread widely. Voters may not notice the small increased cost to them and therefore may not take the time to study the matter in order to hold their elected officials more accountable.

Elected officials, like other people, respond to incentives. Being re-elected is often an important incentive to government leaders. Re-election depends on earning votes, a scarce "good." This means that elected officials have a strong incentive to work on behalf of special interest groups that they think can be helpful in finding votes at the next election. This may occur even if the particular program they put into effect is economically inefficient.

RESOURCES


PROCESS

Go to the Heartland Institutes web page at http://www.heartland.org/Article.cfm?artId=9474 . Make a list of what the author thinks are the real reasons we subsidize sports. What is the relationship between the number of team franchises and the number of cities interested in hosting them? What is the term used to describe this relationship? How do incentives work to encourage public subsidies of stadiums? What incentives might special interest groups offer to individuals? What advantages might interest groups offer to elected officials?

Have students select two articles from the following websites and evaluate the author's arguments. List the arguments for and against subsidies for stadiums. Identify biases and errors in economic reasoning.

Discuss the following questions: How do each of the following benefit from public subsidies for stadiums

  • team owners and players
  • construction contractors
  • labor unions
  • newspaper reporters, editors, and publishers
  • politicians

Go to http://www.planning.unc.edu/courses/261/narcowich/261revu.htm  for arguments opponents and proponents of subsidies use citing the economic impact of sports teams on a community to justify their position.

Answer the following questions based upon the reading:

What are some of the "economic impact" arguments against the public financing of stadiums and franchises?

What are some of the "economic impact" arguments for the public financing of stadiums and franchises?

How many jobs will be created through a new infrastructure or franchise development plan according to Richard Dye?

What are some of the non-financial benefits of local professional sports franchises?

Go to http://www.thesportjournal.org/2002Journal/Vol5-No3/econimic-values.asp  for an example of the range of estimates of the economic impact of sport franchises.

What are two crucial factors over which the controversy of economic impact is centered?

How can the multiplier effect distort the estimated impact of professional sports teams?

Apply what you have learned from the stadium issue to a debate over providing a government subsidy for the Arts.

Go to http://www.sun-sentinel.com/daily/1817.htm .

After reading the article "Group aims to put cultural component in Mizner Park" students discuss:

  • What is the nature of the subsidy sought by the Concert Hall at Minzer Park Inc.?
  • What groups are likely to support/oppose government spending on a "cultural hub" at Minzer Park? Why will they support/oppose it?
  • What are the proponents/opponents of government spending on a "cultural hub" at Minzer Park likely to say about its economic impact? Give examples of what you would expect both groups say.
  • Do you believe the subsidy will be approved? Why or why not?

ASSESSMENT ACTIVITY

In Pennsylvania the state lottery funds programs for senior citizens. The average age of citizens in Pennsylvania is above the national average. Senior citizens tend to vote in elections.

Write an editorial on the likelihood of Pennsylvania using a new state lottery game to fund stadium construction and post it in the web conference.

EXTENSION ACTIVITY

Write a newspaper article or create a radio or television news report on the range of estimates and explain why economists believe the economic impact of sport franchises is small.