More of this Feature • Part 1: Leaky Stadiums - Milwaukee's Stadium Experience • Part 2: Leaky Stadiums - What Taxes Should Be Used to Finance Stadium Construction? • Part 3: Leaky Stadiums - Hotel Taxes and Stadiums • Part 4: Leaky Stadiums - Vote in our Stadium Poll and Have Your Say on Stadium Subsidies

Related Resources • Books on Stadium Subsidies and Sports Economics • Links on Stadium Subsidies and Sports Economics • The Winner's Curse - Oil Field Economics and Baseball • The Diamond Angle

An important thing to note here is that the taxes spent to build a stadium should therefore be local taxes, or the situation should be such that the taxing body benefits from the flow of money from one area to another. For example, if a stadium in Minneapolis is drawing large sums of money normally spent in St. Paul, then the residents of St. Paul would be shooting themselves in the foot if they also paid taxes for the new stadium. A statewide tax (or for that matter a subsidy from the state government) for a Minneapolis stadium makes little sense. Few people are likely to travel to Minnesota in order to see the Twins, and many of the state residents would be depositing money into Minneapolis rather than their own towns. Why should the population of Minnesota pay for a stadium that does not draw too much more money into the statewide economy, but in fact might drain money from their own cities? However, it might make sense for the state of Illinois to subsidize sports stadiums in Chicago. In that case there is the potential for money to be drawn from Indiana and possibly Wisconsin, putting more money into the economy of Illinois.

Stadiums can be used to transfer money between local economies. But there are certainly other ways. For example, instead of seeing a ballgame a family seeking entertainment orders out for pizza and picks up a video. Money is spent on local businesses and taxes are collected to reflect that. However, the pizza joint got their cheese from Wisconsin and the video store got their tapes from Hollywood. Some of the money spent by the family hence leaks out of the local economy to Wisconsin and Hollywood. The money that stays in the community is taxed over and over again as it is exchanged for goods and services, but the money that flees elsewhere is no longer taxed by the local government.

An important thing to see here is that different situations have different amounts of leakage. An area that has to import a lot of its products will have a very leaky economy. A big city, which produces many of the products consumed by the locals, will have a less leaky economy and will do a better job of capturing and taxing money brought into the economy. A government in an agricultural region will lose less money to leakage if it uses tax money to encourage out-of-towners spending on food, rather than machinery built in Detroit.

At the end of the day the taxpayers have to decide how their government will encourage local businesses through tax breaks or direct subsidies. The more leaky the industry is in the local economy, the less it deserves support. Let's take a look at sports franchises. What is the main thing that these businesses spend money on? The players of course. Does this money stay in the local economy? It might, if most of the players live in the region. However, if your star outfielder takes his $15M contract and builds a huge mansion in the Dominican Republic, the money he spends there certainly is not being spent locally. Think about the problems that Montreal faces. How many players, from the United States or Latin America, decide to settle in French-speaking Quebec and spend their money there? It's not just the foreigners either. If the star pitcher lives on a huge ranch in Texas, that's money not spent locally. How about the fancy German cars that these athletes buy? Sure, the local dealer gets a cut, but a good chunk of that change goes to Europe. Members of the jet-set are more likely than the general population to spend money outside of the local economy. Do a quick thought experiment. What percentage of the people in the stadium are out-of-towners introducing their money into the local economy? How many of the players live out-of-town and spend the lion's share of their paychecks somewhere else? Governments need to think a long time about the level of leakage in professional sports economies when deciding to subsidize stadiums rather than other projects. If you look at the blueprints and see that the stadium is too leaky, you decide not to build it.

Next page > Part 3: Leaky Stadiums - Hotel Taxes and Stadiums > Page 1, 2, 3, 4.