Ballpark figures: case for building stadiums doesn’t add up

It’s human nature that when someone is appointed to a big job, they want to be seen to be Doing Something.

When there’s a new marketing director at a company, you can bet they’ll soon put the advertising contract up for tender or redesign the branding. A new chief executive will bring in a team of highly paid consultants to synergise the strategy or perhaps strategise the synergy.

And for state politicians, the drug of choice is typically building new stadiums and convention centres – or sometimes both. Stadiums are in favour because they’re big and flashy, there’s a well-organised lobby behind them, and sport is popular with the punters.

The bill to taxpayers is usually justified by modelling that predicts a pay-off in economic growth.

The case for stadiums likens them to medieval cathedrals in their attempt to dominate the skyline and inspire civic pride – and also because they’re massive building projects that provide a huge number of construction jobs.

Although the jobs are temporary, they last for several years. And, proponents argue, they’re replaced by consumer spending once the stadium opens. Every dollar that goes to pay ushers and concession stand attendants or into the coffers of nearby businesses has a “multiplier effect” as the earnings are spent again and the money circulates through the economy.

Finally, a shiny new stadium can spur other development nearby.

So does the economic case stack up? Actually, the touted benefits are illusory or at least exaggerated, analysis from the United States suggests. And that’s despite the fact the sporting codes are bigger and richer over there.

Sports economist Michael Leeds, a professor at Temple University in Philadelphia, argues professional sports have very little economic impact, noting that a baseball team with 81 home games a year has about the same benefit as a mid-size department store. His research suggests if every professional sports team in Chicago (including the Cubs, White Sox, Bears, Bulls and Blackhawks) were to suddenly disappear, the economic impact on Chicago would be a fraction of 1 per cent.

Roger Noll, a Stanford professor emeritus in economics and author of books such as Sports, Jobs and Taxes, has this to say: “NFL stadiums do not generate significant local economic growth, and the incremental tax revenue is not sufficient to cover any significant financial contribution by the city.

“By comparison, other billion-dollar facilities – like a major shopping centre or large manufacturing plant – will employ many more people and generate substantially more revenue and taxes.”

Smaller arenas for basketball or ice hockey deliver slightly better returns than NFL stadiums because they’re used more often, Noll says.

And, of course, there’s an opportunity cost – if the government funds stadiums, it comes at the expense of other programs.

NFL teams are much, much wealthier than any club in any football code in , and could in fact fund the cost of new stadiums themselves. Why don’t they? Noll says it’s simple – the business returns are negligible.

If it’s not worthwhile for wealthy NFL teams, why would it be attractive for taxpayers?

Let’s drill into the detail.

First, the economic impact analysis is not always rigorous because it’s not designed to be. Sometimes it’s done as a PR exercise by consultants hired to produce the numbers the government wants. Other times it might be done with rigour and integrity but not made public.

Second, economic activity is not the same as tax revenue, and the net benefit to taxpayers would also have to include the expense of providing services such as policing and traffic control for the event – though you’d hope that would be included in the analysis.

Third, the economic activity includes any spending in the vicinity of the event, with little regard taken of whether the consumer would have spent the same money with a different business on a different form of entertainment or at a different time of year.

The problem is that household budgets are not magic puddings. Should the government really be spending taxpayer funds trying to persuade us to spend money with Business A at the expense of Business B – or, worse, to spend money with both but go into debt?

In a best-case scenario, the city or state might attract tourists from interstate for a special event. This was the rationale when Victoria poached the Formula One grand prix from South .

This boosts the local economy but does nothing for the nation as a whole. For very big events such as the Olympics, you might attract tourists from overseas.

The problem with poaching events is that cities end up in an arms race to have the biggest stadiums, and you wind up demolishing infrastructure early.

It used to be that it took 50 years before the wrecking ball would come for a stadium, but Noll says 20 years is roughly average these days.

“Usually at around 20 years teams start threatening to move if they don’t get a new stadium,” he says. “By the time a new one gets built, it’s usually more like 25 years, but nobody ever stays in the same stadium for the term of their lease any more.”

In other words, any analysis showing how the stadium would pay for itself over the long term is probably moot.

The Sydney Convention Centre was only 25 years old when it closed so the NSW government could build a bigger and better one. Allianz Stadium in Moore Park and Parramatta Stadium are only about 30 years old, while the Sydney Olympic Park stadium was built less than two decades ago.

The Berejiklian government hasn’t released its economic analysis for its plan to spend $2.5 billion rebuilding the three stadiums.

But my colleague Jacob Saulwick has seen the analysis from Infrastructure NSW about the economic impact of rebuilding Allianz Stadium at Moore Park – an earlier iteration of the plan when Mike Baird was premier.

Infrastructure NSW provided advice that there would be no economic benefit to the state of NSW as any events would be relocated from other areas in Sydney.

Caitlin Fitzsimmons is the Money editor and a Fairfax columnist. Twitter: @niltiac. Facebook: @caitlinfitzsimmons.

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