Sports facilities, agglomeration, and public subsidies

• Develop a monopolistic competition model of urban service consumption and production
• Model includes spatial structure, property values and sports facilities
• Expanded model includes jurisdictional competition for sports teams through subsidies
• Explain why cities provide large subsidies for sports facility construction
• Motivate existing empirical literature on the economic impact of professional sports

We develop a monopolistic competition model of urban service consumption and production that includes spatial structure and property values. The model shows that the introduction of a new professional sports facility and team generates agglomeration effects that change the mix of services and property values, and increases local welfare, part of which is transferred to the team as subsidies for the construction of the facility. The distributional consequences of the new facility and the implications of property tax based financing for the subsidy are analyzed.