Can Sports Drive Economic Development?

Can Sports Drive Economic Development?

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January 17, 2024
Can Sports Drive Economic Development?
Sports in the United States generate significant revenues.
Assessing the Economic Evidence
For example, one source estimates the combined value of
Economists have studied the connection between sports and
all franchises in the National Football League (NFL) at
economic development for decades. Much of this work has
$163 billion in 2023, while also reporting that league
examined whether public funding for new or renovated
revenue was $11.9 billion in 2022, a new high and a 7%
stadiums (either in the form of tax-exempt bonds or funds
increase from 2021. That followed news that Major League
provided directly for the project) generate worthwhile
Baseball (MLB) franchises also set a revenue record in
returns on investment. One influential 1997 study from the
2022, earning $10.8 billion that year.
Brookings Institution summarized the arguments usually
made in favor of providing such financing:
The large followings and substantial amounts of money
generated by sports—primarily at the professional but also
• building or renovating a stadium will create construction
at the collegiate level—have sometimes led federal, state,
jobs;
and local policymakers to consider the potential economic
effects that sports can have on a particular region. For
• increased game attendance will generate new spending
example, following the December 2023 announcement that
in the area, thus boosting local employment and wages;
the ownership group of the National Basketball
Association’s Washington Wizards and the National
• tourists (and companies) will be attracted by the new
Hockey League’s (NHL’s) Washington Capitals had
venue, bringing in out-of-town revenue and further
reached a preliminary agreement to relocate both teams’
adding to the local economy; and
home venue from downtown Washington, DC, to suburban
Alexandria, VA, Governor Glenn Youngkin stated a new
• the additional spending generated by the new or
arena and the redevelopment of the surrounding area would
renovated stadium will have a multiplier effect, creating
“generate a combined $12 billion in economic impact for
further spending and jobs.
the Commonwealth and City of Alexandria and create
approximately 30,000 jobs over the next several decades.”
Research has mostly found that public funding for stadiums
has minor economic impacts. As the Federal Reserve Bank
Congress and the federal government have expressed
of St. Louis explained, the arguments described above
interest in the potential connection between sports and
generally do not materialize in real world examples. For
economic development. For example, in the 118th Congress,
example, any jobs created by a new or renovated stadium
the Senate Committee on Commerce, Science, and
usually poach workers from other area businesses and do
Transportation’s Subcommittee on Tourism, Trade, and
not result in a net increase in jobs. Further, many stadium
Export Promotion held an August 2023 hearing on the
jobs are low-paying and part-time. Figure 1 shows the
“economic impacts of the U.S. sports and entertainment
cyclical nature of some sports-related jobs.
economy,” specifically focusing on Las Vegas. One of the
four strategies to increase international tourism to the
Figure 1. Jobs in U.S. Spectator Sports
United States identified in the National Travel and Tourism
Number of jobs typical y peaks in August, reaches nadir in
Strategy, published by the Department of Commerce in
January
June 2022, was to “leverage large-scale events, such as the
2026 FIFA World Cup … and the 2028 Olympics in Los
Angeles … to promote the United States as a travel
destination.” The document noted that coordinating
international marketing campaigns with professional sports
leagues was one tool to try to accomplish that goal.
The federal government also subsidizes the cost of building
new stadiums (and of stadium renovations) by allowing tax-
exempt municipal bonds to be used to finance those
activities. Congress has examined this issue periodically
and introduced legislation—including in the 118th
Congress—to ensure that interest earned on such bonds is

