Development of Sports Facilities Usually Regarded as a “Net Negative” for Local Municipalities, Multi-Use Arenas Can Be the Exception

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U.S. regulators (see: FDIC, OCC) looking to rewrite the Community Reinvestment Act are considering a change that would permit banks - required by law to lend capital to businesses within opportunity zones in low or moderate income census tracts - to meet their obligations by financing “improvements to an athletic stadium” within one of the +/- 8,700 zones nationwide. The proposed change has drawn criticism from Senator Ron Wyden who is concerned that taxpayers would simply be subsidizing “handouts for billionaires with no benefit to the low-income communities this program [is] supposed to help.” The proposed change, which has yet to be embraced by The Federal Reserve, remains open to public feedback.

Howie Long-Short: The Community Reinvestment Act was written into law in 1977, but the existence of federal programs that lean on tax incentives (and grants) to encourage investment in low income areas dates back even further (see: ‘Urban Renewal’ in the 1950s, ‘Model Cities’ in the 1960s). Professor Emeritus of Economics, Stanford, Roger Noll said that “the current program is [the government’s] 9th or 10th attempt [at getting it right].” While the concept has always been noble, historically these programs have failed to generate the desired returns. “The problem has always been if you pour a lot of money into a blighted area, it results in one of two undesirable outcomes; it simply doesn’t rejuvenate the neighborhood and create greater access to jobs for the people who live there or gentrification occurs and the middle and high-income people coming in drive the poor people out.”

Scholarly research dating back to the mid-1970s shows that “sports facilities have little to no impact on economic development and that they fail to produce a ROI sufficient to justify their existence", but it’s only been over the last twenty years that politicians (like Wyden) have begun expressing their skepticism about the use of sports investments as engines of economic growth.” While municipal debt is still used to build sporting structures (see: Raiders new stadium in Las Vegas), tepid support from policy makers has made it “much more difficult [for team owners] to get direct subsidies.” Noll points out that "most new facilities are privately financed and any subsidies they may have received [have been] indirect” (think: exempt from property taxes, free land or infrastructure).

The way stadiums and arenas are being constructed today (see: SoFi Stadium, Chase Center, SunTrust Park) - integrated as anchor tenants within a greater neighborhood development project - is different than the way venues were built throughout the 80s and 90s (think: in the middle of a vast parking lot far from the city center), which makes them more economically viable for the local municipality than generations past. The change in philosophy doesn’t absolve the issues associated with gentrification, but constructing free-standing businesses in and around the venue can prevent the building from becoming “an economic black hole”; and Noll says that “if there’s a lot of events going on inside the facility (i.e. does not apply to NFL stadiums), that the venue can actually enhance the value of the [neighboring] investments. The push to expand CRA legislation to include sports facilities has been sparked by the relative success of this trend.

I say relative because even when a city manages to create a viable set of new businesses and housing around a venue, the development of a sports facility - especially when it’s not a multi-use arena that’s being used 250+ days/year - is still “usually regarded as a net negative.” Noll believes that the proposed legislation could be altered to ensure direct public subsidies were limited to the construction of new arenas that are integrated into larger projects (i.e. not artificial improvements), but “the language would not be 100% effective because it’s simply too hard to describe in legislative terms what a good investment is (see: Barclays Center, Capital One Arena, Golden 1 Center) versus a bad one (LA Memorial Sports Arena).” Remember, much of the success (or lack thereof) associated with these venues as economic drivers is circumstantial (think: whether or not the market has another building capable of holding 20,000 people for concerts and events). The Stanford professor advises lawmakers to avoid the inclusion of sports facilities when making changes to the CRA. “Municipalities will make fewer mistakes that way, then trying to thread the needle.”

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