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If You Build It, Nothing Really Comes

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Few states have been hit as hard by the current economic problems as the state of California. In September, the unemployment rate was 12.2% and the budget problems in this state have made national headlines. Most economists -- as Gregory Mankiw notes -- agree that when an economy is not at full employment, some sort of government stimulus can make things better. So it's not surprising to see Governor Arnold Schwarzenegger sign legislation that will create thousands of jobs.

A few weeks ago Schwarzenegger signed legislation that will allow construction of a new NFL stadium in the Los Angeles area. This stadium -- according to developers -- will generate 18,000 jobs and $320 million in salaries for residents. And the stadium won't cost any tax money. All Schwarzenegger had to do is suspend a few pesky environmental laws, laws that were clearly holding back California's efforts to rebuild the state economy.

With such bold leadership, one suspects that it won't be long until the economy in California is back. There's only one tiny problem in this tale. Economists -- as noted -- almost all agree that government can take action to move an economy back to full employment. Economists, though, almost all agree -- as Gregory Mankiw notes -- that building sports stadiums is not the way to do this.

Consider the words of Brad Humphreys -- current President of the North American Association of Sports Economists (NAASE) -- and Dennis Coates, the first President of NAASE (from an article published in Econ Journal Watch).

There now exists almost twenty years of research on the economic impact of professional sports franchises and facilities on the local economy. The results in this literature are strikingly consistent. No matter what cities or geographical areas are examined, no matter what estimators are used, no matter what model specifications are used, and no matter what variables are used, articles published in peer reviewed economics journals contain almost no evidence that professional sports franchises and facilities have a measurable economic impact on the economy.

Robert Baade -- current President of the International Association of Sports Economists (IASE) -- was the first to question the idea that sports can generate a significant economic impact. Initially Baade was the lone voice speaking in the wilderness. But more than two decades after Baade got the ball rolling, a number of economists -- using a host of different data sets and empirical techniques -- have reached Baade's conclusion. Cities with sports facilities don't see higher rates of economic growth. And cities with sports facilities don't see more jobs. Simply put, stadiums have never been shown to be an economic stimulus.

Why do sports facilities fail to have an economic impact? One must remember that sports are simply one potential part of a person's entertainment budget. When a person chooses to spend more on sports, that person also chooses to spend less elsewhere. And that lost spending elsewhere will cost jobs.

Then there is the very nature of sports stadiums. If an NFL team moves to L.A., it will host eight regular season games and perhaps a couple of pre-season contests. What will that building generate for the other 350+ days of the year? Or, exactly how many times will the Rolling Stones choose to have a concert at that L.A. facility?

Finally, there's the issue of who is going to play in L.A. The plan is to attract an existing team to L.A.; and the list of potential teams includes the San Diego Chargers, Oakland Raiders, and San Francisco 49ers. A quick check of the map reveals that each of these teams is located in California. So how it would help the state of California by re-locating a team within the state? If teams and stadiums do generate jobs, won't moving a team out of San Diego, Oakland, or San Francisco cost jobs?

All of this suggests that the promises made by the backers of this stadium are unlikely to be realized. And this means that the state of California is suspending its environmental laws to... enrich backers of the L.A. Stadium? Yes, that doesn't sound like much of an economic stimulus. Perhaps before signing this legislation, Governor Schwarzenegger should have talked to just a few Presidents.

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