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New Stadiums as Black Holes

2009 November 4
by Skip Sauer

A common and important point made by economists when critiquing economic impact claims is that most of the expenditures are realized by the teams themselves. The rationale for stadium subsidies depends on the indirect effects of spending on the ballgames. We know these can be significant (I see them every football weekend in Clemson), but they are notoriously difficult to measure properly, and as a result lend themselves to being overstated in the pitch for subsidies.

A key feature of the amenity-laden modern stadium is the incorporation of numerous opportunities for fans to spend on food, drink, and apparel. As stadium design has morphed around this concept, the intended but little noticed consequence is that a chunk of the indirect spending associated with a sporting event disappears, and is captured by the team itself.

This interesting article in the NY Times focuses on the disappointing revenues of merchants around the new Yankee Stadium. Diversion of expenditure from restaurants and other vendors to operations inside the stadium appears quite evident:

On Monday, about an hour before the start of the Yankees-Phillies game, about a dozen customers were eating and drinking in the Hard Rock Cafe built into the southeast corner of Yankee Stadium. Less than a block south, the steel security gates were pulled down at Stan’s Sports Bar and Stan’s Sports World, longstanding businesses that catered year-round to the crowds drawn to the old stadium.

The city’s Economic Development Corporation estimated that each home playoff game produced $15.5 million in economic activity, including $6.7 million in spending on hotel rooms and taxi rides and in restaurants, bars and stores.

But on River Avenue in the Bronx, merchants said that very little of that money was trickling their way. Mr. Alawy, who said he had pulled about $30,000 out of savings to cover his costs this year, wistfully recalled the bounty that his family reaped during the 1996 World Series, when the Yankees played the Atlanta Braves.

While working in his father’s souvenir shop up the block, he recalled, there was no time to fold the T-shirts before selling them. Customers were lined up three and four deep at the counter yelling out orders and tossing wads of bills.

The story has many other interesting anecdotes. It suggests to me that the models used to estimate indirect expenditures (such as that of the Economic Development Corporation) should be revisited, in light of the strategies employed by teams to capture these revenue streams.

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