Economic Policy & Analysis

Week One – Case Study:

Public Financing of Sports Facilities

A group of private investors has proposed to bring an expansion Major League Baseball team to Portland. The “Portland Pioneers” will begin MLB play in the year 2012, if everything goes according to plans. The private investors are asking the State of Oregon and the City of Portland to contribute $400 million to the construction of a baseball stadium capable of seating 50,000 fans. The total cost of the stadium will be $600 million. While the site for the proposed stadium has not yet been identified, it is also anticipated that significant improvements to the transportation system will be required to serve the site, costing upwards of $200 million.

Using economic concepts found in the McKenzie text and in Economics in One Lesson, address the following issues in a case analysis. (There are no “right” answers, only approaches that use economic logic or do not.):

Baseball stadiums as public goods or private goods

Use of public funds for sports facilities: arguments for and against

The proper role of government in regulating (or not regulating) Major League Baseball

Internalizing the social costs and benefits of baseball stadiums

With a broad economic view of this issue it becomes apparent that few things are clear-cut. When looking to define the “Portland Pioneers” stadium as either a public or private good we must first state that only the seats within the stadium and the ground it is built on are private goods. The public good of the stadium is the ability to watch game played. Since most MLB games are televised, they become non-rival. That is to say that because I watched the game nobody else was excluded from watching the game. The seats inside the stadium are (at least during the game) limited or scarce, making them a private good.

One interesting addition to the broadcast games of MLB is that they are not truly free of cost. Broadcast companies are doing one or a combination of two things, requiring payment from the viewer in terms of Cable/Satellite TV or getting payed by advertisers. The advertiser is willing to trade for the exposure to the viewer who in turn will purchase goods or services from the advertiser. Just like the essay “I, Pencil” (McKenzie & Lee, pp42-47) where the intertwining and far reaching processes are needed to make a simple object, each market is made up of many other sub-markets that influence and effect one another.

The next question we must ask ourselves is, Should we use public funds to support this new facility? There are several arguments that would support using the public funds to help facilitate the building of a new stadium for the “Portland Pioneers”, unfortunately they are mostly intangible. According to Swindell and Rosentraub:

...there is little disagreement among policy analysts on the economic benefits from the presence of a sports facility and a team. Across three decades, a small group of scholars has concluded that neither teams nor the facilities they use are a source of substantial or even meaningful economic development.

The benefits that are seen have more to do with scarcity of having a MLB team in our city. Just having the option of going to a game in the future or having something to talk about and cheer for as a community. On game day the immediate area sees more traffic and possible would see an increase in sales or advertising, but that benefit is limited to a small number of days. Another benefit may be the addition of fan specific merchandise that has a higher value (or potential profit) than the non branded alternative.

Now that we have looked at some of the arguments, we must determine if the if the positive benefits that the public would see can be balanced with the cost, or the use of public funds. Since there is a limited benefit to those who live near the city with the MLB stadium, it may make sense to put a very minimal tax on the metro area or the state as a whole. This would capture the viewing benefit as well as community building. It seams like those who are getting the most benefit form the private good, the seating, should bear the largest burden. The “Portland Pioneers” and their owners will stand to make the most money from the new stadium, so they should also be responsible for a considerable segment of the expected $600M.

The city government does bear some responsibility of the road and utility upgrades because they are public goods. This expense of $200M should be divided among the general taxpayers of the city and the residents and business in the affected area. The division should be made according to the benefit received and the relative impact on each. For example $100M from a small neighborhood would be a significant amount, but take that out of 1.7M people and the burden is much less per person/business.

The government's responsibility in regulating any industry or body is doing one thing; manipulating the scarcity of a particular item thus changing how the market responds to that item. This manipulation does not allow the “free” market to operate at peak efficiency. Because of the loss of efficiency there are people who lose. It may be the taxpayer or the Team or even the city who did not get the new MLB team.

McKenzie and Lee (2006). Microeconomics for MBA's: the economic way of thinking for managers. New York: Cambridge University Press.

Swindell and Rosentraub (Feb 1998). Who Benefits from the Presence of Professional Sports Teams: The Implications for Public Funding of Stadiums and Arenas. Public Administration Review; Vol. 58 Issue 1, p11-20.