For many cities in the United States and Canada, having a professional or college sports team is highly coveted. Different cities value different sports and certain regions hold different sports in higher regard than others. Many people think that having a sport teams in their city or region is a gigantic source of revenue. However, that’s not always true. Time and time again we have seen sports franchises fold or relocate because their overall presence didn’t fit their location. For example we have seen Atlanta fail to support a National Hockey League (NHL) team twice, the Flames and Thrashers. Both teams relocated to Canada. This has happened in all of the major sports leagues. But, is a city or region necessarily dependent on these sports franchises to boost their economy? Has Atlanta’s economy declined since the Thrashers left? No. Also, let’s make sure that we don’t leave division one college football and basketball programs out of the discussion. Now, we’ll take a deeper look to see if college and professional sports teams make as big of an impact on their regions economy as we might think they do. The National Football League (NFL) is the biggest sporting draw in the United States. There is activity related to the NFL going on in fifteen cities around the United States on a Sunday at any given time during the season (30 teams play each other). Monday night is also a large draw for the NFL. Because of the massive attendance numbers and money that is spent on anything related to that game, the league provides cities around the country with continuous incoming revenue. According to USA Today’s Paul Wiseman, the NFL supports about 110,000 jobs in NFL cities, which include occupations like hotel workers and bartenders. Wiseman also says that the NFL adds over $5 billion to the economies where NFL franchises are located. As it seems, Wiseman considers anything that has to do with money spent related to an NFL game as money that the NFL provides as an opportunity to earn. Bar and grill owners around the country will tell you that the revenue earned during an NFL season will be able to support them throughout the entire year, until the next season starts. Personally, I know bar owners who change their hours during football season. They’ll open their doors at seven in the morning if their hometown team’s start time is one in the afternoon. The entire bar will be packed by ten, at the latest. These games extend everywhere into the economy. Delaware North, which is a concession food company, supplies five NFL teams with concession stand food each season, makes $24 million each season from those five contracts. That’s about $4.8 million dollars from each team that gets circulated back into the economy. Economic benefits are realized all around the country when it comes to NFL games. Because the NFL only plays once a week, the supply is low and the demand is high. Because of this high demand, fans of each team spend an exponential amount of money each week to celebrate, which adds to the surrounding economies. It’s impossible to argue with numbers like that. There are ways to justify the money that is being spent on these NFL stadiums. In 1996 a study was done on the economic impact of the Seattle Seahawks on their surrounding community. The study found that while playing at The Kingdome (their home field along with baseball’s Seattle Mariners), the Seahawks alone increased Seattle annual output by $69 million, increased Seattle’s total personal income by $41 million, created 1,264 jobs for residents, and raised $3.3 million in state and local taxes (Rappaport & Wilkerson). These numbers continued annually. As you see, hosting a professional sports franchise has certain positive impacts on the economy. As Rappaport and Wilkerson allude to in their writing, the hosting of a sports team can create jobs around the city. Jobs that can be observably linked to the franchise are usually jobs that people are hired for inside the stadium itself and outside vendors. Included in this list of jobs are jobs that are created immediately around the stadium. For example, a restaurant opens across the street from the stadium two months before the first game is held there. These jobs are an immediate impact of the new stadium because without the stadium there they probably don’t open up a restaurant. Another plus is the tax benefits that occur when hosting these franchises. It is estimated that a city hosting an NFL team recognizes around $1.9 million in tax revenue during the year (Rappaport & Wilkerson). The estimated economic gain for a city between the value of new job creation, imported sales taxes, and increased income tax is about $3 million. Obviously, this number increases as time goes on, along with the increase in tax rates. Some may consider this a very small number compared to the amount that is being shelled out in support of these teams.
Contrary to popular belief, there are problems that arise with the hosting of these NFL teams and building them new stadiums. The problem with the NFL’s impact on each city’s economy is simple. The stadium takes hundreds of millions of dollars to create. The team only plays eight home games a year, not counting home playoff games. If you break that down, that’s eight days during a five month long season where each team’s home stadium is used for the purpose for which it was constructed. The ownership of the stadium, usually the ownership of the team, now has to find a way to fill that unused time with events and find a way to make revenue while their team isn’t playing. Eight days out of each twelve month period where the stadium is being used for its actual purpose. Cities are losing money on the building of these sports teams year in and year out. The majority of the funding comes through subsidies from the local government. Taxes are raised to help raise these funds. When Jerry Jones built the Dallas Cowboys a new stadium