The Edifice Complex: The Economics of Public Subsidization of Major League Baseball Facilities

Abstract

Using a panel of Major League Baseball team attendance data for the period 1950 to 2003, the authors determined that after controlling for team quality and other factors, a new modern era ballpark adds 22 to 30 percent to total attendance over a 10-year period and, on average, generated present-value stadium revenues of $272 million for the franchise. Since the construction costs for the group of 14 modern ballparks averaged $99 million in private money and $198 million in public funds, there were two results with important implications for public finance. First, the revenue estimates were less than the typical cost of most modern stadiums, indicating that the projects generated positive rents for team owners only due to public subsidization. Second, the ratio of recipient benefits to subsidy expenses indicated that public spending on construction of replacement stadiums was a less effective method for subsidizing franchise owners than direct lump-sum payments. Furthermore, the preference for stadium project subsidies over cash subsidies can not be explained by the desire of local officials to improve the quality-of-play of the team. Due to non-complementarity between new stadiums and team success, team profits are maximized when an owner “pockets” increases in revenue rather than reinvesting in the team's level of on-field quality.