if sports are so popular, then why does it have to be subsidized?
In public policy, we often make the argument that a service should be subsidized if it is important but somehow doesn’t generate enough money to be produced by the market. However, sports seems to fly in the face of that intuition. Sports is a heavily subsidized leisure activity even though it clearly has a viable market. For example, colleges subsidize sports teams, cable tv subsidizes sports channels, and cities subsidize stadiums. National governments will even subsidize large events, like the Olympics or FIFA events. And in many cases, the money is never recouped. Why?
A few possible answers:
- Sports legitimize organizations.
- The average voter is a sports nut.
- Public choice: administrators approve sports because it helps them, though not other people.
Other explanations? I am not anti-sports, but as a billion dollar industry, it seems as if sports doesn’t need any additional help. sports subsidies seem deeply misguided.
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Couldn’t you make the same argument about Wal-Marts? Clearly a viable and popular business but the beneficiary of multiple tax breaks and subsidies.
Orgtheory reader
January 28, 2013 at 12:27 am
Yes, I agree. Private firms shouldn’t get tax breaks.
fabiorojas
January 28, 2013 at 12:28 am
Sports legitimize a lot of things sure, and are a non-violent catharsis for tribalism, etc. But it’s not clear the State primarily functions to legitimize anything other than itself. Sketchy on (1).
The percentage of policy that represents the “will of the people” (whatever that is) seems pretty small. Change the aggregation mechanism of votes just slightly and you get wildly different outcomes that in fact contradict each individual agent’s preference ordering (Condorcet). So IMO – no to (2).
Big literature on economics of sports — most of it concerned with monopoly power in sports (of which there appears empirically to be a considerable amount). Monopolies have super-normal (i.e. p>mc) profits lying around to lobby capture government. Let’s go with (3).
Graham Peterson
January 28, 2013 at 12:36 am
I take it back on (1). American football mimics the basic setup of medieval Anglo and European warfare, which suggests sports broadly may legitimate state-derived conflict, in which case it is in the interest of the state to pay for the creation of regional solidarities (state and national level).
Graham Peterson
January 28, 2013 at 12:46 am
Cable TV does not subsidize sports channels; it increases its profits by bundling sports channels with other channels and selling the bundle to people who do not care about sports. You wouldn’t say that Dell subsidizes Microsoft by forcing each customer to get a copy of Windows, would you?
Colleges and cities can rationally subsidize sports teams/stadiums if they believe that gains in reputation or taxable economic activity will make up for the subsidy.
kerokan
January 28, 2013 at 1:58 am
I don’t think it is the “average” voter, but I think sports connect a sizable plurality of supporters who can then be hedged for other causes—even revolutionary ones if you look at Juan Cole’s recent post on soccer and political violence in Egypt. For municipalities, sports nuts’ flippant interests coalesce with developers and builders who are going to score big on stadium, parking, and other associated “growth” that is engendered by investing in sports instead of in schools or the maintenance of existing infrastructure. Maintenance is small time, new construction is where the money is. Colleges are often influenced by the same interests, as corrupt boards of trustees seek to enrich themselves and relatives, and jock-sniffing frat boys and sorority girls want to subsidize their idea of a rock and roll lifestyle—but the university can’t afford their rock and roll lifestyle….
sherkat
January 28, 2013 at 2:04 am
Positive externality? The more sports, the better for public health. Big sport events will be incentives for ordinary people to do sport because 1) sport stars are role models 2) people want to become top athletes (because it is rewarding) 3) events are advertising and inform the public about possible sport acitivies.
Reader
January 28, 2013 at 2:07 am
@reader: Seriously? Have you ever seen this?
fabiorojas
January 28, 2013 at 2:33 am
^LLUUULLLLZZZZZ
Graham Peterson
January 28, 2013 at 2:39 am
“Colleges and cities can rationally subsidize sports teams/stadiums if they believe that gains in reputation or taxable economic activity will make up for the subsidy.”
Sure, but the state is awful at running these cost benefit analyses, in which case these kinds of “economic investment” arguments get really thin. Econ development in Chicago for instance is mostly a mayors-office friends and family program.
Graham Peterson
January 28, 2013 at 2:48 am
If you click on the links, you find that there’s a lot of research showing that sport subsidies rarely, if ever, generate enough extra income to cover the subsidy. Policy researchers know that it is simply a myth.
fabiorojas
January 28, 2013 at 3:15 am
And a vanishing fraction of cigarette taxes actually go toward healthcare costs or cancer research. Economistic raionalizaions for government interventions are usually demonstrably inaccurate veils for plutocracy.
