The anti-subsidy argument has a lot going for it. One can question on philosophical grounds why governments should be subsidizing lucrative, billionaire-owned businesses. Today’s pro sporting events are priced so high that the average family struggles to pay for tickets and hot dogs. The touted “economic impact” of stadiums is often illusory.
Money spent in these facilities is money that probably would have been spent on entertainment elsewhere in the region. It’s merely being shifted from one type of consumption to another. The jobs being created are largely low paying and part time. Many cities are flat broke and struggle to provide basic public services. The idea of imposing special taxes to fund a luxury stadium project is, one would think, a dubious choice in priorities.
Yet there’s a flip side to the stadium argument that is rarely considered. There’s a real case that stadium and sports team subsidies actually have a positive return on investment when viewed as marketing expenses.
Consider the money cities spend on stadiums in the context of corporate spending on stadium naming rights. Corporations are seeking to maximize shareholder value. While not all of their decisions are perfect, you can be assured there’s a lot of scrutiny of any naming-rights expenditure totaling tens or hundreds of millions of dollars.
Blue-chip companies across a wide range of industries have put their names on stadiums, among them Ford, Bank of America, United Airlines and AT&T. According to the sports journalist James Bisson, naming rights in the NFL alone have increased in value by 81 percent over the last 10 years. Eleven teams are earning $10 million or more per year from naming rights. Many of these deals have total amounts well north of $100 million. Intuit signed a $500 million deal for naming rights on an arena for the Los Angeles Clippers of the NBA.
If all these companies feel that it’s good value to spend tens or hundreds of millions to put their corporate name on a stadium, then there’s a good argument to be made that cities are getting value for the money. Indeed, one of the best ways to think about stadium subsidies is as an implicit naming rights deal. What the city is really paying for is the right to have the team be named after itself. This is the best way to understand a subsidy for an expensive new facility. When Las Vegas paid $750 million towards the construction of Allegiant Stadium, that money also paid for the value to the city of changing the team’s name from the Oakland Raiders to the Las Vegas Raiders.
The value of this team naming rights deal is far greater than that of the stadium, since the full team name is used far more often in media than the name of the stadium. Consider how often the name of a city appears on television just because of sports coverage. It can easily be hundreds of times per week during the season. Everybody watching the NFL on Sunday is spending long periods of time staring at the city’s name on the screen when the score is displayed. Social media contains large numbers of mentions as well.
The cost to buying these media impressions would be enormous — certainly far outstripping the cost of the sports stadiums. This is especially valuable for small-market cities like Cincinnati or Oklahoma City that otherwise would struggle to get their names in the national press on a regular basis. Rochester and Buffalo have basically the same metro area population, but Buffalo has a stronger presence in the national mind and is seen much more as a big city, in part because it has football and hockey teams.
If we look at stadium subsidies as naming rights deals, then they arguably have a positive return on investment. So, while the arguments against pro sports subsidies are powerful, there’s another side to the story that rarely gets told. It helps explain why cities continue spending on stadiums.
