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Arena subsidies: Not just for big cities anymore

2011 May 18
by Victor Matheson

While the huge subsidies handed out for new facilities in the big leagues get the most press here at the Sports Economist, yesterday the New York Times published a piece on the rash of failing arenas in small and medium sized towns.

The lead of the story concerns the plight of Rio Rancho, NM, a small city of 90,000 located 20 miles north of Albequerque. 

The arena, which Global Entertainment said would be profitable in a year, has lost so much money that Rio Rancho has had to spend millions of dollars each year to keep it afloat… eating into the city’s already tight budget and pushing lawmakers to eliminate jobs and cut costs, including asking police officers to buy their own practice ammunition.

“If you look at the numbers that Global Entertainment presented to us, it was really, really questionable then, let alone during a recession,” said James C. Jimenez, the city manager in Rio Rancho, who was hired after the arena foundered. “If we didn’t have to allocate the money for debt service, our employees would have had raises and our budget would be in a better position.”

Rio Rancho is not alone in trying to salvage an arena opened by a growth-hungry town smitten with sports. Global Entertainment, based in Tempe, Ariz., persuaded nine other cities, including Youngstown, Ohio; Hidalgo, Tex.; and Wenatchee, Wash., that it could build them an arena, sell everything from tickets to hot dogs, and book enough events to turn a profit. Yet in most cases, Global failed to meet its financial projections and was replaced, leaving the cities to pay for expensive arenas that they often have had no experience running.

I don’t have much to add to the sad tales of woe documented by the NYT, but it sure would be nice if some economists looked into the issue of whether stadium and arena subsidies make any economic sense.

(Thanks to Miles Cahill for pointing out the NYT article.)

4 Responses
  1. Barry Duffman permalink
    May 19, 2011

    I live in one of the areas listed in the article. While I enjoy having the opportunity to watch hockey and indoor football, I was skeptical of the idea when I heard about it. In reading more and more about Global Entertainment, the situation reminds me of the Monorail episode from The Simpsons. Small towns are feeling good about themselves with the economy rolling and a slick talking company comes in and sells them on this great idea that will put them on the map. A few years later, the company is long gone and the towns are stuck footing the bill.

  2. Dan permalink
    May 20, 2011

    There is one Economic Impact Statement that makes the rounds to all cities, large and small, to justify the cost of arenas and stadiums. They are never read in full by politicians or voters (I wonder how many are printed with someone forgetting to substitute the name of the new city for the old city without anyone noticing). Only the summary stating X millions of dollars will be generated is quoted by politicians and developers.

    No one goes to North Haverbrook to see how accurate that damn Economic Impact Statement really is.

  3. Victor Matheson permalink
    May 22, 2011

    The wisdom and intelligence of thesporteconomist readers never fails to impress me. Two perfect Simpsons references in back to back comments.

  4. Greg Pinelli permalink
    May 23, 2011

    The bottom line for all these arenas, wherever they are built, is that unless the teams themselves are paying the costs the public is being sold a bill of goods. Here is just one small example of cost..benefit. The City of San Jose in California has been hot to attract the Oakland Athletics.
    Oakland has no money..and Lou Wolff is repulsed by the idea of spending his own..sooooo

    San Jose has spent about $30 million to date on the effort. Just how many $15 hr service jobs held by how many people or how long adds up to $30 million???? Let’s see..$30 million builds several new libraries…hires 600 teachers at 50K a year for a year…you get the picture.

    The picture in Santa Clara is probably much worse…and all that is to pay the freight for an enterprise that will STILL BE CALLED THE SAN FRANCISCO 49ERS!!?

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