Last week, the mayor of Indianapolis and a former senator from Pennsylvania floated hot-air balloons concerning the National Football League.
Unless you have been sleeping for an extended period, you know that the owners of the NFL franchises and their players are engaged in a dispute over who gets how much of the teams’ revenues. Unlike drug wars in poor neighborhoods that are fought with guns, this battle is fought with proxies called attorneys.
The “danger” to America is that we will not have an NFL season of spectacular performances and extraordinary injuries in 2011-2012.
For Indiana, the pending crisis is cancellation of the 2012 Super Bowl at Lucas Oil Stadium in Indianapolis. This annual mid-winter event will shower millions of dollars in spending on central Indiana. The region has been anticipating this windfall with the eagerness of a dog eyeing a meaty bone.
Aside: Although we always want the Indianapolis Colts to go undefeated, from an economic point of view, it would be best for Indiana if the Colts do not participate in an Indianapolis Super Bowl. We want foreign money, funds from other states where fanatical fans will require hotel space, restaurant meals and other services.
Mayor Greg Ballard announced his intention to form an alliance of mayors from NFL cities to participate in discussions between players and team owners when the well-being of cities is at stake. Former Pennsylvania Sen. Arlen Specter wants Congress to intervene in the dispute so Americans will not be disappointed by the psychological and economic damage of no NFL football for a year.
For several decades, cities have subsidized professional sports with sweetheart deals. The city (or state) will assume part or all of the cost of building a stadium for football, baseball or basketball. Then the government agrees to provide the team with the proceeds from some or all of the parking, concession and event revenues.
Why? Professional sports teams are private ventures with minimal positive externalities. To what extent can a citizen of central Indiana point to material benefits from the presence of the Colts or Indiana Pacers? How much more is a property worth because those teams play in Indianapolis? How many companies would decline relocating to Indiana if we had no major-league sports franchises?
What we gain by having the Colts and Pacers is mainly a psychological benefit. We feel that we are big league because we have big-league teams carrying our name. Yet Austin, Texas, has no big-league professional teams, unless, cynically, you want to count the University of Texas. Nonetheless, Austin is a big-time, prospering city.
We do gain materially when a player donates substantial funds to a local cause. But how much does total spending increase because the Colts or Pacers call Indiana home? Puff pieces issued by teams and their government sponsors notwithstanding, the evidence shows little benefit for stadium-building cities.
If cities and their citizens want to participate in big-league sports, they should follow the Green Bay example and acquire an equity interest in the team.
When Indianapolis and the state of Indiana agreed to finance a stadium for the Colts, they should have insisted on owning a substantial piece of the team. If this practice had been in effect earlier, Indianapolis could have bought the Colts from Baltimore instead of stealing them.•
Marcus taught economics for more than 30 years at Indiana University and is the former director of IU’s Business Research Center. His column appears weekly. He can be reached at email@example.com.