Latest / The Fiscal Policy Podcast with Fexingo: Government Budgets, Stimulus, and Public Spending / Why Government Subsidies for Stadiums Never Pay Off
Transcript
- Lucas: So earlier this year, New York State and Erie County finalized a deal to contribute roughly $1.2 billion of taxpayer money toward a new Buffalo Bills stadium. The team's owners are putting in about $350 million. That's roughly a 77 percent public subsidy for a building that will host eight regular-season football games a year. Luna: And this is not unusual. Cities and states have been cutting similar deals for decades. I think the question everyone asks is: does the economic benefit ever actually justify the cost? Lucas: That's the exact question. And the evidence is pretty damning. Economists have studied this for at least thirty years, and the consensus is that these stadium subsidies almost never generate the promised returns. The Brookings Institution has a running tally — they estimate that since 1990, U.S. taxpayers have spent over $10 billion on professional sports venues, adjusted for inflation. Luna: And for context, the typical argument is that a new stadium creates construction jobs, then permanent jobs from vendors and surrounding businesses, plus increased tax revenue. Proponents say it's an engine for downtown revitalization. Lucas: Right. Let's look at the construction jobs first. A stadium build might employ a few thousand workers for two or three years. But those are temporary, and many are specialized tradespeople who would have been employed on other projects anyway. You're not creating net new employment; you're mostly shifting it from other parts of the economy. Luna: And then the permanent jobs — stadium operations only need a small staff year-round. Most game-day workers are part-time and low-wage. They're not the kind of career jobs that transform a local economy. Lucas: Exactly. Then there's the multiplier effect. The idea is that fans come to the stadium, eat at nearby restaurants, stay in hotels, and that spending ripples through the local economy. But the problem is substitution. Most of that money would have been spent on other entertainment in the same city — movies, concerts, dining out. It's not new money entering the local economy, it's just redirected. Luna: A 2019 paper in the Journal of Economic Perspectives looked at every academic study on stadium economic impact going back to the 1990s. They found that the net effect on local income and employment was essentially zero. Some studies even found a small negative effect because public money could have been spent on things with higher returns, like education or infrastructure. Lucas: And that's the opportunity cost. The city of Buffalo is on the hook for $1.2 billion. That could have funded a lot of road repairs, school upgrades, or public transit improvements. The question isn't just 'does the stadium pay for itself?' — it's 'what else could that money have done?' Luna: Speaking of that, one argument that always comes up is that the team might leave if the city doesn't pay. The Bills threatened to move to another city if they didn't get a new stadium. That's a classic leverage play. Lucas: It is, and it's extremely effective. The National Football League alone has seen teams relocate from St. Louis, San Diego, and Oakland in the last decade. And often, the city that loses a team suffers real economic harm — but the city that lands it doesn't see a windfall. It's a zero-sum game among cities, and the team owners are the only ones who consistently win. Luna: So if the economics are so clear, why do politicians keep saying yes? I think part of it is that the benefits are concentrated and visible — a shiny new stadium, a ribbon-cutting ceremony — while the costs are diffuse and delayed. Taxpayers each chip in a little bit over many years, and it's hard to see that $50 million annual debt service on your property tax bill. Lucas: And there's also a political asymmetry. The team owners, the league, and construction unions lobby hard for these deals. The average voter isn't organizing a campaign against a stadium subsidy. So the decision gets skewed toward approval, even when the numbers don't add up. Luna: You know, this feels like a topic where the data is so one-sided that you'd think policy would have changed by now. But it hasn't. Is there any sign of that shifting? Lucas: A little bit. A few cities have pushed back. In 2017, San Diego voters rejected a measure to fund a new Chargers stadium, and the team left for Los Angeles. Some cities are starting to ask for more private investment. The new Las Vegas Raiders stadium got a significant amount of private money, though public subsidies are still huge. But the basic dynamic remains. Luna: And I think part of the reason is that the intangible benefits — civic pride, being a 'big-league city' — are real, even if they're hard to quantify. A stadium can be a symbol. Lucas: That's true. And economists don't discount