Graham Peterson
January 28, 2013 at 3:21 am
I’m with Graham’s (3) on this one. Nearly all sports are monopolies able to extract rentier profit from states, local governments, their value chain, and their customers. That’s not to say that this is the only reason they can continue to demand more public and private money without doing anything different themselves. There are probably sizable status effects for hosting the Olympics or having a basketball program built on the legacy of Bobby Knight. I’m sure there are also important, non-economic consequences for the sense of identity and community cohesion that comes from being a city with a home team. But, I think monopoly power is probably the largest coefficient in this model.
It would be interesting though to compare changes in the mean GPA of universities’ freshman class within state according to the success of their major sports and academic quality. As an undergrad at Appalachian State when our football program suddenly won 3 national championships and then beat Michigan, the subsequent jump in applications was attributed to our success on the field. It would be nice to get an estimate for that effect. The same kind of test could work for cities and immigration after winning a Super Bowl, though New Orleans would have to be excluded after 2004.
Jason Radford
January 28, 2013 at 5:22 am
“I’m sure there are also important, non-economic consequences for the sense of identity and community cohesion that comes from being a city with a home team. But, I think monopoly power is probably the largest coefficient in this model.”
Actually, if you look at community identity as a network externality good, it follows that the monopoly obtains precisely because of community identity. As more people load onto the network (get behind the team), everyone’s utility increases who is on the network. You get a positive feedback loop where it becomes extremely difficult for a competitor to enter the market, and teams have a monopoly on local attention.
This effect hits diminishing returns at some point because of institutional competition (other sources of identity and together-feeling) — if it didn’t sports teams would run the State. For now they just corrupt it. ‘Merica.
Graham Peterson
January 28, 2013 at 5:31 am
“This effect hits diminishing returns at some point because of institutional competition (other sources of identity and together-feeling) — if it didn’t sports teams would run the State. For now they just corrupt it. ‘Merica.”
I believe you’re right. There are returns to scale in cultural participation. I would guess that the more people do something the more salient it is whether you do it or not and the more value-laden and rich with meaning it becomes. Monopolies such as utility services can obtain without this cultural aggregation given things like barriers to entry, but even these create mass cultural engagement because they are the only game in town for everyone. Diminishing returns though is really interesting. I don’t think it’s about competition though. Being the last one on the bandwagon makes you less influential and having 10 versus 11 people to friend on Facebook is much more important than having 586 or 587. Similarly, being the 100th person on Facebook makes you much more likely to be more influential on Facebook than being the 100 millionth. I would bet the diminishing returns are largely endogenous to the process of diffusion. That sports do not capture the state may say more about the cultural returns to scale of this particular field, than the marketplace of identity they compete within.
It’s a very interesting bit to chew.
Jason Radford
January 28, 2013 at 6:11 am
“I would guess that the more people do something the more salient it is whether you do it or not and the more value-laden and rich with meaning it becomes. ”
Absolutely. Symbolic objects are co-created, and move from contingent and negotiated meanings to “social facts” in direct proportion to the amount of people who believe them.
“Monopolies such as utility services can obtain without this cultural aggregation given things like barriers to entry”
Utility delivery monopolies are a product of the current state of technology, not inevitabilities. Vernon Smith wrote in a footnote once that J. S. Mill’s coining of the term “natural monopoly” is one of the most abused terms in economics.
“Diminishing returns though is really interesting. I don’t think it’s about competition though.”
Yep. I got sloppy. In the traditional theory of the firm, diminishing returns are assumed to emerge in the production function itself because of rising costs to obtaining marginally less-productive resources. A similar thought applies to Roger’s adoption formulation — you’ve got some reluctant crabs at the top of your logistic curve — the “rising cost” marginal adopter.
“That sports do not capture the state may say more about the cultural returns to scale of this particular field, than the marketplace of identity they compete within.”
I think this says a lot about the possibility for real, hardcore hegemony or not — I’m going with not. I think Grewal really missed this point in Network Power.
If like we’re suggesting there are natural limits to scale of any ideational construct or belief system, then you have a situation where there’s quite a variegated market for beliefs and quite a bit of competition, which blows huge holes in a lot of structure-as-oppression theory.
Graham Peterson
January 28, 2013 at 6:29 am
“If like we’re suggesting there are natural limits to scale of any ideational construct or belief system, then you have a situation where there’s quite a variegated market for beliefs and quite a bit of competition, which blows huge holes in a lot of structure-as-oppression theory.”
