Public subsidization of professional sports teams

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Hudson, Ian
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Professional sports teams have become very vocal, and often very successful, claimants for access to the public purse. Economics as a discipline usually relies on one of two possible explanations for government involvement in the economy: market failure and interest group theory. This thesis attempts to evaluate which of these two theories best explains the success of professional sports teams in attracting subsidies. Proponents of subsidization argue that teams are a positive externality and, therefore, a transfer from government will actually increase efficiency. Although the empirical work in this paper follows a very different methodology from previous efforts, the results are consistent with the prevailing consensus that sports do little to improve a region's economy. Interest group theory makes no claims about government intervention leading to increased efficiency, instead it argues that outcomes will be dependent on a political "market". While interest group theory has some explanatory power, it does not capture one crucial aspect of sports subsidization--team's ability to relocate. In an effort to improve on existing interest group theory, this thesis incorporates capital mobility into more traditional interest group theory. This adjustment gives firms and their lobby groups more power in the political process than thus far admitted in interest group theory and fits the trends and evidence in sports subsidization quite well. The conclusion is that sports subsidization should not be thought of in terms of welfare economic notions of a positive externality. but rather, as the result of a political outcome in whic the teams are well placed to receive public support from the government.