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

This past summer Milwaukee hosted baseball's all-star game. The night before, during the home-run derby, the skies opened up and America saw that Wisconsin's proud new house had some leaks in the roof. When taxpayers pay for a new stadium, they have to make sure that their new stadium is not leaky. However, this is not about holes in the roof of a stadium, it is about holes in the economy.

The typical argument used to sell a stadium construction contract to the tax-paying public is that it improves the local economy. Money will be generated, and the taxes on the new revenue will in theory offset the taxes used to subsidize the new stadium. The problem with this stream of thought is the first step. How is that money generated? Most people have entertainment budgets, and the $100 they spend taking the family to the ballgame is $100 that they don't spend on movies or bowling later on in the month. Nobody seriously thinks that we should raise taxes and spend millions on bowling alley or movie theater subsidies, yet we do the same for professional sport stadiums. Yet so long as there is simply a transfer of spending money from one kind of pastime to another, no new tax streams are generated.

The only way to make this idea work is to draw money into the economy that normally would not flow into that locality. Stadiums can act as magnets, drawing in out-of-towners to spend on sports and perhaps local restaurants and hotels. If a family from the suburbs drives in for a ballgame and drops a load of cash downtown instead of at their local movie multiplex, then money (and taxes) that would have been spent in the suburbs is transferred into the city. Note, however, that this is a zero-sum game. Money spent on sports and entertainment in the city is not spent on entertainment substitutes in localities that provide the sports tourists.

A non-sports comparison can be made to the casino industry. In the Midwest and other areas of the country, casinos are seen as a good way to provide jobs, and through taxes, extra revenue streams for local governments. Cities with casinos hope to draw people and their money from the surrounding area. However, the other towns in the area see their money draining to the city with the casino.

Next page > Part 2: Leaky Stadiums - What Taxes Should Be Used to Finance Stadium Building? > Page 1, 2, 3, 4.