How a public trust fund helps Texas cities host the NCAA Final Four

Everything is bigger in Texas — even the sporting events.

It's no coincidence that this year's Final Four tournament is held in Houston; the state has, since the passage of a 2003 statute, aggressively courted major events using public funds. It even set up a trust fund that cities can tap into when they want to host a large event. Houston has put $8.4 million from it toward this weekend's NCAA men's basketball national semifinals and championship.

What Texas does is an anomaly, as many cities opt for tax hikes to raise their own funds for large events. And spending this public money is controversial among economists, who see it as an unwise use of taxpayer dollars. But it does mean that a disproportionate number of NCAA men's basketball championships now happen in the Lone Star State.

Josh Rosenblat and Javier Zarracina / Vox

Why Texas has hosted more recent Final Fours than anywhere else

Texas cities hosted just two NCAA Final Fours between 1985 and 2004.

But in 2003, the state tried out a novel financial strategy for cities to use public funds to attract and finance sporting events. It became the only state to set up public trust funds for its cities to use to attract major events.

Using public money to pay for sports stadiums and major events like the Olympics isn’t new. But Texas does something different: It lets cities apply to use a pot of money that the state maintains, in order to host a big event.

The Major Events Trust Fund, as it's called, is different from other programs because it sets aside a portion of state money for the cities to use to cover the costs of hosting huge events. Other cities might have to raise taxes or find other ways to pay for the events, while cities in Texas can receive enormous sums of money without having to do so.

Texas maintains a list of events that these funds can be put toward, which includes everything from the NCAA Tournament to a World Cup soccer game, Elite Rodeo Association world championship, or the X Games.

In essence, when San Antonio hosted the Final Four in 2004, it was able to commit millions in automatic public support simply by submitting an application to the state. Between 2004 and 2018, Texas will host one in three NCAA Final Four tournaments, along with numerous other major events including Super Bowls, NBA All-Star games, and other competitions.

A handful of other states have followed in Texas's footsteps. Louisiana, Florida, Indiana, and Missouri all have grant and other smaller funding programs available to cities and organizing committees for attracting major sports events, according to a 2015 report by the Texas State Auditor’s Office. Only three of the Final Four's host cities since 2004 have not been located in these states.

Photo by Ronald Martinez/Getty Images

Is spending all that public money worth it?

One reason Texas invests so much money into attracting these events — and why other states have followed in its footsteps — is that Texas thinks it will end up earning back significantly more than it spends.

Houston has projected an estimated $300 million in overall economic impact from about 70,000 out-of-town visitors spending time in Houston over the course of the week.

Economists tend to be skeptical of those types of numbers. Craig Depken, an economist based at the University of North Carolina in Charlotte who has studied the economic impact of numerous sporting events, including Final Fours and those located in Texas, told the Austin Statesman in 2012 that the forecasts often promise 10 times the actual net economic benefit.

"I've read hundreds of these things," Depken said. "And I don't think I've seen one that wouldn't be panned by economists. They are all very rosy projections."

The two big reasons for the overestimation: The projections often assume all the generated revenue will stay in the city, according to economists Victor A. Matheson and Robert A. Baade. Their study tracked the economic gains and losses for host cities of both the NCAA men’s and women’s Final Fours. Over the course of their research (1970 through 1999 for the men and 1982 through 1999 for the women) the economists found no substantial gains in economic growth for the host cities.

Big sporting events definitely do drive up the cost of hotel rooms and increase demand at restaurants and bars. But it's not clear that the revenue stays in the city. If a hotel in Houston, for example, has huge profits from this weekend, it might just send that money right back to its corporate parent organization. Economists are skeptical that the money gets recycled back into the economy.

What's more, sporting events can drive out local consumers for the weekend. It would presumably be a mess to try to go out in a bar near the NCAA tournament this weekend.

But Houston doesn't actually have to worry too much about this, since the state gives it millions to pay for the events. That probably helps explain why the city is already planning for another big sporting event: In February, it will host Super Bowl LI.

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