If You Build It, They Still Won’t Come

A report commissioned by the Maryland Stadium Authority and the Montgomery County Department of Economic Development tells the planners what they want to hear: that a new sports and entertainment arena in Montgomery County, Maryland, could generate revenue for the county and would give residents a place to hold events without having to leave the county. Based on the Washington Post story, it's not clear just how strong the report's argument is: by definition, building a new arena would provide a venue for events, so that's not much of a claim; and the news story does not tell us if the revenue generated would make it economically viable.

But maybe the report did claim economic viability. Most studies commissioned by planners do. But independent studies never do. This short review of the academic literature finds that "not only are there theoretical reasons to believe that economic impact studies of large sporting events may overstate the true impact of the event, but in practice the ex ante estimates of economic benefits far exceed the ex post observed economic development of host communities following mega-events or stadium construction."

Last year the Wall Street Journal reported

But while arenas with big-time tenants may bolster a city's self-image and quality of life, evidence shows they have a minimal economic upside. Most operate at a loss.

In "The Economics of Sports Facilities and Their Communities," published in 2000 in the Journal of Economic Perspectives, authors Andrew Zimbalist of Smith College and John Siegfried of Vanderbilt University argue that "independent work on the economic impact of stadiums and arenas has uniformly found that there is no statistically significant positive correlation between sports facility construction and economic development."

The authors cite several studies, including one by sports economist Robert Baade that found "no significant difference in personal income growth from 1958 to 1987 between 36 metropolitan areas that hosted a team in one of the four premier professional sports leagues and 12 otherwise comparable areas that did not." The authors' conclusion: Arenas put a drag on the local economy by hurting spending on other activities in the city and boosting municipal costs such as security.

"It doesn't make sense to build an arena for economic reasons, even if you have a team," Mr. Zimbalist says.

Several Cato studies have reviewed the literature on stadiums and arenas, as noted here.