Is Sport Significant Enough to Justify Subsidisation by the Government?

Introduction

The last few years from the 1990s into the early 2000s have witnessed rampant growth in the sports sector in the US. According to Ayele (2002, p.1), sports have become an important element of tourism. Most countries are competing to hold sporting events. As a result, there has been an increased growth in sports infrastructure to cater to the increased demand for sports. This is because most economies perceive sports to be an important element of tourism. This has resulted in increased subsidization of sports by the government. For instance, eighty six of the one hundred and twenty teams belonging to the professional league in Canada and the US were utilising sporting facilities that were significantly refurbished from 1990. The cost of refurbishing these sporting infrastructures was approximately $ 6 billion. The largest percent of this cost came from taxpayer monies.

Another case of increased subsidisation of sports facilities is evident in the 2006 World Cup that was held in Germany. In this event, an amount that was in excess of $ 1.6 billion was incurred by the local, federal, and state government in association with banks and other local partners in the construction of stadiums. This is also evident in the 2002 World Cup that was held in South Korea and Japan. An approximate amount of $ 6 billion was incurred (Wladimir & Stefan, 2006, p.137). This makes it evident that the increased subsidisation of sports by the government is at the expense of the taxpayer’s monies. This paper is a report analyzing the economic reasons why the government should not subsidize sports. The objective is to illustrate the fact that sports are not significant enough to justify subsidization from the government.

Supporting arguments

Economic impact: slow down in the rate of economic growth

An increase in government spending in organizing sports events and construction of sports infrastructure results in a reduction in government spending on other public services. This is because a large percentage of taxpayers’ money is channeled to this expenditure. The government may result into increasing the rate of tax to cater for its public spending. This has the effect of limiting the rate of economic growth. This is because individual and institutional consumption is reduced. The reduction in consumption culminates in a reduction in the level of private investment. For instance, in most cases, sales tax, tourism taxes, hotel taxes, and car rental taxes are increased to finance sports facilities (Michael, 1997, p.11). The total effect is a reduction in the aggregate demand and hence the Gross Domestic Product (GDP).

To effectively undertake the projects, the government will be required to source expertise, technology, and other specialized materials from external sources such as foreign countries. This increases the size of the country’s outflow. This culminates in a reduction in the country’s rate of economic growth.

Sports result in individuals spending money on games instead of other activities that can result in local economic growth. This is a reallocation of spending in an economy and not a net growth in economic activities (Wladimir & Stefan, 2006, p.140).

Increased public debt and loss of employment

Subsidizing sports demands a significant amount of money. To source these funds the government results in borrowing from individuals and institutions such as the banks. The result is an increase in the size of public debt. Because the government is obliged to pay these debts, the government increases the tax rate which results in an increased burden for the public. Therefore, the benefits that result from increased subsidisation of sports are not comparable to the cost that the public incurs in terms of increased tax and loss of employment (Wladimir & Stefan, 2006, p.137).

Costs and benefits

Even though sports are among the sectors that can stimulate economic growth, various opportunity costs are associated with public expenditure on sports. Sporting event results in an increase in government expenditure through various avenues. For example, by hosting a major sporting event, the government is required to provide security, public transportation, and sanitation for the large crowd that attends the match. The cost incurred is directly related to the sporting event. If the sporting event is major, the potential cost that the government incurs in providing these utilities is high and vice versa. For instance, in the just-concluded Olympic Games, the Greece government spent an approximate amount of $1 billion (Wladimir & Stefan, 2006, p.138).

Major sporting events result in increased noneconomic costs for example environmental degradation, disrupting residents’ lifestyles, riots, vandalism, and traffic congestion. This is because there is increased tourism both domestic and foreign which results in congestion. According to Wladimir and Stefan (2006, p.138), these costs are not reported in most cases. In addition, these costs affect the economy’s productivity in the short run.

Misuse of the various revenue streams

Expenditure related to sport is mainly financed from various revenue streams such as parking sales, fees on hotels and restaurants, concessions, and tickets. The use of these channels as sources of revenue helps in reducing the burden for the taxpayers. This principle is in line with the public’s finance ‘A-benefit principle.’ The principle asserts that the cost of public goods should be incurred by those receiving the benefits. Subsidizing sports would result in the misappropriation of the taxpayers’ money. This is because the tax will still be collected despite the absence of the sports infrastructure.

Concise recognition of the ‘other side’

Sports are amongst the avenues that can result in increased growth in the local economy, especially within the urban areas. This is because they have both an indirect and direct effect on the local economy. The main reason for increasing sports subsidies is to enable the owners of the sports team to construct new and profitable sports infrastructures. Professional sports could not be in existence in our current economy without the government subsidizing the cost of constructing sporting facilities.

Sports result in an increase in individuals’ level of income, increased government revenue through taxation, and the creation of new jobs. Currently, professional sports clubs have become one of the avenues in which individuals invest in form of shares. This increases their level of income. The indirect benefits associated with sports include enhancing the image of the city and urban areas. Sporting facilities also increase society pride which can culminate into increased business growth within the cities and urban areas (Michael, 1997, 15).

Conclusion

Considering the increased growth in sports over the past decade, the benefits associated with sports do not justify an increase in government subsidization of sports. This is because the costs associated with public expenditure on sports are numerous. A large percentage of tax payer’s money is channeled to the construction of sports infrastructure at the expense of other public utilities. In addition, sports do not result in a net increase in the rate of economic growth in the local economy but it is only a reallocation of government spending. Increased subsidization of sports slows down the rate of economic growth. This is because the government increases the rate of the tax such as the corporate tax on hotels and car rentals to cater for the expenditure. This results in a reduction in public consumption which discourages private investment in other sectors.

Major sporting event results into other an increase in government spending on other cost items such as security, transportation, and sanitation. This puts a strain on the taxpayer’s monies. In addition, other non-economic costs are associated with sports. These include disruption of the lifestyle of the residents, environmental degradation, riots, and vandalism. These hurt the local economy’s productivity in the short run. Subsidizing sports can result in misuse of the various revenue streams since the taxpayers will have to pay the tax even in the absence of sports facilities.

Numerous costs are required to subsidize sports. The government results in borrowing from the public and financial institutions. The effect is an increase in the size of public debt. This strains the taxpayers since the government is obliged to pay the debt.

Sports can result in an improvement in the city’s image which can culminate in an increase in tourism and tax revenue. However, they do not result in net economic growth, and also the costs associated with sports are huge.

Reference list

Ayele, G. (2002). Local economic impacts: British open. London, UK: The Macaulay Institute. Web.

Michael, A.G. (1997). Sports facilities and metropolitan economic development: the impact of professional sports facilities on sales tax revenue in metropolitan statistical areas. Texas: Texas University of San-Marcos.

Wladimir, A. & Stefan, S. (2006).Handbook on the economics of sports. Cheltenham: Edward Elgar Publishing Limited.