a couple years ago the economic impact was analyzed. Jones said that the building of the new stadium would generate about $238 million in revenue per year. While this is probably not far off, he is strictly referring to the money that will be exchanged from people to businesses and businesses to other businesses (DeMause). Basically, money spent. The reality is that because of the large subsidies that the local governments give to the teams to build these stadium’s, their hands are tied with spending money on other projects. Although Jones said that his new stadium would generate $238 million a year in revenue for the economy, the city of Arlington (who subsidized the stadium) would only be seeing $1.8 million in new tax revenues because of this. That would be compared to the $20 million per year that they are giving to Jones in stadium subsidies (DeMause). Unfortunately, many cities are forced to take those losses. The loss of an NFL franchise to a city like Dallas would be huge. Although the government would be saving about $20 million, they would have to deal with a large increase in unemployment, a decrease in annual household income, and businesses shutting down. So, realistically, although the government wouldn’t be losing millions of dollars year after year, the opportunity cost of having an NFL franchise leave your city is much greater than the loss of that money.
There are examples of NFL teams making out like bandits while their city struggles to supply the team. Hamilton and Kahn (1997) did a study with the Baltimore Ravens and their economic impact in Baltimore along with the Orioles. Hamilton and Kahn (1997) recognized that the annual returns that were given back to the residents of Maryland measured up to about $1.14 million. Conversely, the annual cost for the stadium from the local government, which was earned through public taxes, was about $14 million per year. That’s almost a $13 million loss to the government. Basically, the threat to move teams out of a city, weighs heavy on the decision of local government. The city of Baltimore loves their football dearly and was devastated when they lost their beloved Baltimore Colts in 1984. Owner Jim Irsay couldn’t strike a deal with the city of Baltimore to build them a new stadium and just picked up his team and all their belongings and moved to Indianapolis in the middle of the night, literally. The city of Baltimore couldn’t economically justify spending the money on a new stadium. They saw no way that the building of the stadium would help the city of Baltimore grow more than is already had (Wilson). This was also in part with the idea that the city wanted to take ownership of the team away from Jim Irsay. Luckily, for the fans, the city accepted the fact that building the stadium wouldn’t have an overall economic gain when they decided to bring the NFL back to Baltimore in 1998 with the Ravens.
The idea is tough to handle. However, losing an NFL franchise like the Dallas Cowboys or the Baltimore Colts (now Ravens) could potentially cause problems that the city wouldn’t want to face, so they give in without much resistance. People would lose their jobs and companies around the city would go out of business almost instantly if the team left. Because the team stays business flourishes and people get to live their lives. They also don’t realize how much their city suffers because of this. The NFL is one of the largest businesses in the world. The league as a whole sees much less folding or relocation than any other sport in the United States. Diehard love from fans makes it almost impossible to move a team. Thus, concerns about the economic impact of a new NFL team on a city happen extremely rarely.
Recently, the NHL has brought up the idea of expansion again. Expansion hasn’t occurred in the NHL since the Columbus Blue Jackets and Minnesota Wild joined the NHL in 2000. Now, we’ll take a look at the economic impact a new NHL team would have in certain cities throughout the United States and Canada.
When the NHL is deciding where to expand their league, their ideas are much different than the ideas that come about in NFL, National Basketball Association (NBA), and Major League Baseball (MLB) meetings about the same topic. Unfortunately, for hockey, it is the least popular of the four professional sports leagues in the United States. For this reason, it also brings in the smallest amount of revenue. There is just about zero demand in the south for hockey. The NFL, MLB, and NBA can succeed in just about any market in the United States. There is support for each league wherever you go. The NHL has to be more careful with their ideas. The NHL would not be able to succeed in certain areas of the south like Alabama, Georgia, and Mississippi because those states are run by college football. There is a reason why Atlanta has had two NHL relocate. The same goes for states like Oklahoma, Kansas, and Kentucky. The NHL would not get any support from fans in those areas, whereas the NBA, NFL, and MLB have been able to succeed. There are places where hockey rules all, and that place is Canada. Canada comes up in expansion and relocation talks whenever the topics arise. Recently, Las Vegas has been coming up in talks for NHL expansion. That would give Las Vegas their first professional sports team. Putting an NHL team in Las Vegas is something that is considered a very risky investment by the NHL executives. The major concerns that the NHL has with the expansion to Las Vegas is what is has to compete with and what it has to deal with. There is no competition from other professional sports teams in Las Vegas, however, there is competition from the casinos and tourism. Because Las Vegas is seen more as a nighttime city than anything else, the NHL is afraid that they wouldn’t be able to attract fans. They are worried more about the fact that people would just bet on the games rather than pay to see the games. The city is able to supply everything that consumers demand when they travel to Las Vegas; gambling, nightlife, and a good time. Hockey may not necessarily meet the demand that the NHL and the franchise owners will need to have.
