The Economic Impacts of Professional

Sports Teams in American Cities

James Rodota, UC Santa Barbara
Advisor: Richard Startz
ABSTRACT:
Many cities in America compete for the opportunity to become home to a
team in one of the major sports leagues. In general, sports economic study
in this area has painted a negative picture of professional sports
franchises. Is a teams presence in a city a benefit or detriment to the
area? Using city government finance data and regression analysis, this
paper has explored this question. Unlike most literature in the field, after
a team arrives in a city, the resulting decline in tax revenues is more than
offset by a significant decrease in the cities total debt outstanding.
INTRODUCTION:
Many professional sports teams at one point in their history have relocated to new cities with the
promise of rejuvenating local economies. While some argue that this is the case, others maintain that
the outlook for cities courting teams is not so positive. Some recent cases of teams on the move have
brought the subject into the national spotlight, and there has been significant interest in the field of
sports economics to explore the forces at work. It is important for cities, fans, and other potential
stakeholders to understand the economic impacts of a new team coming to town. That is the main goal
of this paper: to elucidate some of the effects of sports teams on cities by analyzing changes in local
government finances. The regressions used in this study provide mixed results regarding teams effects
on total tax revenue, property taxes, and debt outstanding. However, some surprising insights arise: the
outstanding amount a citys total debt seems to plummet after the arrival of a team, falling much
further than the figures for revenue and taxes. These relatively small dips in total revenue and property
taxes are more than offset by the positive effects of reduced debt in the cities.
This study will focus on cities that previously had no professional sports franchises, until beginning an
expansion franchise or attracting a team via relocation. One example relevant to the goals of this type
of event was the recent episode involving the Seattle Supersonics relocation to become the Oklahoma
City Thunder. In 2006 the NBA Board of Governors approved the sale and relocation of the
Supersonics, bringing Oklahoma City its first professional sports franchise. Many cities have been in
similar situations throughout the history of the major professional sports leagues in the United States.
Either the leagues expand to bring new teams into the league, or a team moves from one city to
another, sometimes as the first and only franchise in the new city.
The mid-to-late 1980s was a time when many teams were on the move, and growing interest in the
professional sports business led to bursts of expansion franchises. The Kansas City Kings moved from
Kansas City, Missouri to Sacramento, CA in 1985. Charlotte, NC and Orlando, FL were each granted
expansions teams in 1988 and 1989, respectively. These cases of cities that had no team prior to these
years provide insights into the true effects of a professional franchises presence in American cities,
and form the basis of the arguments made in this paper. Because of all the activity during these years,

this period is well suited for drawing comparisons between cities with new teams, and cities that either
already had a team, or no team at all. The three Cities of Interest were then paired up with one No
Team City and one Team City in order to track differences between the cities based on the year a
team arrived in the City of Interest.
By presenting the findings in both a basic graphical form and using regression analysis, this study will
try to present a complete picture of what happens in a city when a franchise settles in. By looking
specifically at the three years before and after a team comes, one can draw conclusions on the short run
effects that franchise had. In the regressions of variables describing the years after a team arrived on
total revenues, property taxes, and total debt, the differences between cities with and without teams
could be observed. Using these methods, the results indicate that the positive effects of decreases in
total debt outstanding more than offset corresponding drops in total revenues and property taxes
collected by the local governments.
DATA:
Data used for this study was obtained from the US Census Bureau Annual Survey of Local
Government Finances and Census of Governments from the years 1982-1992. This large panel dataset
has provided a very complete picture of the finances of American cities since the early 1950s to the
present. However, like most data, this set is not without its limitations. Some cities ended their fiscal
years at different times, and time constraints only allowed for 54 observations. National
unemployment rates were obtained from the US Bureau of Labor Statistics to provide a control
variable in the analysis.
The relevant data was obtained for nine US cities over a seven-year period, and this data was used to
calculate percentage differences over time in the selected cities. In order to control for the effects of a
professional sports teams presence in a city, data were collected for cities in three categories:
(1): Cities with no team throughout the period [No Team Cities]: Tuscon, AZ (1982-1988);
Santa Fe, NM (1982-1988); and Norfolk, VA (1982-1988)
(2): Cities with a new team during the period [Cities of Interest]: Sacramento, CA (19821988); Orlando, FL (1986-1992); and Charlotte, NC (1985-1991)
(3): Cities with a team throughout the period [Team Cities: Buffalo, NY (1982-1988); San
Antonio, TX (1982-1988): and Portland, OR (1982-1988)
(Cities in categories (2) were selected because the new team that arrived during the period was the first team in
the city, and category (3) cities had only one team during the period.)

