If you listen to your city's boosters and officials, it seems like there's nothing stadiums can’t do. They attract out-of-town guests who come to the city and pay big bucks for tickets, hotel nights, nice meals, and all sorts of other things. A stadium is an economic engine that will draw in tourist dollars and, therefore, increase standards of living in a city and the surrounding area.
Except that it’s not. In a recent study of hotel occupancy trends in Charlotte published in the July 2018 issue of Economic Inquiry, the economists Craig A. Depken of the University of North Carolina at Charlotte and E. Frank Stephenson of Berry College (both of whom I consider friends) show us that while some events mean big increases in hotel stays, other events don't really matter.
The annual hotel tax revenue they attribute to the Panthers is less than 1% of the amount paid in 2016 to service the stadium, arena, and venue-related debt the city has incurred.
The 2012 Democratic National Convention and NASCAR races led to big increases in hotel room use, and Depken and Stephenson point out that the Carolina Panthers increase hotel occupancy, as well. The effects, however, are pretty small. The annual hotel tax revenue of $280,000 they attribute to the Panthers, for example, is less than 1% of the $33.4 million Charlotte had to pay in 2016 to service the stadium, arena, and venue-related debt the city has incurred.
“But people who work at the hotels will spend money, which will generate additional tax revenue.” Good point. So let’s assume all the hotel spending ends up back in the city’s hands. Even if the city scooped up literally all of the additional hotel revenue Depken and Stephenson attribute to Panthers games and left none of it for hotel employees, owners, and so on, Panthers-related hotel revenues would still only bring in about 10% of what’s needed to cover Charlotte’s debt payments—and it’s not reasonable to think the city would walk off with literally every cent of additional hotel spending attributable to Panthers games.
You might say “but people do more than spend on hotel nights for Panthers games!” This is also true, but it still doesn't justify the subsidies. Assume people spend exactly twice as much on other game-related stuff as they spend on hotel nights, which triples the tax take. Panthers-game-related sales tax revenue is still at about 2.5% of what Charlotte had to pay in debt service in 2016.
The additional hotel tax revenue wouldn’t cover the city’s outlays for tournament-related public safety.
Even when events increase gross tax receipts, they don’t necessarily produce net increases in tax receipts. For example, Depken and Stephenson report the 2017 PGA Championship cost Charlotte about $330,000 in “public safety” expenses. Even if a four-day PGA tour event had the same effect as the Panthers’ eight-game season—and Depken and Stephenson's estimates suggest it didn't—the additional hotel tax revenue wouldn’t cover the city’s outlays for tournament-related public safety.
There is more to a stadium proposal than hotel tax revenue, but there's still a yawning gap between people's stadium hopes and stadium realities. Depken and Stephenson add to an already-large body of research on the effects of stadium subsidies, convention centers, and mega-events. What they find is consistent with a 2008 summary of the economists’ consensus on stadiums by Dennis Coates and Brad Humphreys, Heywood Sanders’ findings in his book Convention Center Follies, and what you’ll read on the blog Field of Schemes.
When construction starts on a new stadium or convention center, local leaders congratulate themselves like they've won some kind of great economic victory. They haven’t. They’ve simply fleeced the taxpayers for the benefit of construction companies, team owners, and other special interests by saddling them with white elephants for which they’ll pay for decades.
Stadium pitches animate the imagination, but they’re a lot like those emails you get from deposed princes seeking your help moving a few million dollars out of their countries. They're fun to dream about, maybe, but local officials are better off ignoring them.
Reprinted from Forbes