One of the positive notes for a Las Vegas based franchise is the fact that an arena has already been built. Unlike many other teams around professional sports, the arena in Las Vegas has been constructed strictly on private funding (Burnside). The city of Las Vegas and surrounding counties did not have to pay any money for the arena to be built. Right away that puts Las Vegas in the green to start with an NHL team. As it was mentioned earlier, the Dallas Cowboys and Baltimore Ravens of the NFL needed complete funding from their respective cities in order to build their stadiums. The tax revenues that were realized from the team activities throughout the season only offset a very small amount of what the cities were paying to subsidize the stadiums. Because the arena in Las Vegas was not subsidized by the government and public funding, any tax revenue that the city receives, it gets to put back into the community. Burnside is also quick to point out that the NHL and the city of Las Vegas are worried about that tax revenue in a certain aspect. Because of the heavy amount of tourists Las Vegas sees every year, they are worried that the tourists will not want to go to an NHL game in Las Vegas and that the area residents won’t accept the idea of an NHL team quickly. Both concerns are legitimate, as Burnside points out, because if this happens, the team could start to lose money and the whole operation could start to seem like a failure. While the NHL sees an opportunity for dollar signs with an expansion team in Las Vegas, they face a completely different scenario in Arizona. The Arizona Coyotes are the NHL’s least popular team. In 1996, the Winnipeg Jets relocated to Glendale and became the Coyotes. The NHL had an idea where they would attempt to make hockey popular along the “Sun Belt”. After being an average team in the late 1990’s and early 2000’s the Coyotes struggled. They surprised everyone in 2012 when the made it to the Western Conference Final. Unfortunately, the Coyotes saw no improvement in fan support after this historic playoff run. The Coyotes have been a struggling franchise from almost day one. After some owners sold the team several times, their most recent owner filed for bankruptcy in 2009 (the NHL approved the new ownership of the Coyotes on December 31st, 2014). Because their owner, Jerry Moyes, filed for bankruptcy, the city of Glendale was put on the hook for team expenses. In both 2010 and 2011 the city of Glendale had to pay $25 million to the NHL so that the league could manage the Coyotes franchise. The city still has an annual payment of $12 million to subsidize the arena (Jobing.com Arena). In return, Glendale only receives about $2.2 million from the Coyotes. This amount includes rent payments, ticket surcharges, sales taxes and other fees (Garofalo & Waldron). Garofalo and Waldron estimate that even if the Coyotes became the most dominant team in the NHL, the city of Glendale still lose about $9 million each year. Another problem that Glendale faces is the same problem many NFL teams face: revenue outside of their sport. Jobing.com Arena hosts 41 NHL hockey games each season (not including playoffs). That leaves 324 nights to which they need to find a way to make revenue. This can be tough will major cities like Phoenix right down the road and Las Vegas just a couple hours away competing for the same attractions (Garofalo & Waldron). Many teams in the NFL and NHL face this problem. There are rare exceptions including the Staple Center and Madison Square Garden where two or three teams call home. Those arenas have much less dates to fill to make revenue when their teams are off or away. The city also faces a problem when it comes to tourists. Unlike Las Vegas, Glendale isn’t a big draw for tourism. So, as an example, if a dad and his son attend a Coyotes game, the trip will most likely include a drive into Glendale, a dinner at a restaurant, the Coyotes game, and then the trip home. For Las Vegas you may see something a bit different. You may see a group of guys fly to Las Vegas, spend a couple nights at a hotel, spend money at a restaurant each night, attend a hockey game, gamble, and then fly home. The availability of taxation is much greater in the Las Vegas scenario because the city has much more to offer. Thus, more money is able to be earned from taxes to offset their expenses. However, a big problem for many cities is the fact that they subsidize these arenas which makes it virtually impossible to make revenue. Unfortunately, for the city of Glendale, the Coyotes have largely been a failure; even in their successful years. Both the city of Glendale and the NHL will be better off when the team relocates, which is inevitable. While a city like Glendale struggles with an NHL team, cities in Canada are begging to get more teams. Currently there are seven Canadian teams in the NHL, the most recent addition being the Atlanta Thrashers relocation to Winnipeg and becoming the Jets in 2011. Canada is the birthplace of hockey and it is their national pastime. The economy in the surrounding area of every NHL team thrives, no matter the economic conditions. Two instances occurred in back to back years where Canadian franchises had to relocate. In 1995 the Quebec Nordiques relocated to Denver, Colorado and in 1996 the Winnipeg Jets to Arizona. At this time the Nordiques and Jets were the second and third smallest sports markets in North America, respectively. For both teams the rise of the U.S. dollar against the Canadian dollar and the allowance of any player in the league to be paid in U.S. dollar instead of Canadian dollars caused problems. The big markets in Canada, Toronto, Montreal, and