The Louisville Arena – Are Sports Arenas a Good Catalyst of Economic Growth?

I need some help from those of you that live in areas with recently built sports arenas. Louisville has decided to build one, and I was all for it. I mean, arenas are cool, and I'd like to see more action downtown so it sounds good, right? Maybe not.

First of all, the owner of Papa John's (which is based here in Louisville) flew in a sports economist to talk to the arena task force. The economist basically said arenas don't justify the investment. Most of them lose money and the ones that do make money don't make much. Well, the prediction here is that this arena will save Louisville and jumpstart economic growth.

After reading this I had a little cognitive dissonance going on so I decided to investigate. Sure enough, most of the academic literature agrees that arenas are usually bad ideas. So I started my personal campaign, telling everyone I know "Let's don't kid ourselves about the economic impact. Let's call it what it is, vanity." The truth is, I think, that people here believe Louisville needs an arena so that we can keep par with cities like Cincinnatti, Nashville, Indy, etc. So my point has been let's don't lie about the economic advantages.

Then the state decided to kick in $75 million dollars, which made me aggravated because that money comes from tax payers and most of them will, like me, problemably only go to the arena once or twice ever. So I was ticked and posted some of my research findings here, at a Louisville blog site.

Today I get an email from the local Young Professionals group telling me to call state legistlators and get them to support the arena. This is really starting to make me mad. Does no one else look at this research? Is Louisville somehow a special case? They are still making the argument that this is a great economic deal.

So my question is this. Do any of you live in a place where this has happened? If so, has a new arena improved your city? I'm 100% willing to change my mind and support this thing if someone can convince me that all these economic studies by professors are wrong and all the ones by the consultants are correct.

Do arenas really lead to economic growth? And if they are such good investments, why aren't private investors lined up to fund them? Why do we need the public money?

  • One comment to make on your post- while I agree with your basic premise that arenas don’t generate the economic impact that is claimed for them, you are mistaken in saying that the Louisville arena is being built with $75 million in state tax money. In fact, the legislature is being asked to approve $75 million in bonds to be repaid from arena revenue. No taxpayer money should be spent on the arena at all.

    That said, do arenas generate economic growth remains the question. I think you will find the answer is difficult to quantify and varies from city to city. There is certainly a halo effect in some cities from the revitalization efforts that an arena or stadium can provide. Detroit, with Ford Field – the site of this year’s Super Bowl – is a good example of that. In other cases, the arena has barely paid for itself or the public has been left with years of subsidy. They are a myriad of factors that go into equation, the prime tenant being only one.

  • Rob

    Good point. The $75million isn’t just a giveaway. And as I said, I’m not opposed to the idea of an arena. I just think government should make more decisions the way businesses do (yeah, I know that will never happen) and look at the best use of their money. Could money be spent other ways that have more of an impact? I don’t know the answer to that.

  • Hey Rob,

    I live just south of your here in E-Town, I know a little about the situation. My experience though was in Minnesota when I lived there and the voters of that state came to the same conclusion you did. The cost was outrageous, and everyone knew that they were just figures. Once the project begins, it goes up in price beyond what anyone can predict.

    The state continually keeps pushing it while the voters keep turning it down. Who knows if they will eventually get it.

    But, again, as you said, the number and benefits in many of these situations are suspect at the very least.

  • Jay

    First place I can recall ever reading about the flawed thinking that is used to justify public arena financing was in a paper issue of Reason magazine, back in the eighties when I was a subscriber for most of the decade. You will undoubtedly find stuff on their magazine and/or foundation sites. I think this has been picked up by others,too, if only in a “yes, but…” sort of way. Now, this is mostly with respect to arenas or ball parks being built primarily as subsidies for professional teams, but still.

  • Ian Random

    I drive past Autzen stadium(UofOregon) everyday to work. They recently expanded Autzen and a new sports bar openned down the street, it folded and now does estate sales. The 6 restaraunts & bars nearby remain unchanged. I suspect the dozen or so games it has a year bring an impressive amount of traffic(Interstate 5 traffic jam), but there isn’t enough everyday volume to sustain anything more.

  • Matt
  • Healthy debate is good on any public project… So I will give you a few ideas to think about. When Louisville Slugger field was built it cost about 40 million dollars. $4 million state, $26 million louisville and $10 million private funds…since the field has been built, look at the surrounding areas. There has been $145 million in additional investments surrounding that field.

    There is a concept called tax increment financing that the State of Kentucky approved and it allows for 25% of the project to be recouped in the first 20 years by allowing the project recoup 80% of the taxes in that area….increased property values, sales taxes, payroll taxes all that will be increased… When you look at arena revenue, increased tax revenue, and metro tax revenue….the arena will have positive cash flow and then some. If fact over the 30 year life, it will have 300 million in positive cash flow. That report is posted on the arena site as well for you to review.

    It is not so much as a public or private investment….but a combined project to move our community forward…it allows our city to be showcased, it gives additional ammenities that our community does not have, and it will showcase and bring thousands of visitors to our city.

    Lastly, the LGE infrastructure is the same that was built in 1904….it needs to be upgraded and this project is the only hope of doing that without a cost to tax payers….

    It is a good deal for not only Louisville but all of Kentucky…and most important, it will pay for itself.

  • Thank you for introducing this topic. I had been weighing the pros and cons of the arena myself.