Category: economic impact studies

World Cup could bring hundreds of millions in spending to U.S., but that’s not actually that great: an explainer

access_time personNeil deMause

So yeah, that story I didn’t get to from Friday: It was in Sportico, the new “business of sports” publication (always take with a grain of salt anyone who covers “business of,” unless they also make a point of covering “labor of” and “consumer rights of”), and was about the economic impact of the World Cup. And it included a surprising (if you’re only dimly paying attention to economics) voice arguing that the World Cup packs more bang for its bucks than, say, the Super Bowl or Olympics:

Victor Matheson (professor of economics, Holy Cross) explained, “If you have [an] event that people will travel to, [there is] some potential impact (i.e. new spending in the city as a result of the event). But the impact is smaller than one might guess and way smaller than the leagues or other boosters try to tell the public.”

That’s not the case with the World Cup, though–even as FIFA controls nearly all commercial rights tied to the quadrennial tournament. “Because of the long nature of the event and the ability to accommodate lots of tourists, [a city] realistically could be looking at hundreds of millions in new spending due to foreign tourism during a World Cup,” Matheson said.

If you’re even only dimly paying attention to this website, you’ll recall Matheson as one of the foremost pooh-poohers of economic windfall claims: He’s appeared here in the past citing the economic impact of a baseball postseason as statistically indistinguishable from zero, noting that attendance at Broadway shows actually fell when the 2004 Republican National Convention was in town, and calling a plan to move the Olympics to Florida “batshit crazy.” (Matheson has a way with a quote. Also that plan was exceptionally batshit.) In the case of the World Cup, though, he’s willing to move the decimal point a couple of spaces to the right, and call hosting the event a windfall — though it’s still important to remember that the hundreds of millions of dollars would just be in economic impact, which Matheson himself memorably defined as: “Imagine an airplane landing at an airport and everyone gets out and gives each other a million bucks, then gets back on the plane. That’s $200 million in economic activity, but it’s not any benefit to the local economy.” What gives?

As Matheson emailed me when I asked about it, he’s done several studies on the World Cup (unsurprising, as he moonlights as a college soccer referee), including his most-cited paper, 2004’s “The Quest for the Cup: Assessing the Economic Impact of the World Cup,” which he co-wrote with Robert Baade of Lake Forest College. After running through all the reasons why sports impact predictions are often overstated — they assume all local spending by fans wouldn’t have happened without the sports event, they ignore crowding-out effects where sports tourists just take up hotel rooms that would have gone to regular tourists, etc. — Baade and Matheson found that during the 1994 World Cup in the U.S. “the average host city experienced a reduction in income of $712 million relative to predictions” of what they would have received without the Cup, though some cities fared better and some even worse. Among the apparent reasons:

  • Crowding-out effects from other tourists steering clear of town during Cup games, to avoid high hotel rates and “rowdy” soccer fans. And because matches aren’t held on consecutive days, people who are scared off likely disappear more than just the dates on which games are being played.
  • Residents may flee town as well during the Cup, or at least stay away from areas where games are being held, which could put a damper on downtown restaurant spending, say.
  • Increased interest from locals in watching the World Cup, once it being in town makes them realize soccer is a thing, could make them stay home to watch on TV if they don’t have tickets, which, cf. above.

So the World Cup is no great shakes either — what’s the deal with that “hundreds of millions in new spending,” then?

The answer is it’s not actually all that much money compared to what Cup boosters claim: One projection cited by Baade and Matheson had the 1994 Cup creating $4 billion in economic impact, which, just no. And even a few hundred million in economic impact likely translates into just a few tens of millions in actual city revenue, since only a thin slice of that spending is paid out in taxes. So a World Cup could be good if you own a restaurant across the street from the stadium, but it’s not going to make a huge difference in a city’s budget.

Which brings us to the main plus about the World Cup, according to Matheson: If enough stadiums are already in place that you don’t have to spend a ton of money to build new venues, then even a small windfall is free money, and nothing to turn up your nose at. That’s likely to be the case for the 2026 Cup — but wasn’t for, to pick one example, the 2014 Cup in Brazil, with predictably tragic results.