Vancouver, had no problem with the dollar exchange. But, it really hit the Quebec and Winnipeg franchises hard and forced them to consistently lose money from 1990 until their relocation. The love for these teams hasn’t left the region, which is why Winnipeg was able to welcome the Jets back in 2011. A large help to the Jets was that the city kept its Winnipeg Jet pride in hope that the team would return. They never really lost any fans. They have quickly became the 20th most valuable NHL franchise out of 30 teams, despite playing in the smallest market in the NHL and only being back in the NHL for three years. It is no coincidence that three of the five most valuable teams in the NHL hail from Canada; the Toronto Maple Leafs, Montreal Canadiens, and Vancouver Canucks (Ozanian). When hockey season comes around in September, the Canadian economy notices a significant increase. Hockey has a substantial impact on the Canadian economy like no other sport in the world. When the season arrives each fall, the Canadian economy shows a one percent expansion in the economy for every month that pre-season and regular season games are played (September-March). Back in 2012 when the NHL was going through half-season lockout, Canada’s “gross value added” index fell 14%, and by 15% when the NHL took a break in February for the Olympics in Sochi, Russia (CBC News). This is thousands of temporary jobs, ticket sales, and tax revenue that Canada doesn’t see which clearly affects its economy. The National Hockey League playoffs are unlike any other professional sports playoffs. Many fans of any sport will tell you this. The games become more intense, faster, and meaner in the playoffs. In Canada, the playoffs can also affect their economy. Jesse Ritchie, a bar owner and diehard Vancouver Canucks fan, owns a bar in Vancouver. During a stretch of about four to five years when the Canucks were making long playoff runs, Ritchie’s bar was a hotspot for fans to watch the game. Ritchie says that he was able to rely on revenue from Canucks game nights to make up about 70% of his bars annual revenue (Black). When the Canucks made two straight first round exits and then missed the playoffs, the hotspot Canuck bars found themselves in a less than comfortable position. Because their team isn’t in the playoffs anymore fans are likely to either spend their money differently or not spend it at all. In Black’s interview, Ritchie says that each bar just has to find a more reliable way to earn revenue until the season comes back again. After spending a long time analyzing these situations, Canadian economists have come to the conclusion that Canada is economically stable enough to bring in three more NHL franchises. Because all of the Canadian franchises are privately owned and funded, surrounding economies wouldn’t have to suffer from subsidies like the city of Glendale. For a long time there have been talks about relocating a franchise or expanding the NHL to include teams in Hamilton, Ontario and Quebec City, Quebec. The Canadian Press reports that both cities easily clear the minimum requirements necessary to host an NHL franchise. The three big requirements needed to be met are basic income, population, and corporate levels. Quebec City’s level of basic income is actually higher by over $2,000 on average than that of Montreal, who has the third most valuable team in the NHL. The biggest challenge, the Canadian Press writes, is the competition that these new franchises will face in attracting fans and corporate sponsors. The Montreal Canadiens have basically all of the fandom in Quebec while the Toronto Maple Leafs control fandom in Ontario, minus Ottawa. The addition of two new teams (with privately funded arenas) in Hamilton and Quebec City would open up more jobs for the city, allow for more businesses to grow, and bring in more tax revenue. The owners of the Ottawa Senators sustained a period of losses before they saw their team become profitable. A new team in the Ontario or Quebec province would have deal with losses in the beginning and be patient with growing a new fan base, which could take upwards of thirty years. The opportunity of the cities to put the tax revenue back into the provinces is enormous. The demand for new teams in Canada isn’t there, but the opportunity cost could be higher if they’re willing to push through the early phases of a new franchise. The cost and benefit of professional sports on their economy can be debated forever. Michael Leeds, a sports economist at Temple University studied the economic affect of professional sports teams on Chicago and stated “If every sports team in Chicago were to suddenly disappear, the impact on the Chicago economy would be a fraction of one percent.” (Bergman). The truth to this statement can only be found during the in depth research which Leeds conducted. Bill Adams of the San Diego Free Press states that there are five reasons that losing an NFL team is good for a city: keeping public assets and funds and better use of land are the two most notable reasons. I definitely agree with Adams, to a certain extent. The problem that cities are getting into is that the love for their hometown team blinds them. The cities of Arlington, Baltimore (with two teams), and Glendale really got themselves into a hole with how much they subsidized their hometown stadiums, and in Glendale’s case, the team. Conversely, since prospective teams in Las Vegas, Winnipeg, and Quebec City have funded their own arenas, your point of view changes. Those cities can see the tax revenue because they don’t have to turn around next year and throw that money and more back into their team. I believe that having a professional sports team is good for a city and is good for their economy. However, I don’t think that the cities should have to subsidize their stadiums and arenas. This subsidization can turn into sunk costs over time, and that hurts the economy.

