Sports stadiums and local economic activity: Evidence from sales tax collections

ABSTRACT

Though most studies find that sports stadiums are not strong drivers of economic activity in metropolitan areas, localized development effects may be sufficient to justify public subsidies for a host municipality if circumstances are favorable. This analysis examines the economic ramifications of an intra-metropolitan area relocation of Atlanta’s professional baseball team from a traditional standalone downtown stadium to a new stadium-anchored mixed-use development in suburban Cobb County. Using the synthetic control method, the study employs metro-Atlanta counties to construct a counterfactual outcome for estimating changes in sales tax revenue after the ballpark opened. The findings indicate a net increase in taxable sales in the county; however, the magnitude of the effect is small and not statistically significant. Though net new spending is evident, approximately one-third of the project’s sales appear to derive from crowding out other local economic activity. In total, added tax collections fall well short of covering the public subsidies provided by Cobb. The stadium’s limited economic impact, despite its favorable location and ancillary mixed-use development, further supports past findings that sports venues are poor investments as economic development projects.

KEYWORDS:

• Local economic development
• sports stadiums
• sales tax revenue
• economic impact
• synthetic control method

Disclosure statement

The author is a faculty affiliate of the Bagwell Center for the Study of Markets and Economic Opportunity at Kennesaw State University. The author serves as an appointed member on the Development Authority of Cobb County, which often participates in development projects in Cobb County, including projects that involve ANLBC. This project is unrelated to his role on this County government committee (which is uncompensated), and he has no financial interest in any related project. The author is solely responsible for the content in this article. No party had the right to review the paper prior to its circulation.

Notes

1. The stadium was initially named SunTrust Park, but it was rechristened as Truist Park in 2020 after its naming-rights sponsor changed its name. I use the stadium’s current name to avoid confusion.

2. The extent of the search is unknown, but ANLBC executive Mike Plant stated that the franchise initially considered 30 sites in the Atlanta area; but, it ultimately considered six sites feasible, three of which were in Cobb (Murphy, 2019c). Specifically, Plant stated the club investigated an alternate site near Doraville, Georgia on the northeast corridor of Atlanta (Murphy, 2019a).

3. Georgia Tax Center (2020) provides files for download by county over time. Sales taxes are authorized by county governing authorities, and revenues may be distributed to municipalities according to agreed-upon distribution formulas. I aggregate returns by county to include county government and sub-jurisdiction distributions. Revenue derives from all classifications of sales taxes, but the main taxes employed by counties are special local option sales taxes (SPLOST), which flow to the county’s Board of Commissioners, and education local option sales taxes (ELOST or ESPLOST), which flow to local school districts. Cobb only employs SPLOST and ELOST, which are limited to funding specific capital projects and must be approved by referendum. I do not include “pro rata” distributions, which are proceeds from unprocessable sales tax collections that are distributed to all sales tax jurisdictions on a pro rata basis, and thus do not reflect taxable sales in the county during the preceding period. See, Buschman (2021) for a summary of Georgia’s sales taxes.

4. Monthly distributions are primarily derived from the sales during the previous month (e.g., July 30th distributions are for the month of June from reports filed by taxpayers by July 20); however, distributions may include funds from earlier sales periods.

5. Alternate estimates using monthly observations produce RMSPE three times higher than quarterly estimates, averaged to the monthly mean over the quarter so that the errors are on comparable scales.

6. Though the MLB season roughly spans April through September, it occasionally includes a few games in March or October. During the sample, Truist Park hosted three regular-season games from March 29 to 31 in 2018. Truist Park hosted two postseason games in October 2018, and three postseason games in October 2019.

7. Income and population data from Bureau of Economic Analysis (2020). Square milage from Atlanta Regional Commission (2020). Sales tax rates complied from Georgia Department of Revenue (2020). Linear distance from Turner Field calculated using Google Maps.

8. Estimates that include the counties that increased tax rates generated synthetic control estimates that were significantly greater than Cobb, and thus indicate decreased sales tax revenue following the stadium opening. In particular, DeKalb increasing its sales tax rate in 2018 corresponds with a noticeable increase in the synthetic control. This deviation highlights the importance of robustness checks discussed in Section 4.4.

9. Team owner Liberty Media (various years) reports that The Battery’s ancillary mixed-use development (separate from the stadium) generated $15 million in revenue in 2017 and $38 million each in 2018 and 2019. This change is consistent with reported growth from 20 to 50% of capacity in 2017 and approaching operational capacity by 2018. Reported revenue also reveals that the mixed-use portion of development revenue is small relative to revenue derived from the stadium. The team’s baseball revenue derives from three primary sources: ballpark operations, broadcast rights, and shared MLB revenue streams. From 2017 to 2019, the teams’ baseball revenue averaged $404 million per year. In 2020, when the stadium was not open to spectators, baseball revenue declined to $142 million. Therefore, a reasonable estimate of revenue generated from ballpark operations is approximately $262 million ($404 – $142). This translates to non-ballpark development revenue representing approximately 13% of the combined development revenue [$38/ ($262+$38) = 0.13]. Birnbaum (2021) reports stadium activity generates approximately 39% of average MLB team revenue, which translates to $158 million for ANLBC. By this metric, $38 million represents 19% of combined development revenue ($38/ [$158+$38] = 0.19).

10. I also explored potential stadium effects using sales tax revenue that is disaggregated into sub-categories by the Georgia Department of Revenue (2021). However, the sub-categories are aggregated to include economic sectors that are likely substitutes (e.g., the “Food and Bar” category includes grocery and liquor stores as well as restaurants and bars) and largely unrelated sectors (e.g., entertainment is included in a miscellaneous category includes transportation, education, health care, financial services, etc.). Synthetic control comparisons generated using these data, and employing the same matching variables used for aggregate tax revenue, were mixed and produced poor pre-treatment fits. Overall, the comparisons do not indicate stadium effects; and even if they estimated post-stadium deviations, it would not be appropriate to draw inferences regarding the contributing sectors from their aggregated categories.

11. ELOST sales tax revenues are shared between is two public school systems: Cobb County School District (92.7%), which serves most of the county, and Marietta City Schools (7.3%), which serves the City of Marietta.

12. The Board of Commissioners initially planned to use SPLOST revenue to help fund a stadium-related pedestrian bridge project, but the board ultimately decided against using SPLOST funds when faced with a legal challenge (Gargis, 2017b).

13. The special service district assesses separate taxes on hotel stays and commercial/multifamily-residential property. The boundary closely follows the Cumberland CID boundary, which covers roughly seven square miles around the stadium. The self-taxing Cumberland CID also taxes commercial property in the district. It made an initial $10 million contribution to fund the development, but it does not contribute to its regular funding (Gillooly, 2013). See, Bradbury (2022b) for a discussion of the Cumberland CID and special service district tax obligations.

Additional information

Notes on contributors

John Charles Bradbury

John Charles Bradbury is Professor of Economics at Kennesaw State University in Kennesaw, Georgia. His research focuses on public finance, economic development, and the economics of sports.