The lesson, then, is the same for the World Cup as for all sports megaevents: Don’t believe the hype about economic impact, but if you keep your costs low enough, you might see a modest bump in local revenue. That’s a less dramatic way of saying it than Sportico’s “World Cup’s Duration, International Draw Make Event Economically Worthwhile For Host Cities” —  cough bus parking lots cough — but it’s also less likely to result in excited city officials blowing billions of dollars in fits of exuberance.

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Friday roundup: NFL teams debate which fans will be the first to enjoy socially distanced peeing

access_time personNeil deMause

Pressed for time today, so while I’d love to comment on everything in the world that happened this crazy week, I’m just going to give you a link to my article on news coverage of the California fires and the state’s reliance on incarcerated people to fight them, then get straight to a quickie news recap:

  • The Cleveland Browns will reportedly “consider personal seat licenses” in determining who gets to attend reduced-capacity games this season, which isn’t very specific: Would season ticket holders with PSLs (which is almost all of them) get priority? Would those who spent more get let in first? One can only imagine the Browns front office debating which is the fairest solution, and/or which would help maximize team revenues, because you know that the latter is never very far from sports owners’ conception of the former.
  • If you’ve been jonesing for a picture of what socially distanced urinals will look like, Sports Illustrated has you covered.
  • Pittsburgh’s Sports & Exhibition Authority is, according to the Pittsburgh Post-Gazette, “requesting $7.4 million to COVID-19-proof Heinz Field, PNC Park, PPG Paints Arena and the David L. Lawrence Convention Center,” whatever “COVID-19-proof” means. (Lots of urinal covers?)
  • There are new reports estimating the costs to the local economy of spring training in Arizona ending early and the Oklahoma City Thunder season ending early and do you think either of them looked at what, say, sales-tax receipts actually did starting in March, or did they just project out how much money is normally spent at these events and assume that it all vanished into thin air once they were canceled? (If you guessed door #2, congratulations, you can skip journalism school and go directly to a newspaper job, if newspapers or jobs still existed.)
  • No huge new revelations in this week’s Epoch Times report on the Los Angeles Angels stadium deal, but it’s a decent roundup and there sure is a ton of me in it, so check it out if you like. (EDIT: Or actually maybe don’t, if you don’t want to support QAnon and anti-vaxxer conspiracy theories. If you want to know what I said, I’ll post it in comments.)
  • This German study of how people’s breath spreads at an indoor concert is kind of genius, and everyone should be watching to see the results if we ever want to be able to attend indoor events again, whether masked or distanced or ventilated with HEPA filters or what. Results are due in four to six weeks, so stay tuned in early October for further updates.
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What, if anything, will the return of MLB games do for local businesses?

access_time personNeil deMause

Baseball restarts today — for values of “baseball” that include a universal designated hitter, starting extra-inning games with a runner on second, and a bunch of players choosing to stay home and avoid risks of infection — and that has people thinking about what it will do for the rest of the economy, specifically the sports bars and other businesses around ballparks that, we’ve long been told by sports owners and their political allies though not so much by actual economists, get a boost from having games nearby.

The week started with the New York Times, and then other New York media outlets, writing about how businesses around the Yankees‘ stadium are missing out on revenue because of canceled games, and the near-certainty that no fans will be in attendance at any games played at least through the end of this year. Most of the reporting was devoted to interviewing sad local business owners — “We definitely will not be able to survive too long without the games,” said one Bronx restaurant owner who made the extremely poorly timed decision last winter to install a bar to try to draw in post-ballgame crowds; Yankee Tavern owner Joe Bastone said his current business is down 90% from usual — though the Times did turn to architecture critic Paul Goldberger for his expert opinion on sports’ economic impact.

