Study: NBA arenas just as lousy for local economies as other sports venues

If you’re behind on your reading of The Journal of Urban Affairs like me, you may not have yet seen George Washington University grad student Geoffrey Propheter’s February study of the economic impacts of basketball arenas. Fortunately, Atlantic Cities has noticed (though apparently not that the study is six months old), and has a substantial report on Propheter’s findings.

Arenas, as Atlantic Cities’ Richard Florida notes, are likely to provide the best economic bang for the buck of sports facilities, given that they come with slightly cheaper price tags than stadiums and can operate 200-plus days a year, what with concerts and the like. Propheter ran “a series of multivariate analyses” of income in cities with new NBA arenas — a la Robert Baade‘s classic studies of cities with new buildings in all four major sports — and, Florida writes, came to the conclusion that there was “no statistically significant association between having an NBA arena or an NBA franchise and MSA regional personal income.”

Propheter did note that a handful of cities (Atlanta, Boston, Chicago, Denver, Indianapolis, and Oklahoma City) appeared to see income gains, but this was likely the result of “income transfers from the suburban area around the central city” — i.e., the same money was being spent in the region, it was just being spent downtown instead of at the local Olive Garden. Basketball-only cities with new arenas since 1995 — that’d be Portland, San Antonio, Orlando, and Memphis if I’m counting right — also saw a positive impact, presumably again because the NBA was the only thing that was going to bring people downtown. But since the overall effect was pretty much zero, this means that other cities actually saw income decline with new arenas, which is less promising.

If all this sounds like I’m going entirely by the Atlantic Cities report and not Propheter’s original, you’re right — my subscription to The Journal of Urban Affairs must have, um, lapsed. Once I track down the study itself, I’ll post any additional interesting findings.

UPDATE: I now have Propheter’s paper, and it looks very solid — it even includes a time variable to avoid attributing too much economic impact to the honeymoon effect that ramps up interest in new sports venues for the first few years. It also compensates for regional economic strength — one of Propheter’s key arguments is that cities aren’t economically successful because they have new arenas, they’re attracting new arenas because they’re economically successful — and finds:

Finally, Model 6 examines the most recent set of arenas completed during 2001–2009. After controlling for economic strength, the impact of an arena is negative and is significant at the 96% level; each facility is associated with a real per capita income decline of $2,430. … Contrary to previous research, then, newer and more expensive facilities with greater amenities do not boost regional economic development.

There are enough variables at play here that it’s probably unfair to say, “Build an NBA arena and your per-capita income will fall by $2,430.” But it’s certainly further evidence that if there’s any net gain to cities from building sports venues, you have to squint awfully hard to see it.

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13 comments on “Study: NBA arenas just as lousy for local economies as other sports venues

  1. Income transfers. I’ve always found that principle to be a bit suspect. Just because someone isn’t spending money in downtown at an arena/stadium doesn’t mean they’d be spending it elsewhere at the Olive Garden. More likely they’d just be sitting at home watching the same sporting event for free on TV.

  2. And yet, the economic data show that they spend pretty much the exact same thing regionally regardless of whether there’s a sports team.

    Keep in mind that people don’t have to be spending the money at Olive Garden *the same night*. If they put the money they saved on not buying NBA tickets into their bank account, wait till the end of the month, look at their bank balance, and think, “Awright! Time for breadsticks!” then it has the same effect.

  3. Do the conclusions change if the number of franchises change? It makes somewhat logical sense that spending wouldn’t change much if a ‘replacement’ arena is built (eg, Boston, Orlando). But if a new arena is built and a new franchise is added (eg, Oklahoma City), can/does that have a statistically significant benefit?

  4. Most of Propheter’s paper actually concerns the presence of an NBA arena at all, not whether it’s new or not. (I’ve edited this item to reflect that.) Regardless of when the arena was built, having an NBA team doesn’t help your city’s economy.

    I don’t have Baade’s papers handy, but I’m pretty sure that he found the same results for cities with new teams and cities with old teams in new arenas: basically, no measurable impact.

  5. If you are so lucky to have access to a library with the article…

    After controlling for subregional economic strength, I found that arenas built in basketball-only cities during 1995–2009 and arenas built in all cities in 1988–1994 had positive impacts on real MSA per capita income. More precisely, the addition of an arena increased per capita income by about $600 and $1,438, respectively. In multisport cities during the same period, no statistical conclusion could be drawn about arenas’ impacts. On the basis of previous contingent valuation studies, taxpayers in single-sport cities have supported larger subsidies than taxpayers in multisport cities. Thus, single-sport cities may pay more but they also receive more. Nevertheless, the net economic impact in both types of cities is most likely negative (Coates, 2007).

