17 - Public Sports Public Finance

Question 1

Why can’t we observe market prices for the public benefits of sports?

Answer 1

Because these are non-market goods like civic pride, and there is no existing market to price them.

There is no market for the non- economic public benefits produced by sports.
– E.g. The civic/school pride associated with having a football team/program.
* Since there is no market, it is impossible to observe peoples’ willingness to pay for certain public goods.

Question 2

What is the Contingent Valuation Method (CVM)?

Answer 2

A survey-based approach to estimate people’s willingness to pay (WTP) for non-market public goods, such as clean air or the presence of a sports team.

Question 3

What is an example of a non-economic benefit from sports?

Answer 3

School or civic pride, emotional attachment to a team, or a sense of identity within a community.

Question 4

Why is CVM useful in sports economics?

Answer 4

It allows economists to assign monetary values to the intangible benefits of keeping a team or hosting an event.

Question 5

What was the basic setup of the Jacksonville Jaguars CVM survey (2002)?

Answer 5

Residents were asked if they would pay $40/year for 20 years ($800 total) in taxes to keep the team from moving.

Question 6

What did the randomized version of the survey do differently?

Answer 6

It varied the payment amount across respondents to estimate the distribution of willingness to pay.

Question 7

What can economists calculate by surveying enough people with different prices?

Answer 7

The average value the population places on keeping the team — a proxy for its non-market value.

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Question 8

What is hypothetical bias in CVM?

Answer 8

People often overstate their willingness to pay in hypothetical scenarios compared to real behavior.

Question 9

What is temporal bias in CVM?

Answer 9

Difficulty in accurately discounting future payments, which can distort long-term valuations.

Question 10

Why are complex policies hard to value with CVM?

Answer 10

It’s difficult for respondents to understand or assign a value to multi-stage or multi-component policies.

Question 11

Why is sampling a problem in CVM?

Answer 11

It’s hard to determine who should be surveyed, especially when benefits are widespread or indirect.

Who to sample?
– E.g. Who exactly benefits from Notre Dame football?

Question 12

What is sample response bias in CVM surveys?

Answer 12

Low response rates or unrepresentative samples can distort the results.

Sample response bias
– Often very low & potentially highly selected

Question 13

What do most CVM studies show about the public’s valuation of sports?

Answer 13

The average valuation is often much lower than the actual public funds used to support teams or build stadiums.

Also, in most CVM studies measuring the value of sports events, or teams, indicate valuations much lower than the public funds often used for the same situation.

Question 14

What does this mismatch suggest?

Answer 14

It raises concerns about inefficiency in sports subsidies — public funds may exceed the public’s actual willingness to pay.

Question 15

Does zero economic impact mean sports have no value?

Answer 15

No — they may still have non-economic benefits worth supporting.

Question 16

What should policymakers recognize about sports subsidies?

Answer 16

That not everyone benefits, and that there are opportunity costs — public money could go elsewhere.

Question 17

What is the economist’s critique of public policy discourse on sports?

Answer 17

Policymakers often oversell economic benefits and understate the true trade-offs involved.

Question 18

What are some indirect ways governments fund sports facilities?

Answer 18

Targeted sales taxes (e.g., hotel, rental cars), user fees (ticket surcharges), sin taxes (alcohol, tobacco), lottery revenue, tax rebates or deferments, donated land/assets, infrastructure support (e.g., public transit).

