Beyond Economic Impact: An Alternative Rationale for the Public Subsidy of Major League Sports Facilities

Abstract

Government contributions to the funding of major league facilities ipso facto recognize that some portion of the benefits accruing from such facilities accrue to the public in general, rather than being captured exclusively by the franchise owner. The challenge for facility advocates is to demonstrate the return on investment to the taxpayer. This has been elusive. The canard that substantial returns accrue from the direct economic impact of visitors to games has been discredited. A taxonomy of four alternate sources of spillover benefits that are most frequently cited is proposed: increased community visibility; enhanced community image; stimulation of other development; and psychic income. Justifications using to the first three of these alternates are conceptualized as focusing on external audiences, with the intent of encouraging their investment of resources in the community. In some contexts, some economic benefits may accrue from these sources, but in most cases they cannot be demonstrated to be sufficient to justify the taxpayers’ investment. It is argued that psychic income, which focuses internally on the benefits received by existing residents in the community, is likely to be key to justifying public subsidy of major league facilities. It is suggested that the contingency valuation method is an appropriate approach for measuring the psychic income provided by a professional sport franchise.