    In addition, for all MSAs, the newest generation of indoor facilities built during 2001–2009 led to a decline in per capita income of about $2,430, a larger decline than in any other period modeled. That cities with the newest facilities suffer substantial declines in per capita income reflects the extent to which they are willing to forego growth in exchange for greater facility amenities and intangible benefits such as being a nationally recognized sports city (Coates, 2007;
    Coates & Humphreys, 1999; Rosentraub, 1997). However, an insufficient amount of observations precluded further testing to determine if the newest facilities’ negative impact varies across multisport and basketball-only cities.

    Second, past estimates about arenas’ impacts are likely biased due to omission of a subregional economic strength variable. Sensitivity analyses in four of the six expanded models show marked changes in the arena coefficients’ sign, magnitude, and statistical significance when the strength variable is removed.

    In general, my findings support the conclusion that context is important for understanding the economic impact of sports facilities (Santo, 2005). However, the context that is important is not facility-dependent but rather city dependent. The pre-existing economic strength and sports infrastructure are key predictors of the success of basketball arenas. Basketball arenas are not primary catalysts of economic development but are instead economic complements. The present research is generally consistent with the notion that professional sports are not the cause of development so much as they are the effect (Coates, 2007).

  6. I’m looking forward to seeing the results of any economic impact studies once the Barclay’s Center opens in Brooklyn.

    I think they will support Propheter’s key argument – Brooklyn attracted a new arena because it’s now economically successful.

  7. Living here in North America (Canada actually) and I look around asking – what are we selling to foreign countries? Because it’s not court side tickets to tonight’s basketball game nor is it box seats to a hockey game. It would be nice if when people talk about “economic impacts” it deals with making something tangible we can sell overseas to bring in money that otherwise wouldn’t be here. And it begins with investing in products and services we can sell to them. Not flashy things that will entertain us.

  8. Brooklyn will be an interesting test case, because they they are upgrading the BAM Cultural District with new venues for plays, and high brow entertainment. It will be interesting to see which of the investments will be the most profitable? Although it can be debated if we should spend public money on sports facilities, I have never been of the opinion that sports facilities take away from people going somewhere else (Such as to Lincoln Center). Generally speaking you have different audiences: The person going to a sporting event is not going to see the ballet or Shakespeare (Except perhaps tennis because there is a similiar elitist crowd). Since both will be tried in the same Brooklyn area, we will find out.

  9. @Andrew T- does creating a subsidized NBA franchise that we can sell to Russian gazillionaires (the Nets) count? Thank you oligarch overlords!

  10. “Income transfers. I’ve always found that principle to be a bit suspect. Just because someone isn’t spending money in downtown at an arena/stadium doesn’t mean they’d be spending it elsewhere…”

    So the money that isn’t being spent “downtown” is going into savings? (Anywhere else is spending, well, elsewhere.) Interesting theory: the savings rate among sports fans in cities without sports teams is greater than that of sports fans in cities with sports teams. I’ll believe it when I see a study that proves it. Most people have a certain amount of discretionary income, it’s just a matter of where it gets spent.

    Reminds me of creating lottery games to pay for stadia and ignoring the fact that it diverts revenue from other lottery games which, in turn, has to be replaced by other funding sources (i.e. taxes). The “money out of thin air” theory.

  11. My favorite story along those lines is how after Maryland passed four new sports lotteries to fund stadiums for the Orioles and Ravens, they tried to start one to fund schools and were informed that the market was tapped out.

    Everything isn’t a zero-sum game, but some things are.

  12. The idea that your average person actually runs their finances according to a budget and thinks “no sports team in this town so now I can save a extra $1,000 for retirement” is comical.

    Most Americans have a level of savings/debt they are comfortable with, and just try to maintain that level until circumstances change. If you move them into a new town with no sports teams but lots of camping they become campers, or fly to a few games, they don’t suddenly hoard cash. The idea is just absurd.

    A few accountants and very numbers oriented people might have the foresight/psychoses to save those funds for some future day when they have better access to pro sports, but not very many.

  13. Thanks for posting the study. Showing Cities in large “markets” but relatively small actual populations (ATL, BOS, DEN) only makes the idea that Seattle should build an arena more obvious.

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