🏟️ 1. Tax-Exempt Bonds
How it works: Cities issue municipal bonds to raise money for stadium construction. These bonds are tax-exempt, meaning investors don’t pay federal income tax on interest earned.
Effect: Reduces borrowing costs for the project, making it cheaper for teams or cities to finance construction.
Hidden cost: The federal government loses tax revenue, which is essentially an indirect subsidy.
🌆 2. Infrastructure Improvements
How it works: The government pays for roads, highways, public transit, sewers, lighting, and landscaping around the stadium.
Effect: Lowers the team’s costs by covering necessary improvements the team would otherwise fund.
🧾 3. Tax Breaks & Abatements
Types:
Property tax abatements: Teams may not have to pay property taxes on the stadium.
Sales tax exemptions: Construction materials or tickets might be exempt from sales tax.
Income tax incentives: Players or owners may get breaks if local laws are adjusted.
💸 4. Land Transfers or Below-Market Leases
How it works: The city provides public land for stadium use, often at low or zero rent.
Effect: The team gets valuable land without buying it, sometimes in prime urban locations.
🏙️ 5. Revenue Guarantees
How it works: The city might guarantee a certain level of revenue through ticket sales, naming rights, or parking fees—even covering shortfalls.
Effect: Reduces risk for the team or private investors.
💼 6. Opportunity Cost of Public Land Use
Even without giving cash, using public land for a stadium means that land isn’t being used for housing, parks, schools, or private development that could generate more tax revenue.
🛡️ 7. Police, Security & Game-Day Services
Local governments often provide security, traffic control, and emergency services on game days at no cost to teams.

Question 19

What are municipal bonds in sports finance?

Answer 19

Cities borrow money to finance stadiums and repay it over time using public funds.

Question 20

What’s problematic about municipal bonds?

Answer 20

Federal taxpayers indirectly subsidize local sports spending through tax-exempt interest on the bonds.

Question 21

What is the biggest hidden cost of sports subsidies?

Answer 21

Opportunity cost — public resources used on sports could be used for schools, health care, or transit.

Question 22

When is public financing of sports socially optimal?

Answer 22

Only when sports are the best possible use of the resources — which is rare.

Question 23

Why do mega-events like the Olympics create urgency?

Answer 23

They impose a strict deadline that accelerates infrastructure projects.

Question 24

What is the problem with this deadline pressure?

Answer 24

It leads to cost overruns, poor bargaining power, and often wasteful spending.

Question 25

What is a “disagreement payoff”?

Answer 25

The cost of failure to meet the event deadline — often very high, giving contractors leverage to raise prices.

Question 26

What is a policy brief?

Answer 26

A short, practical research summary designed for non-academic audiences, often including policy recommendations.

Question 27

What are the key features of a policy brief?

Answer 27

Clear issue, focused progression, summary of literature, key takeaways, policy prescriptions.

Question 28

If sports aren’t great investments, why do governments still fund them?

Answer 28

Due to political incentives: public pressure, civic pride, media hype, and lobbying by teams.

Question 29

What’s a common theme in sports subsidies?

Answer 29

Symbolic value and public sentiment often outweigh rigorous cost-benefit analysis in policymaking.

Question 30

How do municipal bonds work?

Answer 30

Municipal bonds are debt instruments issued by local or state governments to raise money for public projects — like stadiums. * The government borrows money from investors and promises to repay it over time with interest. * These bonds are often tax-exempt, meaning investors don’t pay federal income tax on the interest earned. * Repayment usually comes from future tax revenues or specific public fees (e.g., hotel taxes, ticket surcharges).

Question 31

How do the teams benefit from municipal bonds?

Answer 31

Sports teams benefit from municipal bonds because: * The stadium gets built or renovated using public financing, often at little to no direct cost to the team. * Teams typically lease the stadium from the city at below-market rates. * They often retain revenue rights (e.g., ticket sales, naming rights, concessions), despite the facility being publicly funded. * This arrangement increases team profits without tying up their own capital.

Question 32

How does the Federal government pay municipal bonds?

Answer 32

The federal government subsidizes municipal bonds indirectly by: * Exempting bond interest from federal income tax for investors. * This reduces the federal tax base, effectively making all U.S. taxpayers help subsidize local sports stadiums, even if they don’t benefit from them. * 📉 Example: A high-income investor buys tax-free municipal bonds instead of taxable corporate bonds. The lost tax revenue is a federal subsidy to the stadium project.