The data points collected for this study were:

(a) Total Tax Revenue
(b) Total Property Tax Collected
(c) Total Debt Outstanding
These percentage changes for the three data points over the three categories were averaged to obtain a
general perspective on the effects of a teams arrival in a city, which are presented graphically below to
give a picture of the changes that occurred in each category (see following pages):

*Notation: (category, data point) Name of Data Point

(a) Total Tax Revenue:

Average (1): +11.34%

Average (2): +3.65%

Average (3): +6.69%

(b) Property Tax:

Average (1): +9.21%

Average (2): +15.33%

Average (3): +11.62%

(c) Total Debt Outstanding:

Average (1): +21.01%

Average (2): +14.07%

Average (3): +11.09%

Summary of Data Averages

Cities
Total Revenue
Tucson, Santa Fe,
Norfolk
Sacramento, Orlando,
Charlotte
Buffalo, San Antonio,
Portland

Property Taxes

+11.34%

+9.21%

Total Debt
Outstanding
+21.01%

+3.65%

+15.33%

+14.07%

+6.69%

+11.62%

+11.09%

STATISTICAL METHODS:
Each city falls into one of three categories, with the main focus of study on Category 2 cities: those
that received a new team during the period. In order to achieve this, each city Category 2 was paired
with a city in Categories 1 and 3 for the corresponding years, centered on the year the team arrived.
Those years are:
City of Interest
No Team City
Team City
Years
Sacramento
Tucson
Buffalo
1982-1988
Charlotte
Norfolk
Portland
1985-1991
Orlando
Santa Fe
San Antonio
1986-1992
The three categories of cities stated above were then identified using dummy variables, both for the
category in which they fall and for specifying the years after a team arrived in Sacramento, Orlando,
and Charlotte. (An interaction variable denoting category (2) cities and the years after the team arrived
was also created.)
The three regressions estimated are as follows:
% Change in total revenue= 0+ 1(dummy for No Team City)+ 2(dummy for City
of Interest)+ 3(dummy for years 4-6)+ 4(interaction for City of Interest and years
after the team arrived)+ 5(national unemployment rate)
% Change in property taxes= 0+ 1(dummy for No Team City)+ 2(dummy for City
of Interest)+ 3(dummy for years 4-6)+ 4(interaction for City of Interest and years
after the team arrived)+ 5(national unemployment rate)
% Change in total debt outstanding= 0+ 1(dummy for No Team City)+ 2(dummy
for City of Interest)+ 3(dummy for years 4-6)+ 4(interaction for City of Interest
and years after the team arrived)+ 5(national unemployment rate)
The coefficient of interest for each of the regressions is 4. Using difference-in-difference analysis to
distinguish the changes that occurred in cities with and without teams throughout the entire period, all
changes in the dependent variables being measured in cities that welcomed a new team can be
observed in the 4 coefficient.
Category
City of Interest
No Team City
Dif-in-dif

Before Team
0+ 2+ 5
0+ 1

After Team
0+ 2+ 3+ 4+ 5
0+ 1+ 3

Difference
3+ 4
3
4

Category
City of Interest
Team City
Dif-in-dif

Before Team
0+ 2+ 5
0

After Team
0+ 2+ 3+ 4+ 5
0+ 3

Difference
3+ 4
3
4

RESULTS:
The outputs for the three regressions above estimated:
% Change in total revenue= 0.032+0.074(dummy for No Team City)+0.016(dummy
for City of Interest)+0.006(dummy for years 4-6)-0.028(interaction for City of
Interest and years after the team arrived)+0.025(national unemployment rate)
[95% Confidence interval: -0.175< 4<0.119, Std. Error 4: 0.073, t-statistic=-0.39]

% Change in property taxes= 0.009-0.006(dummy for No Team City)+0.09(dummy for

City of Interest)+0.101(dummy for years 4-6)-0.011(interaction for City of Interest
and years after the team arrived)-0.406(national unemployment rate)
[95% Confidence Interval: -0.169< 4<0.147, Std. Error 4: 0.079, t-statistic=-0.14]

% Change in total debt outstanding= 0.141+0.061(dummy for No Team City)

+0.17(dummy for City of Interest)-0.111(dummy for years 4-6)-0.231(interaction for
City of Interest and years after the team arrived)+0.044(national unemployment
rate)
[95% Confidence Interval: -0.654< 4<0.193, Std. Error 4: 0.211, t-statistic=-1.1]