that entirely. But the question is whether those intangibles are worth a billion-plus dollars. And I think the evidence says: probably not, when the same money could fund things that improve residents' lives more directly. Luna: I want to bring in one more number. A study from Stanford looked at the economic impact of hosting mega-events like the Super Bowl or the Olympics. They found that the boost to local hotel occupancy and restaurant revenue is much smaller than boosters claim, and it often disappears once the event is over. For a single team playing eight home games a year, the effect is even smaller. Lucas: And the cost overruns are legendary. The new Buffalo stadium is budgeted at about $2.1 billion total, but construction cost inflation has been running hot. Infrastructure projects in general tend to go over budget, and stadiums are no exception. A 2009 study found that stadiums were on average 28 percent over budget. Luna: So if a city wants to have a professional sports team, what's the alternative? Some economists have proposed a model where the team and the league pay for the stadium themselves, and the city contributes only for infrastructure improvements that have broader public benefit, like road access or public transit upgrades. Lucas: That's the model used in many European countries. In Germany, for example, most stadiums are owned by the clubs and financed privately. The public contribution is limited to transport connections. And those clubs still fill their stadiums. The argument that teams can't survive without public money doesn't hold up internationally. Luna: But it's hard to change a decades-old pattern. Once one city sets a precedent, others feel they have to match it to stay competitive. It's like a subsidy arms race. Lucas: Exactly. And that's why a federal policy or a league-wide rule could break the cycle. Some have proposed that if the NFL or MLB wanted to stop this, they could set a cap on public subsidies. But they have no incentive to do that, because the current system is extremely profitable for them. Luna: Speaking of incentives, I think it's worth noting that listeners who enjoy getting into the nitty-gritty of how public money is spent often tell us this kind of analysis is exactly why they tune in. If walking through the economy with us has made something click — the way a substitution effect works, or why a billion-dollar subsidy is hard to justify — a couple of dollars a month is genuinely what keeps these episodes ad-free and independent. You can find us at buy me a coffee dot com slash fexingo. Lucas: Yeah, it's a small thing that makes a big difference for us. And it means we can keep drilling into exactly these kinds of questions without worrying about sponsors or advertising. So if you've gotten value from the show, that's the place. Luna: Alright, back to the Bills stadium. One more angle I want to explore: what happens after the stadium is built? The ongoing maintenance and operations costs are rarely part of the initial subsidy debate. But they're significant. Lucas: Right. The city usually retains ownership of the stadium and is responsible for upkeep. The Bills' lease in their current stadium, for example, required the county to cover capital repairs. Those costs can run into tens of millions a year. And when the team eventually leaves — which they will, because no stadium lasts forever — the city is left with a depreciated asset that might be demolished at public expense. Luna: So not only is the upfront subsidy large, but the long-term liabilities are also hidden. That makes the total cost even higher. Lucas: Exactly. And I think that's the key takeaway: when you hear a politician say a new stadium will pay for itself, ask for the full lifecycle cost, including maintenance, operations, and eventual demolition. And ask for the independent economic impact study, not the one commissioned by the team. Nine times out of ten, the independent study will show a net loss. Luna: And for a listener who wants to look into their own city's stadium deal, what's a good starting point? Lucas: I'd start with the subsidy scoreboard maintained by the Brookings Institution — actually, a similar resource is available at the website of the nonprofit Good Jobs First. They track every stadium subsidy in the country. You can see exactly how much your city is paying, what the promised benefits were, and whether they materialized. Luna: That sounds like a great resource. And it's a reminder that transparency is often the first step toward better policy. When the numbers are public, it's harder to hide a bad deal. Lucas: Exactly. So for the Buffalo deal, the numbers are public now. The $1.2 billion is locked in. But for future deals, maybe more cities will ask the hard questions before signing on the dotted line. Luna: I hope so. It's a lot of money that could be spent elsewhere. Lucas: It really is. And on that note, I think we've covered the core issues. Thanks for listening.