Another claim of taxpayers losses from sports lockouts, another load of crap

I’m on the road today and tomorrow so posts will be more abbreviated than usual, but that’s hardly going to matter if Deadspin keeps doing my job for me:

The lockout has officially arrived when newspapers start reporting half-baked economic impact projections that are so far removed from reality as to be laughable. You know the sort. “Team X brings in so much money, without them the city would go broke and revert to feudalism OMG.” These studies are usually trotted out to justify building billion-dollar taxpayer funded stadiums, so using one to sound the alarm on a labor stoppage is somewhat less odious, if no less full of shit.

Deadspin’s Barry Petchesky goes on to outline exactly why these economic impact projections — this particular one claims the city of Detroit will be out $84.4 million if there’s no NHL season — are full of shit, including inflated multipliers (“If someone tips their bartender $10, then that bartender buys a hat for $10, that’s not $20 added to the economy. That’s not how money works.”), blurring of the difference between economic activity and actual tax revenue (“Attendance? Merchandise? Concessions? That goes straight into the Red Wings’ pockets, not the city of Detroit’s.”), and failure to account for the substitution effect (“People tend to spend whatever disposable income they have, and if they’re not going to hockey games, they’re going to do something else with it.”).

Go read it. Then if you want a more in-depth version from a year ago with “basketball” in place of “hockey,” read this.


8 comments on “Another claim of taxpayers losses from sports lockouts, another load of crap

  1. I love these sort of articles and wish more established media outlets vented like this and no whine about a local merchant who won’t sell his hockey cards during these stoppages.

    That said there is some impact that is being ignored. My brother-in-law is an (unhappy for reasons outlined on this website) Oilers season ticket holder and he spent $2700 for a pair of tickets which he has paid in full. Now, he’s going to get that money back eventually either in the form of when a season begins or when he gets his money back. So it’s not gone for good. But right now he’s got $2700 tied up as do others that can’t be spent in the meantime.

    A small, minute impact…

  2. While that figure is obviously highly inflated, I think the same argument could be made on the claims that stadium critics make. Yes, people are going to spend their disposable income, whether it’s on hockey or not. But in a place like Detroit, they are more than likely going to spend it in the suburbs, because that’s where most people in that region live. So if there are no Red Wings games, the chances that person ventures into the city are much less. I mean you can go to a movie in the burbs. The Pistons already play in the burbs, and the Tigers are probably going to miss the playoffs. So Detroit itself might notice a drop in tax revenue. I am sure it is a fraction of the $84 million. I just think it’s something that outspoken stadium critics often overlook

  3. FYI Neil and others: “Rams impact on St. Louis Businesses” feature is coming to the St. Louis Post-Dispatch this Sunday. Based on the promo video here, pretty sure I know what the answer is already.

    http://www.stltoday.com/site/news/national/rams-impact-on-st-louis-business/vmix_34533e2c-099e-11e2-93d3-0019bb30f31a.html

  4. Neil has always had a hard time explaining micro level impacts to cities that while larger from a region perspective (say Seattle) are surrounded by tons of suburbs and to argue that the same amount of money will be coming in from the suburbs into the city the stadium is located doesn’t match the reality in which people live…at least not here in Seattle.

  5. Could they be referring to the player payroll? In that they will be taxed for their income AND they will also turn around and spend every cent at local malls, dealerships, and chicken wing eateries?

  6. @ Dave

    If instead of spending money at a hockey game people spent money at roller rinks, movies and bowling alleys there would be people pulling a paycheck and paying taxes on that same paycheck. Not 100% sure how US tax laws work, but unless the top wage earners pay a premium tax compared to the low wage earners chances are that the taxed revenue you are talking about will be a wash regardless of where the employees work.

    As for all the local spending athletes do – I’ve never done an in depth analysis of athlete spending but based on what I’ve heard up here in Edmonton many pro athletes expect free drinks when they go out. They also have access to vehicle leases or vehicle use under some sort of promotion agreement so I don’t expect much impact in those areas. Many players don’t live here year round so once the season ends they are off building dream homes and living by water fronts outside of Edmonton.

    While I’m sure that every team that spells out the economic impacts their presence has in a local market includes the expectation that an athlete spends 100% of his salary every year I find it extremely hard to imagine that guys are blowing $5.5M (before taxes) every year in one city.

    I expect a lot of bleeding on player salaries exiting a local market…

  7. Myk: Not at all. Here, for example, is me way back in 2004 acknowledging that D.C. would do better than some other cities in terms of substitution because it can draw off of neighboring jurisdictions:

    www.baseballprospectus.com/article.php?articleid=3508

    And in my calculations of the Seattle arena impacts, I made sure to note that it would help that some visitors would come from the suburbs who would otherwise stay home and spend money at the local 7-11 or whatever. The problem isn’t that the substitution effect is 100%; the problem is that it’s greater than zero, and when you add the other problems with economic impact statements, you end up shifting the decimal point over at least one place.

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