In Search of the Economic Benefits of Professional Sports

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After a strong push by the city's former-NBA-star Mayor, the Sacramento city council has approved signing a big check to keep the Sacramento Kings from fleeing to play basketball in another city.  The usual arguments were in play for this decision--that losing the team would hurt the city's economy, and building a new arena--a largely public funded one--would increase jobs.  Those arguments appear to be specious ones.  At Freakonomics, Dave Berri sets out to answer the larger question:"Do sports generate jobs and economic growth?"

This is a question that has been addressed numerous times by economists.  And these studies – summarized by economists Rob Baade and Victor Matheson — tend to reveal two answers.  When the study is completed by paid consultants prior to the public money being spent, the benefits from sports are numerous are large. However, when independent researchers – who are not paid by professional sports teams or leagues – look for these benefits after the fact, evidence of more jobs and economic growth are hard to find.

Baade and Matheson offer three reasons the impact suggested by proponents of sports fail to appear:

The Substitution Effect: Sports are just one form of entertainment.  If the Kings didn’t play in Sacramento, the people in Sacramento would simply spend the portion of their entertainment budget currently dedicated to the Kings on something else (i.e. dining out, movies, etc…).

The Crowding-Out Effect: Sporting events attract crowds. When people know those crowds are going to appears, those who are not attending the sporting event tend to avoid the general area.  For example, Baade and

Matheson note that the 2008 Olympics in Beijing failed to increase the number of tourists in Beijing in August of 2008 relative to what the same city saw in August of 2007.
Leakages: The Kings do employ very high-priced labor.  But many of those players probably don’t live in Sacramento.  This means that the income earned by these players doesn’t stay in the Sacramento economy.

Given these three effects, the empirical evidence suggests quite strongly that sports do not create many jobs or generate much economic growth.  And such evidence has proven to be quite persuasive.  In fact, a survey of economists by Gregory Mankiw noted that 85% of economists agree that local and state governments should not subsidize professional sports. Mankiw also notes that only five issues have more agreement among economists.

Read How the NBA Takes Money From People Who Don’t Like Basketball here.


Posted 03-15-2012 8:54 AM by Graham Griffith
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