Question 33

Why is this financing method arguably problematic? | municipal bonds

Answer 33

It’s problematic because: It shifts financial risk and cost from private sports franchises to taxpayers. The tax-exempt status means federal taxpayers are paying for local stadiums they may never use. It creates hidden subsidies rather than transparent policy decisions. The money used for stadiums often has better alternative uses (opportunity cost), like education or infrastructure. Empirical research shows that stadiums rarely produce the promised economic returns.

Question 34

What are other ways in which sports facilities/teams are publicly financed?

Answer 34

Besides municipal bonds, governments use a variety of indirect methods: * Targeted sales taxes (e.g., hotel, rental cars, restaurant taxes) * User fees (ticket surcharges or facility usage fees) * Sin taxes (on alcohol, tobacco, etc.) * Lottery or gambling revenues * Tax rebates, grants, or deferments * Incremental tax financing (only taxing new revenue growth post-stadium) * Donated land or assets * Government-owned facilities rented cheaply to teams * Public services provided for free (e.g., police, transit, parking)

Question 36

What are targeted sales taxes and how are they used to finance sports?

Answer 36

These are taxes on specific goods or services, such as rental cars, hotels, and restaurants, often levied in tourist-heavy areas to fund stadiums.

Question 37

What are user fees in the context of sports financing?

Answer 37

These are surcharges on tickets or event-related purchases that directly pass costs to attendees.

Question 38

What are sin taxes, and how do they relate to sports funding?

Answer 38

Taxes on goods like alcohol and tobacco that are used to raise revenue for public projects, including stadiums.

Question 39

How is lottery or gambling revenue used in sports finance?

Answer 39

Governments allocate a portion of funds from state lotteries or gambling to cover costs of sports facilities.

Question 40

What is new or incremental tax revenue?

Answer 40

Taxes that are levied only on additional economic activity (e.g., new restaurants, retail near a stadium) after the facility is built.

Question 41

What are tax rebates, grants, or deferments in this context?

Answer 41

Financial incentives like delayed tax payments or direct government grants to reduce the cost of stadium development.

Question 42

How are municipal bonds used to fund sports facilities?

Answer 42

Cities issue debt to fund stadiums, repaying it over time using public funds — often subsidized by federal tax exemptions.

Question 43

What does donated land or assets mean in public sports financing?

Answer 43

Governments provide free or discounted land, buildings, or infrastructure for teams to use.

Question 44

How does the government use ownership/operation of facilities as a financing method?

Answer 44

The government builds and owns the facility, then rents it to the team at below-market rates.

Question 45

What are infrastructure/public service costs in sports financing?

Answer 45

Cities often cover costs for transit, parking, policing, and utilities that directly support sports venues.

Question 46

What is meant by the opportunity cost of public financing in sports?

Answer 46

It’s the value of the next best alternative use of public resources that are instead spent on sports teams or facilities.

Question 47

Why might opportunity cost be the biggest cost to the public?

Answer 47

Because resources like tax revenue, land, and services used for sports could be spent on schools, hospitals, or transit.

Question 48

What are some public resources that have alternative uses?

Answer 48

Incremental tax revenue, tax rebates, donated land or buildings, infrastructure support.

Question 49

When is public financing of sports considered socially optimal?

Answer 49

Only when investing in sports is the best possible use of those public resources compared to all other options.

Question 50

What is one argument in favor of hosting mega sporting events?

Answer 50

That the event creates a strict deadline that motivates the timely completion of public infrastructure projects.

Question 51

Why is this considered an expensive way to motivate completion?

Answer 51

Because it often results in cost overruns, rushed work, and poor negotiation leverage for the host city.

Question 52

What happens to the host’s bargaining power as the event approaches?

Answer 52

It weakens, because the cost of failure (disagreement payoff) becomes too high, making the host more likely to agree to expensive last-minute deals.

Question 53

Why are cost overruns common with event-linked infrastructure projects?

Answer 53

Because tight deadlines and pressure to complete projects lead to inefficient spending, and vendors exploit the host’s urgency.