The obvious problem with trying to calculate the pandemic’s sports stoppage’s effects on local businesses is that it’s happening in the middle of a pandemic: New York City restaurants and bars remain closed for indoor dining and drinking, and with as many as one million city residents now unemployed, not many people are rushing out to spend money regardless. The Times article gives one nod toward the broader economic fallout of Covid, noting that “the merchants’ woes have been exacerbated by the virtual shutdown of the hulking Bronx County Courthouse up the hill from the stadium” — but even though the courts are a much bigger driver of foot traffic in the Yankee Stadium area (they’re open more than three hours a day 81 times a year, for starters), we don’t get any articles on their impact on local businesses.

Over in Cincinnati, meanwhile, we have sports bar owners hoping that even fan-less games will provide a boost to their business:

[Kitty’s Sports Grill co-owner Billy] Watson said he would be glad just to get 30 people coming through the door. Kitty’s, which is located across from Paul Brown Stadium on Third Street, just opened for dine-in service last Friday because of how slow business has been.

He estimates probably 90% of people who normally would be downtown during the week are working from home, which means fewer customers. Hours for Kitty’s are 11 a.m. to 8 or 9 p.m. during the week, depending on business; the bar stays open longer on weekends.

“Our crowds are so small.” Watson said. “I feel like our business has gotten hit hard. Some places have outdoor restaurants or established to-go business, and they are doing well, but we are downtown and we rely on people working downtown for our lunches and happy hour. We’re hoping with baseball starting Friday it will give people something to say, ‘Let’s go there to watch the game since we can’t go to it.’ We are hoping that helps.”

Not to diminish the real pain of being a business owner whose entire business model has been unexpectedly torpedoed by an unexpected public health disaster — there are some that are in an even worse position than sports bars — but in the grand scheme of things, whether people spend money on drinking while watching games in bars or on drinking while watching Netflix on their living room sofas is not a hugely significant factor in how the overall economy is doing. Never forget that when baseball went on strike in 1994, Toronto video rental stores and comedy clubs saw a big spike in their businesses, with one comedy club owner quipping he wished hockey would go on strike too.

Obviously it’s harder for other businesses to capitalize on this entertainment spending substitution effect when they’re closed too, and when you have enough people hunkering down at home it starts depressing overall spending and more people get laid off and the whole thing snowballs, and so on. But it’s still a much more complicated calculus than “lack of baseball fans is hurting America,” even if that makes for a snappier headline. Besides, at least the giant cardboard head industry is booming; I wonder if they’re hiring?

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Amazing study claims spending public money on sports is good because big cities are big

access_time personNeil deMause

One of the basic tenets of sports economics at this point is that there is zero evidence that whether a city plays host to sports teams has any measurable effect on its local economic health. That was the finding back in the 1990s when Joanna Cagan and I first started researching sports stadiums, and it’s continued to be the case in more recent studies — though as academic researchers have told me, it’s hard to get new studies approved when studying the economic impact of sports teams is like studying whether gravity makes things fall down.

So it was more than a little surprising when I was alerted (thanks, David!) to a new study out of Ball State University that claims that investing in luring and retaining pro sports teams has a long-term payoff for cities. According to the university’s press release, Census Bureau data show that if you look at certain long-term metrics, hosting a sports team “has a positive effect on the GDP and the population of the metropolitan area.”

There were some red flags, certainly — for starters, nobody on the study team appears to have any background in economics, rather being an assemblage of IT professors and business students — but still I figured this would be worth checking into. And then I got a look at the actual study itself, and I knew that I had to head straight here to share it with you, because this is one of the most hilariously incompetent pieces of academic work you could ever expect to see. Let’s skip straight to the “methodology” section, which is really where you want to start in any economic research paper:

We argue that not all economic benefits are measurable with typical metrics. Nor are they tangible in terms of their visible impacts on the appearance of the city and its residents. Rather, the main impact of investing in large-scale sports facilities and also hosting professional sports teams appears in the long term.

Okay, so not “typical metrics,” but rather something “in the long term.” What’s your actual data, guys?

