Why economists don’t think sports matter for the economy

Covid-19 ravaged the global economy, but not because of how it impacted sports.
Covid-19 ravaged the global economy, but not because of how it impacted sports.
Image: Reuters/Kirby Lee
We may earn a commission from links on this page.

In March 2020, the professional sports world stopped. European soccer, professional US basketball and baseball, and world cricket all suspended play. It was a huge blow to fans and athletes all over the world who rely on sports for pleasure and camaraderie.

But for the greater economy, it really wasn’t a big deal. Despite the hype about sports teams generating growth, sports economists generally agree that professional sports teams play a surprisingly small role in the economy of their cities.

“The scale of a baseball team’s impact is far greater than any other sports because there are so many games,” said Michael Leeds, an economist at Temple University. “But its economic impact is similar to that of a midsized department store.”

Major League Baseball teams play 81 regular-season home games a year, pro-basketball and hockey teams play about half that, and football and soccer teams even fewer. The combined revenue for the five major professional sports teams in Chicago combined makes up less than 0.5% business income generated in the city, Leeds said. As a result, the financial impact of the loss of sports from Covid-19 is marginal compared to its impact on restaurants and tourism generally.

Sports teams like to talk about their economic importance, but the numbers they cite tend to be misleading. For example, the English Premier League soccer team Liverpool Football Club (LFC) commissioned a study from Deloitte’s Sports Business Group that found the team added £497 million ($662 million) to the Liverpool economy during the 2017-18 season. The study also indicates the team supports 4,500 jobs. The Seattle Supersonics basketball team claimed an annual economic impact of over $200 million on the city before moving to Oklahoma City in 2008.

Studies like these tend to be used to argue that local government’s should subsidize the construction of stadiums and give sports team’s tax breaks (pdf). From 1970 to 2017, local and state governments in the US alone subsidized over $30 billion (pdf) in sports stadium costs. Subsidies to professional sports teams are much less common outside the US.

The problem with studies boosting sports as economic stimulus is that they generally assume all of the money spent on sports teams would just evaporate if they weren’t spent inside the stadium or at bars and restaurants just outside, says Leeds.

But the truth is spending on sports mostly just crowds out money that would be spent on other entertainment. Researchers find that a large portion of the $662 million LFC “added” to the economy would be spent on concerts and movie tickets if the team didn’t exist. People have an entertainment budget, explains Leeds, and they will find a way to spend it if they can.

Image for article titled Why economists don’t think sports matter for the economy

What happens when a team leaves?

A landmark study by the economists Dennis Coates and Brad Humphreys published in 1999 examined just how much the loss of professional sports games impact the economies of metropolitan areas in the US.

The economists examined what happened to personal income in places with a sports team when no games are played due to player union strikes. They find no noticeable difference in years with strikes compared to years where all games happened. Their study also finds that when sports teams leave a city, it also has no discernible impact. (For example, the city of Seattle is doing just fine without the Supersonics.)

A large body of research examining the economic impact of sports has been published since Coates and Humphrey’s study. The studies use a wide range of methodologies and are remarkably consistent in finding little effect. A 2017 survey of leading economists found that 27 out of 28 with an opinion agreed that subsidies for sports stadiums are “likely to cost the relevant taxpayers more than any local economic benefits that are generated.”

In some cases, sports teams can even have a negative impact on local businesses. The Los Angeles City government analyzed what happened to economic activity in the city of Inglewood after the Los Angeles Lakers basketball team and Los Angeles Kings hockey team left the city in 1999. They found tax revenue in the city actually rose after the teams left (pdf). One possible explanation for the rise is that the crowds and traffic caused by the stadium led people to avoid the area on game days.

Although it is difficult to measure, it may also be valuable for the “brand” of a city to have a major professional sports team. For small cities like Memphis or Sacramento, their professional basketball teams are one way that people outside their regions are reminded of their existence. If the prestige of having a team does has value though, it does not show up in economic studies of how sports teams impact jobs and tax revenue.

Of course, just because the aggregate impact of sports are small, that doesn’t mean there are not workers and small business owners who are not especially hurt by the loss of sports. Judith Grant Long, a professor of urban planning at the University of Michigan who studies sports financing, points out that restaurants and bars located near stadiums and arenas are likely to take big hits, particularly when those sports venues are the main reason someone would come the neighborhood (like Philadelphia’s Wells Fargo Center). As takeout becomes increasingly important to restaurants, being located near an arena becomes less valuable.

Image for article titled Why economists don’t think sports matter for the economy

The impact of the pandemic

Long points out that the biggest impact of Covid-19 for US cities may come from their inability to pay off bonds they issued for stadium subsidies. Many of these bonds are reliant on the sales taxes and tourist taxes generated on game days.

For example, the New York City Industrial Development Agency took out $612 million in bonds to pay for Citi Field stadium in 2009. The bonds were downgraded to junk status this year by the ratings agency Standard & Poor’s. Bonds funding stadiums in Arizona and Missouri are facing similar issues.  The possibility of future pandemics might lead cities to be less inclined to issue these kinds of bonds in the future, Long said.

Leeds said he didn’t want to sound cold-hearted, but he thinks that compared to the overall consequences of coronavirus, the economic impacts from sports are “small potatoes.” When Covid-19 ends and people are able to return to stadiums in droves, we should celebrate that opportunity, but it won’t drive the post-pandemic recovery. That said, just because sports don’t matter that much financially, does not mean that they don’t matter. Leeds himself is a sports fan and said he deeply misses being able to attend live sports.

“There are aspects of quality of life that are not monetary,” said Leeds. “The big cost of losing sports is at the cultural level.” Sports bring people together and are a source of local identity. He just thinks it’s important to admit that this is why sports are important, not because they generate economic growth.

Multiple surveys have shown that many residents would be willing to pay to keep their local sports teams (pdf) simply because they bring them such pleasure. “I give my children birthday presents because I love them,” Leeds said. “Not because I think it’s good for the economy.”