If you listen to your citys boosters and officials, it seems like theres nothing stadiums cant 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 its 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 dont really matter.
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 lets assume all the hotel spending ends up back in the citys 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 whats needed to cover Charlottes debt paymentsand its 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 doesnt 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.
Even when events increase gross tax receipts, they dont 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 seasonand Depken and Stephensons estimates suggest it didntthe additional hotel tax revenue wouldnt cover the citys outlays for tournament-related public safety.
There is more to a stadium proposal than hotel tax revenue, but theres still a yawning gap between peoples 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 youll read on the blog Field of Schemes.
When construction starts on a new stadium or convention center, local leaders congratulate themselves like theyve won some kind of great economic victory. They havent. Theyve simply fleeced the taxpayers for the benefit of construction companies, team owners, and other special interests by saddling them with white elephants for which theyll pay for decades.
Stadium pitches animate the imagination, but theyre a lot like those emails you get from deposed princes seeking your help moving a few million dollars out of their countries. Theyre fun to dream about, maybe, but local officials are better off ignoring them.
|Art Carden is a Research Fellow at the Independent Institute and an Associate Professor of Economics at Samford Universitys Brock School of Business.|