subject to federal taxation. This In Focus summarizes some
Source: U.S. Bureau of Labor Statistics, Quarterly Census of
of the research on the economic impact of sports and
Employment and Wages, Employment and Wages Data Viewer,
presents considerations for Congress.
https://data.bls.gov/cew/apps/data_views/data_views.htm#tab=Tables.
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Can Sports Drive Economic Development?
Notes: Only includes jobs directly related to spectator sports. Data
Vegas’s nascent sports economy has largely not yet been
available only through June 2023.
subject to the same type of long-term analysis as sports-
focused economic development strategies in other places.
One consistent research finding is that “new” spending
created by a stadium is not necessarily new net spending if
Considerations for Congress
the spending would have occurred elsewhere in the area.
The federal government is most involved with sports and
This finding is likely the case because most attendees at
economic development through tax relief measures, namely
sporting events tend to be local residents, rather than
the provision that exempts the interest earned from the
tourists bringing outside dollars and expanding the local
purchase of municipal bonds—including those used to
economy. Additional research supports the finding that
finance stadium construction or improvements—from
public spending on sports actually has only a small
federal income tax (26 U.S.C. §103). According to a 2020
multiplier effect in a prescribed local area. This may be
study from researchers at the University of Arizona and the
because much of team revenue goes to labor costs,
Brookings Institution, 43 of 57 stadiums built between 2000
including to players who may not live primarily in the local
and early 2020 were paid for, at least in part, with tax-
market, and therefore may not further circulate their
exempt municipal bonds. The study found that the federal
earnings in the region.
government’s total revenue loss from allowing tax-exempt
bonds to finance the stadiums was $4.3 billion.
The opportunity cost of public funding of stadiums or other
sports-focused economic development strategies is another
Congress and the federal government have previously
consideration. When state or local governments opt to, for
considered revoking the tax-exempt status for bonds used to
example, issue bonds to finance stadium construction, they
finance stadium construction or improvements. The Obama
are also making a choice not to use those funds for other
Administration’s FY2016 budget proposal included a
purposes. Those could include building or improving
provision to “repeal tax-exempt bond financing of
infrastructure, which some research suggests may have
professional sports facilities.” In the 118th Congress, the No
greater economic development potential than a stadium.
Tax Subsidies for Stadiums Act of 2023, introduced in both
the House (H.R. 993) and Senate (S. 392), would add bonds
A Potential Counterexample: Las Vegas
used to finance capital expenditures for professional sports
In recent years, Las Vegas has made a concerted effort to
stadiums to the list of bonds ineligible for tax-exempt
become a sports destination. Prior to 2017, the city had no
status. Similar legislation was introduced in the 117th (H.R.
major professional sports franchises. Las Vegas has since
6806) and 116th (H.R. 2446 and S. 1242) Congresses. In the
attracted an NFL, NHL, and Women’s National Basketball
115th Congress, the House-passed version of the legislation
Association team. In November 2023 the ownership group
that became commonly known as the Tax Cuts and Jobs
of MLB’s Oakland Athletics announced its intention to
Act (P.L. 115-97) stipulated that interest on municipal
move the team to the city in coming years.
bonds used to finance capital expenditures for professional
sports stadiums would not be tax-exempt. The provision
While Las Vegas’s attempt to grow its economy with sports
was not included in the enacted version of the bill.
is subject to the same considerations noted earlier
(construction of the NFL stadium included $750 million in
As aforementioned, the June 2022 National Travel and
public funding), the city’s existing status as a travel
Tourism Strategy identified sports as a potential tool to
destination may alleviate some of those concerns. As
increase foreign tourism to the United States. The document
discussed above, one factor that can hamper the economic
set a goal of increasing annual foreign visitors to the United
development potential of sports is when sports-related
States to 90 million by 2027 (up from 51 million in 2022).
spending comes primarily from local residents, who
Congress could consider whether to provide support in
research suggests are diverting money they would have
helping to develop and market sporting events to foreign
spent locally in any case. This results in a reallocation of
tourists, as that may be an effective (albeit possibly
total spending, but does not increase net new spending or
temporary) way to stimulate economic development. To
grow a local economy.
facilitate this, Congress could, for example, direct federal
tourism promotion agencies (including the Department of
Outsiders coming to an area and spending money on
Commerce’s National Travel and Tourism Office and the
activities such as attending sporting events does have the
public-private entity Brand USA, which promotes foreign
potential to increase net spending. Some evidence suggests
travel to the United States) to coordinate efforts with state
this may be occurring in Las Vegas. For example, the Las
tourism agencies. Conversely, Congress could determine
Vegas Convention and Visitors Authority found that 6% of
that the federal government’s role is to promote general
visitors to Las Vegas attended a sporting event in 2022, up
tourism to and economic development within the United
from 2% in 2018. Those visitors spent an average of $15.81
States, and not become involved with more specific plans or
on sporting events in 2022. While this was far below the
with state entities.
average spending on items such as food and drink
($519.23), it was an increase from $7.03 in 2019. A May
Adam G. Levin, Analyst in Economic Development Policy
2023 study from the University of Nevada, Las Vegas
found that sporting events generated $1.85 billion in direct
IF12571
output from out-of-town visitors in FY2022. Of note, Las

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Can Sports Drive Economic Development?

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