Yesterday, I wrote a piece about how organizers in New Orleans were likely overstating the potential economic impact of the Super Bowl, which the city will host on Sunday, February 3. It’s easy to think that such an overstatement is no big problem — if cities get a boost from such events, what’s it matter if it is $40 million or $400 million? But it is a problem, because the studies into the benefits of hosting a major sporting event attracting a professional sports franchise are almost always used to justify substantial public investment into the construction or renovation of stadiums and arenas. And, as we’ve repeatedly examined here, those deals almost always turn out badly for the taxpayers who finance them.
Take New Orleans, a city whose taxpayers dumped $121 million into the renovations of the Superdome to keep the Saints in town after Hurricane Katrina. To be sure, the Superdome needed renovations after the storm just to be safely used. But less than a decade later, the financing scheme that was used to pour public money into the project is going wrong. Very wrong.
And it isn’t alone. Miami is selling taxpayers on stadium renovations by saying they are vital for future Super Bowls. Dallas already made such a sale. In cities across the country, new facilities are the impetus for getting big events, keeping professional teams, or attracting new teams. In almost every case, proponents wield an economic impact study to tout the benefits brought by a new facility and the professional sports franchise and mega-events it would attract or keep happy. In each of those cases, the estimate was almost surely overstated, especially when research shows that new arenas don’t boost overall growth of metropolitan areas, and that the presence of a sports franchise probably doesn’t either.
For any city with a stadium or arena, turning down an event like the Super Bowl would be absurd, if only because there is an impact on the surrounding economy, however large or small it is. The problem arises, though, when these studies are used to persuade the public into financing expensive stadiums and arenas that are not good investments and never will be.
Sports leagues and proponents of new stadiums use “these promises of riches to convince cities that the construction of a new…stadium at significant public expense is a profitable investment, especially if it includes the promise of a future” event like the Super Bowl, sports economist Victor Matheson wrote in one study of the problems with economic impact estimates. “[T]his creates ample reason to be skeptical of any claims made about the reported economic impact since the sponsors of the impact studies have a financial interest in results that show large economic benefits from the game.”
When those deals occur, they almost always go bad, as they have in Glendale, Cincinnati, Minneapolis, and virtually everywhere else. And every time, cities that sell the myth of economic vitality are left with burgeoning debt, and the taxpayers who financed the projects end up facing higher taxes or cuts to programs on which they rely to service that debt.
The problem isn’t that impact estimates are overstated. It’s that they are often overstated for the explicit purpose of selling a bad product.