Atlantic Cities

Do Basketball Arenas Spur Economic Development?

Do Basketball Arenas Spur Economic Development?
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Brooklyn’s Barclays Center, the Nets' generously tax-payer subsidized new home, was originally sold to the borough as a showcase for starchitect Frank Gehry (who ended up not designing it). It was supposed to be the anchor of a vast office and residential complex, The Atlantic Yards, which has yet to be built and will likely be downscaled. As neighborhood residents brace themselves for monster traffic jams and noisy crowds in anticipation of its September opening, a compelling new study by Geoffrey Propheter of George Washington University in The Journal of Urban Affairs sheds new light on precisely the question that should have been addressed before ground was broken: Are basketball arenas catalysts of economic development, or not?

Major public financing for arenas began in the 1950s and 1960s as older stadiums built in the early 1900s began to show signs of age. By the 1970s, a majority of major sports venues were publically subsidized. The study notes than "since 2004, voters in five cities have supported more than $1.5 billion in tax subsidies for new sports facilities or upgrades to existing ones."

Sports boosters claim the new stadiums bring economic benefits and add to a city’s "big league" status. But objective academic studies have countered this view, noting that stadiums add little in the way of actual economic benefit.

Most studies have focused on football and baseball stadiums, which are more expensive to build and less multi-purpose. Basketball arenas, with their smaller sizes and better sight lines, are better at doubling as concert venues and can often host multiple teams, including professional hockey. More are located in denser downtown areas with more going on and thus make a better economic bet.

The study is carefully done and controls for a range of factors. It looks specifically at the economic impact of basketball arenas in metro areas, with an eye to controlling for how dynamic the neighborhood or local area was already. It includes factors that control for whether arenas are located in a downtown neighborhood, and how economically robust the downtown is compared to the surrounding areas, the total number of professional sports teams in each city, and whether the team shares its arena with a hockey franchise. It runs a series of multivariate analyses on different permutations of its basic model.

The results suggest that basketball arenas do not add economic value on their own but instead are highly dependent on the local economic, social, and cultural context where they are located. The basic version of the model, covering three decades from 1979 to 2009, found "no statistically significant association between having an NBA arena or an NBA franchise and MSA regional personal income."

Though basketball arenas do sometimes seem to add to regional income, more often than not tax subsidies erase the gains. Arenas had a positive impact in Atlanta, Boston, Chicago, Denver, Indianapolis, and Oklahoma City. But this was likely the result of "income transfers from the suburban area around the central city." The study also found positive impacts for arenas built in "basketball-only cities during 1995–2009," but there was no impact for cities which are home to multiple sports.

The cities with the newest arenas took the biggest economic hit — a "decline in per capita income of about $2,430, a larger decline than in any other period, according to the study." Alarmingly, the magnitudes of the income declines in this study "are generally larger than what has previously been observed," the study finds.

The role of location and context of the arena is crucial. "[C]ontext is important for understanding the economic impact of sports facilities," according to Propheter. "However, the context that is important is not facility-dependent but rather city dependent. The pre-existing economic strength and sports infrastructure are key predictors of the success of basketball arenas."

Pegging revitalization hopes on a sports arena may be a mistake, especially in cities with struggling economies or a struggling downtown: Adding a sports franchise won’t suffice to revive a struggling core on its own. "Basketball arenas," Propheter concludes "are not primary catalysts of economic development but are instead economic complements. The present research is generally consistent with the notion that professional sports are not the cause of development so much as they are the effect."

Richard Florida is Co-Founder and Editor at Large at The Atlantic Cities. He's also a Senior Editor at The Atlantic, Director of the Martin Prosperity Institute at the University of Toronto's Rotman School of Management, and Global Research Professor at New York University. He is a frequent speaker to communities, business and professional organizations, and founder of the Creative Class Group, whose current client list can be found here. All posts »

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