References

Adams, B. (2015, February 15). Five Reasons Losing an NFL Football Team is Good for a City. Retrieved April 11, 2015, from http://sandiegofreepress.org/2015/02/five-reasons-losing-an-nfl-football-team-is-good-for-a-city/

Bergman, B. (2015, February 17). New NFL team would likely have little economic impact. Retrieved April 11, 2015, from http://www.scpr.org/news/2015/02/17/49831/new-nfl-team-would-likely-have-little-economic-imp/

Black, M. (2014, April 19). How dearth of Canadian teams in NHL hockey playoffs will hit local economies. Retrieved April 11, 2015, from http://www.cbc.ca/news/business/how-dearth-of-canadian-teams-in-nhl-hockey-playoffs-will-hit-local-economies-1.2612167

Burnside, S. (2015, April 8). Expansion to Vegas Worth the Gamble. Retrieved April 11, 2015, from http://espn.go.com/nhl/story/_/id/11996421/nhl-las-vegas-truly-handle-expansion-team

The Canadian Press. (2014, April 15). Economists say Canada could support three more NHL teams - Latest Hamilton news - CBC Hamilton. Retrieved April 11, 2015, from http://www.cbc.ca/news/canada/hamilton/news/economists-say-canada-could-support-three-more-nhl-teams-1.2610461

CBC News. (2014, September 23). NHL's return will boost Canada's economy, Moody's says. Retrieved April 11, 2015, from http://www.cbc.ca/news/business/nhl-s-return-will-boost-canada-s-economy-moody-s-says-1.2774174

DeMause, N. (2011, August 22). Why Do Mayors Love Sports Stadiums? Retrieved April 10, 2015, from http://www.thenation.com/article/162400/why-do-mayors-love-sports-stadiums#

Garofalo, P., & Waldron, T. (2012, September 7). If You Build It, They Might Not Come: The Risky Economics of Sports Stadiums. Retrieved April 11, 2015, from http://www.theatlantic.com/business/archive/2012/09/if-you-build-it-they-might-not-come-the-risky-economics-of-sports-stadiums/260900/

Hamilton, Bruce W., and Peter Kahn. 1997. “Baltimore’s Camden Yards Ballparks,” in Roger G. Noll and Andrew Zimbalist, eds., Sports, Jobs, and Taxes:
The Economic Impact of Sports Teams and Stadiums. Washington: Brookings Institution
Press.

Ozanian, M. (2014, November 25). The Most Valuable Teams In The NHL. Retrieved April 11, 2015, from http://www.forbes.com/sites/mikeozanian/2014/11/25/the-most-valuable-teams-in-the-nhl/

Rappaport, J., & Wilkerson, C. (n.d.). What are the Bebefits of Hosting a Major League Sports Franchise? Retrieved April 10, 2015, from http://kansascityfed.com/publicat/econrev/PDF/1q01rapp.pdf
Wilson, P. (2014, March 29). Thirty years later, remembering how Colts' move went down. Retrieved April 10, 2015, from http://www.usatoday.com/story/sports/nfl/colts/2014/03/29/indianapolis-baltimore-move-30-year-anniversary-mayflower/7053553/

Wiseman, P. (2011, September 9). Football's back: NFL is a key player in the economy. Retrieved April 10, 2015, from http://usatoday30.usatoday.com/money/economy/story/2011-09-11/nfl-economy/50339734/1