Abstract: This study empirically examines the impact and mechanisms of sports fiscal expenditure on the innovation-driven development of the sports industry, utilizing panel data from 29 Chinese provinces (autonomous regions and municipalities) spanning 2007 to 2023, and applying multiple regression techniques and spatial econometric models. Key findings include: 1) A 1-billion-yuan increase in sports fiscal expenditure raises sports industrial innovation-driven development levels by 2.6 percentage points, a robust relationship confirmed through multiple robustness tests. 2) The policy effect exhibits significant regional heterogeneity and interdependence, with the innovation-promoting impact of sports fiscal expenditure declining from western to eastern regions and being particularly pronounced in less economically integrated areas. 3) Sports fiscal expenditure drives innovation primarily by boosting labor productivity and mitigating excessive industrial agglomeration, revealing dual channels for enhancing industrial innovation-driven development. 4) The positive effect of sports fiscal expenditure on local innovation can spill over to neighboring regions, generating significant spatial spillover effects. These insights inform policy priorities to accelerate sports industry innovation by refining fiscal allocation structures to balance scale and regional equity; fostering cross-regional collaboration and resource sharing frameworks; prioritizing productivity-driven innovation over agglomeration-centric growth; and strategically amplifying spatial spillovers effects.