Two American cities are making billion-dollar investments in professional sports. In Oklahoma City, voters approved a plan to fund a $900 million arena for the NBA's OKC Thunder team, with taxpayers covering approximately $780 million through a six-year, 1% sales tax. The owners will contribute only $50 million, and the remaining $70 million will come from available arena funds. Similarly, in Charlotte, the Carolina Panthers (NFL) secured a $650 million public investment to upgrade their stadium, Bank of America Stadium, for renovations and upgrades.

Both of these deals are intended to secure the franchises' long-term presence: the Thunder until at least 2054 in Oklahoma, and the Panthers and Charlotte FC until 2039. To many residents, these projects look just like corporate welfare: millions in public funds used to subsidize billionaires. However, city governments see them investment, with enormous economic spillovers. Indeed, they can be seen as a positive externality of production.

An externality refers to the situation where economic activity affects others who aren’t directly involved in the production or consumption of a good or service. When those effects are beneficial, it’s a positive externality. A positive externality of production is when the production of a good creates benefits for society beyond what the producer receives. Due to the unbalanced gains, firms provide less than the socially optimal quantity. To reach this quantity, governments intervene with subsidies or support to boost production at that optimal level.

Oklahoma City's downtown was essentially a ghost town when the Thunder showed up in 2008. Today, the surrounding blocks are filled with restaurants, hotels, apartments, and a convention center. The gains included a spike in property values, the creation of new jobs, and a stronger city identity, which are spillover benefits that go beyond ticket holders or owners. According to Oklahoma City government the City’s GDP has grown 62% and moved from America’s 31st-largest to its 20th-largest City.

The renovations to the Bank of America Stadium are no exception. The stadium may not pay for itself directly in tax revenue increases, but it sustains a community built around traffic. 1.85 million people are coming to NFL games, Major League Soccer games, and concerts. Each event hosted at the stadium fuels hotels, restaurants, drivers, and many other goods and services.

While many economists question whether big investments into stadium projects will truly deliver the expected returns, both Oklahoma City and Charlotte have proven that the power of sports is beyond ticket sales. These investments aim to correct market failures but also raise equity concerns, since regressive taxes fund billionaire-owned teams. Whether cities opt to use public funds to invest in their stadiums is a political question, but economically, the question is whether the expected gains for the city justify the massive investment over time.

Harrison, S. (2024, June 3). Carolina Panthers, Charlotte unveil plan to overhaul stadium with $650 million from city. WUNC. https://www.wunc.org/2024-06-03/carolina-panthers-charlotte-unveil-plan-to-overhaul-stadium-with-650-million-from-city?scrlybrkr=e27e827e
Oklahoma City voters mull tax to build $900M arena for Thunder - ESPN. (2023, December 10). ESPN.com. https://www.espn.com/nba/story/_/id/39083237/oklahoma-city-voters-mull-tax-build-1b-arena-thunder
“Mayor Holt announces plan to build new arena without raising taxes.” OKC.gov, 12 Sept. 2023, www.okc.gov/News-articles/Mayor-Holt-announces-plan-to-build-new-arena-without-raising-taxes-includes-commitment-by-the-Thunder-to-play-in-new-arena-beyond-2050-if-voters-approve.