A New Stadium For Manchester United

Like most mega projects, the Manchester United proposal for a new £2 billion, 100,000 seat stadium sounds irresistible. Architects envision an umbrella design that includes a massive public plaza. Ultimately, through new jobs and visitors, they expect the project will add £7.3bn annually to the UK economy. Team owners say it will be “the world’s greatest football stadium.”

The rendering of the new Man UTD stadium is quite razzle dazzle:

As economists, we can ask if they have an “optimism bias.”

Manchester United’s New Stadium

Supporters

Most supporters of new sports stadiums remind us of the civic pride they generate. Moving to the numbers, they cite the jobs created by a massive construction project. Then, fans spend money at the stadium and beyond. Whether it’s the tickets, or the parking, or the restaurants, consumers spend big money that will be re-spent by the recipients.

Proponents of the Man UTD project expect community spirit will soar higher than its current heights. They say a typical 10-year build-out will be halved because of their modular blueprint and the transport potential of the nearby canal. Emphasizing the role of private finance rather than public money, they say Manchester’s tax dollars will not pay for it. Rather, the new stadium will add to tax revenue.

Opponents

Sports economists ask that city planners not be swept up by the excitement of a grand project. They say to consider the opportunity cost of proceeding. Always, there are sacrificed alternatives.

With a stadium, we have tourists that would have visited the city anyhow. We have the residents that don’t have their usual Saturday night dinner at a local restaurant. Furthermore, traffic congestion and law enforcement divert resources that would have been used elsewhere while multinational hotels send tourist revenue to distant headquarters. And finally, many studies indicate new stadiums generate minimal economic growth and more crime.

Our Bottom Line: Optimism Bias

De-composing an optimism bias, one researcher explained why planners proceed with high speed railways, extravagant stadiums, and other mega-projects (like the Olympics):

1. Technological: Creative anticipation generates enthusiasm among the designers of the project.
2. Political: Politicians like to initiate and implement a razzle-dazzle project.
3. Economic: Ranging from financiers to contractors to lawyers, the new jobs foster a supportive constituency.
4. Aesthetic: The beauty of the project and its energy captivate a broad audience.

Nobel economics prize winner Daniel Kahneman and his co-author Amos Tversky (1937-1996) suggest people’s tendency toward an optimism bias leads us to underestimate costs and overestimate the benefits of a project.

Displaying a rosy outlook, the optimist sees the glass as half full:

We can ask if Manchester United’s stadium planners exhibit an optimism bias.

My sources and more: The St. Louis Fed is a good place to start considering the impact of a new stadium as is this more recent research roundup. Then, for our optimism bias, this paper from Danish scholar Brent Flyvberg takes a closer look.