The Economics of Stadiums and Convention Centers

If you’re from the Indianapolis area, you’d have to be comatose to not know about the two major Indianapolis initiatives currently being floated: Indy Works, a plan to consolidate redundant city and county agencies, and the planned new convention center and football stadium for the Indianapolis Colts. Not surprisingly, the latter plan has an edge in local attention, especially given veiled threats that the Colts would move out of Indianapolis to get their new stadium. Property taxes and city services are one thing; the loss of a sports franchise in sports-crazed Indiana is quite another.

The theory is that the Colts provide both prestige to Indianapolis and a positive economic impact, and that an expanded convention center would pull in more conventions, generating even more economic benefits. Some studies seem to back up these claims, although others are skeptical. With the governor now behind the project, it looks like a done deal, so skeptics will have to content themselves with future vindication if the project doesn’t do well.

I was reminded of all this when surfing the site of the City Journal. Their current online articles include an article on development on the Far West Side of Manhattan. A rather dry and distant article became quite relevant when it turned to the disappointment of the Javitz Center:

Meanwhile, across America other cities were rushing to build or expand their convention centers, completing more than 200 projects in the 1980s and 1990s despite a growing glut of space. The result has been catastrophic. Since the late 1990s, the U.S. convention business has declined 40 percent. Cities that spent hundreds of millions on their convention centers are getting little or no payback. Boston’s new center will attract 50,000 visitors during its first year in operation, only one-sixth of original projections. Attendance at major events in Chicago is half of what it was in 1993, though the city spent nearly $1 billion to expand its center. “The overall convention marketplace is declining in a manner that suggests that a recovery or turnaround is unlikely to yield much increased business for any given community,” according to a Brookings Institution report by Professor Heywood Sanders.

Javitz appears to have had other problems, including a mob takeover of the project and its subsequent management; we would hope that Indianapolis could avoid those problems here. But a centerpiece of the plan New York City Mayor Michael Bloomberg is putting together involves Javitz as the center of New York’s Olympics bid for 2012, which prompted this bit of pessimism:

But convention centers, for all their hype and cost, aren’t the most unproductive publicly financed urban megaprojects, by any means. That honor goes to stadiums and arenas, with their big subsidies to rich team owners and rich players. Starting in the late 1960s, municipalities began churning out these facilities, thinking that they would generate additional tax dollars and prompt new economic activity, even in moribund neighborhoods. In the last three decades, cities and states have built 40 publicly subsidized stadiums and 52 arenas.

The one thing that is not controversial about these facilities is their low worth as economic engines. As Smith College economist Andrew Zimbalist has written: “Few fields of empirical economic research offer virtual unanimity of findings. Yet independent work on the economic impact of stadiums and arenas has uniformly found that there is no statistically significant positive correlation between sports facilities construction and economic development.” At least ten economists have reached the same conclusion, largely in peer-reviewed work, so that, as one reviewer of the literature recently noted: “It is virtually impossible to find an independent economist who views sports facility subsidies as good investments in local economic growth.”

So what do we find as the centerpiece of the Far West Side plan? A stadium/convention-center complex joining together what are universally recognized as two of the worst economic-development engines in urban planning. How we got to this point is a case study of the propensity of government leaders, prompted by their own grandiose ideas and urged on by self-interested executives, to pervert the best-intentioned plans.

Obviously, there’s a lot more going on in New York than in Indy. The land in question in New York is waterfront property that’s clearly underutilized; the land here is typical Midwest fare, and is neither clearly fallow nor as clearly lucrative as oceanfront property in America’s largest city. Indianapolis has no Olympic dreams, either, to both justify investment and complicate post-event use of the land. Still, if there is doubt New York can turn a convention-center-and-stadium plan into a winner with New York’s population and an Olympic bid, what does this say about our plan?

Of course, the one factor that can make this succeed: we have the Colts, and they have the Jets. Perhaps Peyton Manning can throw the plan into success. But if not, how much will an already straining Indiana suffer to afford all this?