In cities with a new team arriving, the results show total revenue falls by 2.8%, property taxes falls by
1.1%, and total debt outstanding falls by 23.1%, when compared to cities with a team or no team
already over the same period. This drop in total debt outstanding more than neutralizes the consequent
declines in total revenue in property taxes. A team therefore can help drastically reduce the ratio of
debt to total revenue. These results are somewhat surprising, as one would expect cities to issue debt in
order to finance the construction of a new arena. Coupled with drops in tax revenues, this result is even
more surprising.
However, these results are not statistically significant due to the low number of observations. A longer
period of time before and after the teams arrival would help resolve this, as would including data from
more cities. The drop in total debt after a team arrives is apparent in the raw changes displayed in
Chart (2,c), but a robust statistical result would certainly require many more observations. By
expanding the sample size of cites in the three research categories, this study could be further expanded
to draw more definitive conclusions. This study will hopefully serve as a launch point for further study
on the effects of sports franchises in American cities.
REFERENCES:
U.S. Census Bureau (July 2011). U.S. Department of CommerceEconomics and Statistics
Administration. Data Base on Historical Finances of Municipal Governments: City Govt
Finances, Fiscal Years 1951-2006, [5/5/2015]
Bureau of Labor Statistics, U.S. Department of Labor, Labor Force Statistics from the Current
Population Survey, [5/19/2015], [http://data.bls.gov/pdq/SurveyOutputServlet]

APPENDIX (REGRESSION OUTPUT):

. reg tr cat1 cat2 after after_cat2 unem
Source

SS

df

MS

Model
Residual

.066027166
.772029383

5
48

.013205433
.016083945

Total

.838056549

53

.015812388

tr

Coef.

cat1
cat2
after
after_cat2
unem
_cons

.0737235
.0163275
.0056126
-.0282313
.0252582
.0320645

Std. Err.

.0422742
.0559235
.0484524
.073221
.1822954
.0400149

1.74
0.29
0.12
-0.39
0.14
0.80

Number of obs
F( 5,
48)
Prob > F
R-squared
Adj R-squared
Root MSE

P>|t|
0.088
0.772
0.908
0.702
0.890
0.427

=
54
=
0.82
= 0.5408
= 0.0788
= -0.0172
= .12682

[95% Conf. Interval]

-.0112744
-.0961141
-.0918074
-.175452
-.3412712
-.0483908

.1587214
.1287692
.1030327
.1189894
.3917877
.1125199

. reg pt cat1 cat2 after after_cat2 unem

Source

SS

df

MS

Model
Residual

.199609242
.890535886

5
48

.039921848
.018552831

Total

1.09014513

53

.020568776

pt

Coef.

cat1
cat2
after
after_cat2
unem
_cons

-.0060333
.0903821
.1008046
-.0111853
-.4062412
.0085198

Std. Err.

.0454029
.0600624
.0520384
.0786402
.1957873
.0429764

-0.13
1.50
1.94
-0.14
-2.07
0.20

Number of obs
F( 5,
48)
Prob > F
R-squared
Adj R-squared
Root MSE

P>|t|
0.895
0.139
0.059
0.887
0.043
0.844

=
=
=
=
=
=

54
2.15
0.0752
0.1831
0.0980
.13621

[95% Conf. Interval]

-.097322
-.0303815
-.0038256
-.169302
-.799898
-.0778901

.0852554
.2111457
.2054349
.1469313
-.0125845
.0949297

. reg td cat1 cat2 after after_cat2 unem

Source

SS

df

MS

Model
Residual

.707333655
6.38851218

5
48

.141466731
.133094004

Total

7.09584583

53

.133883884

td

Coef.

cat1
cat2
after
after_cat2
unem
_cons

.0611334
.1697432
-.1109393
-.2309387
-.0437945
.1408894

Std. Err.
.1216068
.1608707
.1393793
.2106292
.5243951
.1151077

t
0.50
1.06
-0.80
-1.10
-0.08
1.22

Number of obs
F( 5,
48)
Prob > F
R-squared
Adj R-squared
Root MSE

P>|t|
0.617
0.297
0.430
0.278
0.934
0.227

=
=
=
=
=
=

54
1.06
0.3926
0.0997
0.0059
.36482

[95% Conf. Interval]

-.1833736
-.153709
-.39118
-.6544371
-1.098162
-.0905502

.3056403
.4931955
.1693015
.1925598
1.010573
.372329