Major League Steal

The Econocmic Folly of Public Subsidies for a New Red Sox Stadium

The Red Sox are proposing to construct a 44,130 seat stadium on 15 acres of land adjacent to the present Fenway Park. The Owners of the Red Sox are poised to seek a minimum of $250 million in state and local taxpayer subsidies for the $600 million plus project.

In an attempt to justify their request for state and local taxpayer support for the project, business groups allied with the Red Sox have argued that there will be substantial economic benefits associated with the project. To this end, the Greater Boston Chamber of Commerce and the Greater Boston Visitors and Convention Bureau released a study in June of last year, written by Chicago consultant C.H. Johnson, claiming that the construction of a new stadium would create 1,032 new permanent jobs in Greater Boston.

The conclusions reached by the C.H. Johnson report cannot be supported by any objective economic analysis. Its projections are based on unrealistically optimistic assumptions, highly selective use of data, and the failure to fully consider the experience of other similar projects. Moreover, the findings of the study are inconsistent with numerous economic analyses that demonstrate that sports stadiums almost universally fail to generate statistically significant economic benefits or increased employment. This report shows that the Johnson study cannot reliably be used to project economic benefits.

Technical Shortcomings

The Johnson study recognizes that economic benefits flow only from increases in spending by out-of-state patrons and calculates the benefits according to this framework:

The following flaws contained in the Johnson study demonstrate that each element in the calculation is overstated. The result is largely inflated claims of economic and employment benefits.

Future Annual Attendance Figures Are Inflated: the study accepts without serious evaluation the estimates of attendance provided by the Red Sox, compares today’s attendance to a year soon after the stadium opens (a "honeymoon" year), overstates likely future capacity utilization and does not factor in access issues or the effect of replacing a unique historic facility. Further, base year (1999) attendance was understated by 11%, exaggerating the prediction of attendance increases.

The Anticipated Percentage of Fans From Out-of-State Is Inflated: the study accepts, again without serious evaluation, estimates from the Red Sox and fails to adjust for the loss of heritage tourism, the fact that many out-of-stater patrons attend games while in town for other reasons, and the fact that most of the additional seats in the proposed new stadium are premium seats which will be purchased by in-state residents.

Average Spending by Out-of-State Fans Is Overstated: the study fails to adjust for the fact that most spending increases will be from in-state premium seat patrons, the fact that some out-of-state patrons are the guests of in-state residents, makes an unfounded assumption of new stadium induced spending, inflates hotel spending, and fails to account for the out-of-state value added to goods and services sold.

The Indirect and Induced Spending Multiplier Is Too Large: the study applies an effective multiplier of 1.76 when economists estimate the appropriate multiplier to be 1.18.

Employment Figures Are Calculated Using an Inapplicable Model: job creation is calculated using a model which fails in circumstances of current economic conditions.

The study also fails to account for the following significant factors:

  • The Social Cost of Taxes Needed to Fund the Stadium Project;
  • Job Losses Brought On by Disruption of Local Businesses; and
  • The Effect On The Local Economy of Diverting Government Spending from Other Programs. 

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