Market Power

Musings by an academic economist on the power of markets and the power over markets.

Wednesday, April 06, 2005

Sports Subsidies

There are three types of explicit subsidies professional sports teams get.

1. Transfer Payments - a payment from the government to someone in which the government doesn't get anything in return.

2. Infrastructure subsidy - a subsidy to improve things like roads, pipe, highway entrance and exit ramps, street lighting, etc. around a stadium.

3. Construction subsidy - a subsidy to build the stadium.

The owners of the Boston Red Sox have committed to stay in Fenway park. They have received very little public support for construction of a new stadium - even in the wake of their World Series Championship - and are now looking for an infrastructure subsidy.

The announcement marks the beginining of an effort to revitalize the neighborhood that is later expected to include a push for public financing for improved streets and sidewalks, a new MBTA train station at Yawkey Way, and one or more garages, say Red Sox executives. The team also wants to have a say in development decisions around the park that could affect the Fenway experience, the executives said yesterday.
I blogged here about a talk I gave recently about why rational teams seek public construction subsidies even though the receipt of such may put a drag on the appreciation of their franchise values. Basically, the idea is that the present discounted marginal franchise value - the difference between the franchise value of a team playing in its own stadium and the franchise value of a team playing in a public stadium - does not come close to fully covering the cost of building the stadium.

Improving the area around a park would, I imagine, provide a boost to franchise values as well, especially to teams that own their own stadium, because the infrastructure subsidy would boost the value of nearby property. But the big difference is that with construction subsidies, the public can lay a claim on the stadium. With the infrastructure subsidy, it is likely that no such claim on the stadium would exist.