Commentary

The D.C. Baseball Stadium Sideshow

By Dennis Coates
This article appeared in the Washington Post, November 7, 2004.

P.T. Barnum is supposed to have said, “There’s a sucker born every minute.” In fact, that observation was made by David Hannum, owner of the Cardiff Giant roadside attraction and a Barnum competitor.

Regardless of who said it first, the observation is as true today as it was in Hannum and Barnum’s day. How else to explain people’s willingness to believe politicians and millionaire sports team owners’ claim that spending millions of taxpayer dollars on a baseball stadium will lead to economic growth for the community?

Major League Baseball would not have said it would move the Expos here unless it felt confident that a government-subsidized stadium was in the works. A new stadium, after all, is the Holy Grail of financial soundness in professional sports.

Although Major League Baseball now might be shaken by the news of D.C. Council Chairman Linda Cropp’s alternative plan to put a new stadium near RFK instead of beside the Anacostia River, Cropp still proposes public financing for the project. That’s because the belief that a professional sports team is a viable engine of economic growth for its host city is, like the Holy Grail, an article of faith. Yet despite years of searching for evidence that building a stadium or attracting a sports franchise leads to increased income and job creation, economists have come up empty. Only consultants hired by professional sports or by their friends in public office can seem to find evidence of such benefits.

Fellow economist Brad Humphreys and I have studied every U.S. city that has had a professional baseball, football or basketball franchise since 1969. Our findings?

The professional sports environment actually reduces per capita income in the standard metropolitan statistical area as consumers shift their money away from their ordinary spending patterns.

Moreover, wages and employment in the food services, hospitality and recreational industries — the alleged big winners from stadiums — are either no larger or substantially smaller once a stadium is operating. Employees in eating and drinking establishments, for example, earn on average $144 less a year post-baseball stadium, while employees in hotels and other lodgings earn $38 less a year. Employees of amusement and recreation enterprises do even worse, earning, on average, $503 less a year.

These reductions result largely because of the substitution of spending inside the stadium for spending on entertainment outside of it. Also, vendors within stadiums often are volunteers who are raising money for local organizations, such as Babe Ruth Baseball and high school sports booster groups, so fewer waiters, waitresses, and other employees of eating and drinking establishments are paid. Those who are paid serve fewer customers.

Proponents of a new ballpark say that the stadium financing will not come from D.C. taxpayers. Instead, taxes will be collected on ticket sales, concessions and parking and a “ballpark fee” will be imposed on some large city businesses. These are essentially new tax collections that will be taken from non-D.C. residents, or so the argument goes. But those taxes also will be collected from D.C. residents who attend games, patronize concessions and buy souvenirs. Moreover, the business taxes ultimately will be paid by consumers and the business owners, many of whom are local residents.

So if the local economy will reap few economic benefits and if D.C. residents ultimately will help pay for a new stadium, who is the big winner in a stadium deal?

According to Forbes magazine, the Montreal Expos were worth $92 million in March 2001. This April they were worth $145 million — almost a 58 percent increase in value in just three years.

Why the dramatic increase? Major League Baseball purchased the franchise from its previous owners, then shopped it around to cities in return for a new stadium. Major League Baseball has the power to create a shortage of baseball franchises — a shortage it can exploit to extract profits for its existing franchises. Those profits come in the form of the capital gain in the value of the franchise, which reflects the expected profits to the franchise from the stadium subsidy extracted from the host city. So the big winners in the stadium deal are Major League Baseball, which owns the Expos, and the other 29 major league teams.

Major League Baseball is the modern equivalent of David Hannum, playing D.C. taxpayers for a sucker. Maybe the soon-to-be-renamed Expos should be christened to reflect that. How about the Cardiff Giants? Or, maybe, the D.C. Hannums?

Dennis Coates is a professor of economics at the University of Maryland, Baltimore County and the co-author of the Cato Institute study “Caught Stealing: Debunking the Economic Case for D.C. Baseball.