International and Australian Experiences
The major expenses of sporting teams are the players and the stadium in which events are hosted. In the previous chapter, we discussed the manner in which the market for the former is influenced by salary caps, player drafts and other regulations which generally restrict player freedom, ostensibly in return for greater competitive balance. Governments do not have direct involvement in the labour markets, but provide a host of regulatory exemptions, such as the setting aside of competition laws and regulations protecting workers’ rights. By contrast, government involvement in sporting stadiums is direct. Government subsidies are a key and sometimes sole funding component of the costs associated with acquiring land, construction and renovation of stadiums. These subsidies are the focus of this chapter, while Chapter 5 deals with the related issue of subsidizing sporting mega-events. A useful starting point is to consider why the private sector might under-provide stadiums. One obvious candidate is difficulties raising capital in financial markets, perhaps because sports teams have no useful collateral to offer. Under-provision by the private sector may also be generated from market failures other than in the financial sector. Given that crowds will generally pay an entrance fee up to their marginal valuation, the case for government involvement most likely turns on the existence of positive externalities or public good characteristics.
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