by Howard Stephenson
Recently, the /Enterprise/ published an article in favor of a taxpayer- subsidized soccer stadium which claimed that professional sports create economic growth, contrary to the claims of reputable economists. County Mayor Peter Coroon recently announced his opposition to a proposed $40 million-plus taxpayer subsidy for the construction of Real Salt Lake’s planned stadium in Sandy City. With the Mayor’s opposition, it would be difficult for the County Council to garner enough votes to override the Mayor’s veto of the subsidy. However, Sandy City is now evaluating the option of Sandy City taxpayers providing a subsidy for the team’s stadium.
The /Enterprise// /article raised several issues and made several claims which need to be addressed.
Zero Sum Game: Jock Tax
The article claims that Real Salt Lake will generate additional state tax revenues because players from visiting teams will pay Utah state income taxes (the so-called Jock Tax). However, the article did not mention that Real players will pay the Jock Tax to other states when they are playing on the road. Obviously, this is a zero-sum game.
Bait and Switch: World Cup
The article mentions that last year’s World Cup game brought in thousands of out-of-state tourists, which benefited Utah’s economy.
World Class City ?
Not surprisingly, the article plays the “World Class” card. Owners of professional sports teams use this ruse in every city, county, and state where they are trying to dupe taxpayers into funding their stadiums. A soccer team, much less a soccer team that has a hard time winning games, will not attract high-wage businesses to Utah. What Utah really needs is a world class tax system, a world class education system based on choice and competition, and world class transportation infrastructure.
A Failed Attempt to Discredit the Substitution Effect
The article tries to refute the argument that local expenditures at the stadium won’t displace locally driven discretionary expenditures elsewhere (also known at the “substitution effect”). The article quotes a Sandy theatre operator who claims “When teams are in town, we don’t see a dropoff in ticket sales”. This argument is fallacious on several fronts. First of all, the substitution effect impacts literally hundreds of retail, recreation, and entertainment venues, not just one theatre operator in Sandy. While the substitution effect is very real when the local economy is viewed in aggregate, the impact is not always noticeable when spread across several hundred businesses.
Second, the substitution effect does not require that the diversion occur on the same day or at the same time as the event. The offsetting reduction in consumer expenditures may occur later.
Using the same logic as promoters of RDAs for retail, the article mentions the positive economic impact that the stadium will have on the /local /community, without mentioning the offsetting reduction in expenditures in other parts of the county and state.
Ultimately, proponents of taxpayer-subsidized stadiums who claim that professional sports create economic development basically assume that people are just sitting around just waiting for an opportunity to spend money that they are keeping in their bank accounts. Even if that were the case, which is hard to believe since savings rates are currently negative, we would achieve higher long term economic growth if people invested in the stock market (or kept their money in their bank accounts which banks would then lend to productive businesses) instead of spending money watching sports.
Huge Costs, Marginal Benefits
Real argues that the 100 to 150 jobs in their regional broadcast studio equate to economic growth since the studio would be targeting out-of-state customers. While this claim is valid – and the association has always maintained that – the $45 million (or more) price tag is far too high considering the small amount of jobs.
Real also argues that nationally televised Real games will increase Utah’s exposure. However, not all exposure is created equal. A better way of spending hotel tax dollars would be to promote Utah’s ski resorts and national parks to a national audience. Real games won’t attract more people to Utah’s ski resorts and national parks.
It’s the Economy, Stupid
Long-term economic development is not about getting consumers to spend more. It’s about increasing exports and improving productivity. Improved productivity not only increases exports but also allows companies to be more profitable without raising prices to consumers. Production (such as software, hardware, biotech, manufacturing, mining, etc), increases wealth. Consumption, such as buying soccer tickets, follows wealth. This principle applies to individuals and households as well as states and countries.
If local governments want to increase consumer expenditures, they have two choices: cut taxes or increase their constituents’ income in real terms which is accomplished by increasing productivity and by exporting goods and services.