Minor League Baseball and Local Economic Development.

Siegfried, John J.

This book addresses three public policy issues: (1) How cities make decisions to construct sports stadiums; (2) The extent to which municipal development strategies affect decisions to build stadiums and acquire minor league baseball teams; and (3) The value of a minor league baseball team to the economic vitality of a community. Because you are reading this review in an economics journal I focus on only the third question.

After an overview of minor league baseball franchises and how they relate to their host cities and major league baseball, the book reports on 15 case studies of minor league baseball. It concludes with a summary of the political economy of minor league baseball. One can profit considerably from reading just the first 53 pages of this book, which include the excellent introductory material and the first (and best) case study in the volume, describing Fort Wayne's refusal to provide public support for a minor league baseball stadium in the late 1980s.

Johnson provides income statements for the AAA league teams from Columbus and Toledo, Ohio, and Indianapolis. The average annual gross revenue of these three teams (at the highest minor league level), including ticket receipts, playoff money, advertising and parking revenue, and net income from concessions and radio broadcast rights was $1.42 million for 1988, only a bit more than the average drugstore in America that year (49,570 drugstores averaged 1.1 million gross revenue in 1987). This is less than three percent of the typical gross revenues of a major league team in 1988. There is clearly a chasm between even the highest level of minor league baseball and the major leagues.

Advocates of municipally owned baseball stadiums almost always argue that a publicly financed stadium is required to acquire or retain a franchise, and the franchise is worth the taxes required to finance the stadium because it increases regional economic prosperity. The necessity for a publicly owned stadium in order to secure or retain a team appears to be as true for minor as for major league baseball franchises. Limitations on league expansion have allowed both major and minor league baseball owners to successfully exploit scarcity by threatening to move franchises to other localities in the event they do not receive municipal subsidies. The vast majority of minor league stadium leases are for fewer than five years, affording teams frequent opportunities to return to the public trough with such requests long before the bonds on a stadium are retired. Seventy-five percent of cities with minor league teams who responded to a survey Johnson conducted reported that within only a three year period in the mid 1980s they received demands from their minor league baseball franchise for increased financial support. Of the 70 municipalities targeted with such demands, 28 were threatened explicitly with franchise relocation if they failed to deliver more subsidies to the team. In fact, 35 minor league baseball franchises did relocate between 1987 and 1992, making the threats quite credible.

Eighty-one percent of major league [2,129] and 95 percent of minor league baseball stadiums are now publicly owned. Sixteen new publicly financed minor league stadiums opened between 1988 and 1990, costing about $3 million each, which provokes the question: Why do city governments provide stadiums for sports teams and not provide the classroom buildings for private colleges or the plants for meat-packers?

I believe the answer lies in the second part of the argument advanced by stadium advocates - the proposition that stadiums and the teams they attract generate economic prosperity. In spite of rosy economic impact studies of stadium projects presented to city council members across the country, however, economists have been able to find no evidence to support this proposition at the major league level [2; 1].

The paradox revolves around the poor quality of the economic impact studies. Johnson describes many of the usual sins. These studies more often than not use impractical multipliers, assume that all tickets are sold to non-residents, ignore the opportunity cost of taxes used to fund stadium construction, deify job creation even when unemployment rates threaten to ignite inflation, and assert (rather than argue) that the psychological benefits of being a "big-league city" are large.

The case for economic development arising from a minor league baseball team, however, is far weaker than that for major league teams, which, in turn, seems to be zero. First, the gross revenues of a minor league team are two orders of magnitude less than a major league team. Second, few people drive long distances to see minor league baseball, causing most of the revenues to come at the expense of alternative local entertainment expenditures. Third, employment at minor league baseball parks is seldom less than a few dozen full-time people plus a number of poorly paid part-time game attendants. Fourth, it is questionable whether the psychological benefits of being a "minor-league city," or a "bush town" as some would say, compare favorably to the image of a "big-league city." And yet 85 percent of government officials interviewed by Johnson reported that minor league baseball is important to their communities.

The inconsistency can be resolved if a minor league baseball franchise is viewed not as an economic development project, but rather as an alternative entertainment opportunity for local residents, some of whom gain considerable consumer surplus from the availability of entertainment for which they have inelastic demand. This perspective would also divert attention from another irrelevant debate that frequently accompanies consideration of a publicly funded stadium - whether additional tax revenues received by the municipality will cover construction costs. This debate is irrelevant because tax revenues do not reflect in any way the benefits a stadium and team bring to local residents. Ticket revenue that is not taxed and consumer surplus that cannot be taxed represent real benefits in terms of willingness and ability to pay that go far beyond tax revenue.

The real reason there is so much enthusiasm for major league sports franchises by local government officials is that the acquisition is a sufficiently discrete high visibility activity to afford a political payoff. The costs are spread among a large number of taxpayers, each of whom has too little at stake to invest in opposing stadium proposals. It is surprising that this phenomenon carries over to minor league baseball, which hardly can contribute much to image building for a city, and has an economic impact equivalent to a large pet shop (the 122 largest pet shops in the U.S. grossed an average of $1.4 million in 1987). The fact that a good number of the cities have screwed up their courage sufficiently to "just say no" (e.g., Fort Wayne, Indiana; Charlotte and Durham, North Carolina; Colorado Springs, Colorado; Fort Lauderdale, Florida) would be encouraging if there were not so many others who did not. Many of those that said yes found creative funding mechanisms that allowed them to circumvent a referendum. It should not be overlooked, however, that the mayors of many of the cities that did proceed to build a new minor league baseball stadium with taxpayers' money in the late 1980s lost the subsequent election. There is all of this, and much more, in this interesting volume.

References

1. Baade, Robert A., "Stadiums, Professional Sports, and Economic Development: Assessing the Reality." The Heartland Institute, 62 (April 4, 1994).

2. Quirk, James C. and Rodney Fort. Pay Dirt. Princeton, New Jersey: Princeton University Press, 1992.

John J. Siegfried Vanderbilt University