That might be my question. What about the returns to cultural scale make Facebook culturally salient for over 1 Billion participants while there are only maybe a couple million White Sox fans (ignoring the problem of defining “fan”). There are plenty of other reasons; whether economic, interactional, or pure network neighborhood effects. But, there’s still a cultural process of aggregation that makes joining Facebook discernibly more meaningful than becoming a White Sox fan.
Jason Radford
January 28, 2013 at 6:52 am
I don’t think it’s a fair comparison. Facebook isn’t part of my identity. It allows me access to a collection of cultural objects which each individually accrue their own degree of network externality — none of those permeate the entire Facebook community.
So we could compare the network of “likes” a particular cat video receives on Facebook to the network of people “subscribing” to a belief in the Red Sox. But I don’t think we can compare Facebook itself to the Red Sox and say Facebook is more meaningful.
Graham Peterson
January 28, 2013 at 7:07 am
Pardon the simplification here. But whatever is or isn’t the public interest, sports subsidies seem heavily stacked toward a political economy explanation. Olympics are a good example. No doubt the bigger, most expensive, most outlandish new stadiums will help the political leaders in the area (ie ‘(s)he was the guy that brought London the Olympics’) and the commercial backers (advertisers, etc). So, these winners lobby the public hard, selling the city on all sorts of cultural, commercial, etc benefits. But time and time again, the Olympics investments fail to boost the economy, public health, housing, tourism, etc.
DPP
January 28, 2013 at 10:45 am
^I think that’s absolutely right. Jason and I were discussing, ultimately, the social forces that lead to monopoly by teams (or monopoly by teams and collusion among them toward international competitions like the Olympics). That explains the demand side of the public choice argument. You’re quite right to point out the incentives for the supply side. It’s incredible to me that so many social scientists continue to scoff at Virginia School Public Choice, when evidence of it obtains everywhere.
Graham Peterson
January 28, 2013 at 3:45 pm
For stadiums, you definitely want to think about externalities in terms of neighborhood ecologies. Maybe not for university sports, but I do believe that sports venues can be good anchors for economic development districts. Admittedly, the subsidies given on this are usually too high, (credible threat to move by teams), but if you think about the areas around older stadiums, turning around a new stadium development that is pedestrian friendly and integrated into the street grid makes for a better neighborhood than a spaceship surrounded by a sea of parking.
For example, Seattle King Dome –> Safeco field, Pittsburgh Three Rivers Stadium –> PNC park. (Sorry sports nuts — I’m not looking up the new football stadium names, just listing the places I’ve walked by in person. The new ones are genuinely nicer.)
At any rate, this is one of the reasons that motivates the planners and developers to be involved with stadium redevelopment projects. We can call that space a public good or amenity, due to positive externalities, and the externalities achieved are both economic and aesthetic. Let’s also remember that one justification for public works projects is to put together projects that are socially beneficial but would not be economically profitable enough for a private company to undertake the project. So it is not necessarily the case that we should expect a high ROI with many of these projects, especially if the key benefits are non-monetary or accrue over very long time periods. Although, ahem, it’s also not a great idea to spend so much on new stadiums that it almost sends a city into bankruptcy….
Erica
January 30, 2013 at 3:22 am
Friend of mine’s father bought a ton of property in a dumpy neighborhood in Minneapolis, for apparently no good reason. A week later the news announces a new stadium will be built there. That’s how sports-stadium positive externalities work.
United Center in Chicago is surrounded by poverty and an expressway. Soldier Field, same.
There are no demonstrable spillovers from professional sports other than together-feeling, and teams and leagues make incredible margins. The entire industry, from the players’ unions, to the team’s relationships with government, to the leagues themselves, take huge rents home and are riven with collusion and entry-barriers.
The only externality here is the negative one arising from the collective action problem that comes from special interests (teams) lobbying the government for favors that are spread out over so many voters that nobody has any incentive to organize and stop subsidizing a multi-billion dollar industry.
As was mentioned above — just like Wal Mart. I think if we’re going to start talking about justifications *for* government intervention via positive and negative externalities it pays to slow down and evaluate the balance of positive and negative externalities our government is already creating. The viewing of professional sports is an excludable and rival good — it is not a public good.
Graham Peterson
January 30, 2013 at 3:51 am
Graham, you’ll note that I called out specific cases, not a general theory. Pittsburgh and Seattle have genuinely nicer areas around the baseball stadiums now. The amenity is the neighborhood, not the sports per se. For Chicago, I agree with your Logan and Molotch informed argument.
Erica
January 31, 2013 at 3:56 am
Graham angry! Government bad! Smash!
Graham Peterson
January 31, 2013 at 4:02 am
;)
Graham Peterson
January 31, 2013 at 4:05 am