HBO’s “Real Sports With Bryant Gumbel” recently aired a segment that took a critical look at the unfulfilled promises of “District Detroit,” which is the area surrounding the new Little Caesars Arena.
The Ilitch family, who owns the construction company that built the new arena, promised it would lead to the construction of five new neighborhoods, comprised of residential buildings and a hotel, in the 50 blocks surrounding it. As the HBO segment points out, none of this new development has taken place.
For someone who has studied these types of stadium deals for years, it is not surprising that these promises have been broken. The overwhelming consensus among economists is that subsidized sports stadiums and arenas provide no meaningful, long-lasting economic benefit. In a Feb. 6, 2017 article for the Mackinac Center, I called taxpayer-subsidized sports arenas just an “expensive psychological boost.”
Plus, this boost is indeed expensive. Taxpayers paid $324 million out of the $863 million cost to construct Little Caesars Arena. These are funds that, in part, would have otherwise gone to Detroit Public Schools. As illustrated in the Real Sports segment, these schools are in a state of disrepair, with dilapidated buildings, leaking roofs, mold and other hazards. The diversion of these funds to construct the arena has made it even more difficult for school officials to finance the necessary repairs.
The reason why taxpayer-subsidized stadiums and arenas, such as Little Caesars Arena, do not lead to economic development is straightforward. These facilities are closed far more often than they are open. NHL and NBA seasons both have 41 home games and there are approximately 30 other special events at Little Caesars.
This means that the arena is closed for 70 percent of the year. A facility that is open for just 110 days a year is unable to produce a meaningful impact on the overall economic development of a region.
This is true even for long-established arenas and stadiums: the neighborhoods surrounding Comerica Park and Ford Field on non-game days is pretty quiet.
The economic impact for the days that Little Caesars is open is limited further by the struggles of the Pistons and Red Wings. Detroit Pistons’ attendance ranks near the bottom of the league. The Pistons attendance struggles led the team to partner with Art Van Furniture to purchase black seat covers for the red seats in the arena, as the empty red seats were a sore spot visible during the television broadcasts. Obviously, if fans are not coming to games, the economic impact from these home games is further limited. Additionally, attendance at sporting events is in a nationwide decline.
Other factors limit the economic impact from stadiums and arenas. They do create some new jobs, but these tend to be part-time, low-wage food service jobs.
Meanwhile, the majority of the revenue generated from ticket sales and selling advertising flows to the players and owners.
Another limiting factor is that these new arenas don’t necessarily encourage people to spend more on live entertainment than they otherwise would.
Going to see a game may just divert spending from some other local entertainment option — which is a zero-sum game from the perspective of the local economy.
Stadiums can only boost local economic activity if they spur more spending from current consumers of live entertainment or draw in new consumers. The empirical evidence suggests that this typically does not occur, and given the attendance woes of the Pistons and Red Wings, seems even more unlikely in this case.
Despite these failures, the city of Detroit decided that the Ilitch organization met its development goals for District Detroit and awarded it an additional $74 million in taxpayer dollars.
These goals were met by constructing two parking garages, an office building for Google and a headquarters for Little Caesars — also owned by the Ilitch family.
Gov. Gretchen Whitmer wants a 45-cent per gallon increase in the state gas tax to fix Michigan’s roads.
As the $400 million in taxpayer dollars spent on Little Caesars Arena demonstrates, there may be room in the state budget to divert the hundreds of millions spent on failed economic development projects to the roads.
Michigan’s economy will benefit more from better roads than from subsidized shiny new stadiums.
About the author: Chris Douglas is chair of the economics department at the University of Michigan-Flint.