In order to see the effect of hosting professional sports teams on the local economy, the correlation between the sum of the number of teams and the GDP of the Metropolitan area is calculated which is given below.

GDP SUM(Teams)
Linear Correlation Table Data Set #1 Data Set #1
GDP 1.000 0.881
SUM(Teams) 0.881 1.000

Table1. Correlation between Team Numbers and GDP

And … that’s it. This entire paper is based on the observation that if you look at which cities had the most economic growth from 2001 to 2018, and which cities have the most sports teams, they’re the same cities.

But, you know, of course they are. The whole reason you choose put a sports team in a city is because it’s growing in relative size and economic activity — it’s why Rochester used to have an NBA team, but doesn’t anymore, and won’t anytime soon. Also, the last two decades have seen a historic rebound of the largest cities in particular, with well-off residents and companies alike recolonizing the metropolitan areas that they largely abandoned in the 1960s and ’70s. So if big cities are doing well over all, and big cities have the most sports teams, obviously there’s going to be a correlation there — it’s like observing that rich people tend to own the most yachts, and concluding that buying a yacht is a great way to get rich.

This is one of the most famous logical fallacies of all time, and is usually summed up as correlation does not imply causation. It has its own Wikipedia page, with some terrific examples, the best of which may be this one:

Example 1

Sleeping with one’s shoes on is strongly correlated with waking up with a headache.

Therefore, sleeping with one’s shoes on causes headache.

The above example commits the correlation-implies-causation fallacy, as it prematurely concludes that sleeping with one’s shoes on causes headache. A more plausible explanation is that both are caused by a third factor, in this case going to bed drunk, which thereby gives rise to a correlation. So the conclusion is false.

I reached out to Ball State’s PR spokesperson to see if the authors would be available to answer some questions about their work, but I haven’t heard back. In the meantime, I talked to College of the Holy Cross economics professor Victor Matheson, who agreed with me on the correlation vs. causation error, and added:

It is unfortunate that they didn’t understand the huge statistical error they were making here, but that’s what being a student is all about – learning by doing and recognizing mistakes so you don’t make them again in the future. What is concerning here, however, is that two Ball State professors also put their name on a paper that is clearly wrong and allowed it to be issued in such a way that the general public could read it despite its obvious flaws. Perhaps they were just trying to do something out of their area of expertise and didn’t understand why the analysis was wrong, but I
certainly wouldn’t put my name on a paper about computer technology or information systems unless I was very sure that I wasn’t doing something that would instantly make me look very foolish.

If there’s a silver lining here, it’s that at least this paper doesn’t seem to have resulted in a flurry of media coverage that grabs at the man-bites-dog nature of the headline without looking into whether the paper itself makes any damn sense. In fact, I thought twice about whether writing about this would be giving the paper more attention than it deserved — but it is still a fascinating case study in how bad ideas can take on a momentum of their own, eventually enlisting an entire public relations apparatus to put them out into the world and defend them. Thank goodness we have professional journalists out there to tell legitimate research from utter gibberish — oh wait…

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Friday roundup: Another Canadian sports bailout request, and everyone pretends to know when things may or may not reopen

access_time personNeil deMause

Happy May, everybody! This crisis somehow both feels like it’s speeding into the future and making time crawl — as one friend remarked yesterday, it’s like we’ve all entered an alternate universe where nothing ever happens — and we have to hold on to the smallest glimmers of possible news and the tiniest drips of rewards to keep us going and remind us that today is not actually the same as yesterday. In particular, today is fee-free day on Bandcamp, when 100% of purchase prices goes to artists, and lots of musicians have released new albums and singles and video downloads for the occasion. Between that and historic baseball games on YouTube with no scores listed so you can be surprised at how they turn out, maybe we’ll get through the weekend, at least.

And speaking of week’s end, that’s where we are, and there’s plenty of dribs and drabs of news-like items from the week that just passed, so let’s catch up on what the sports world has been doing while not playing sports:

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Friday roundup: Pandemic could delay Rams and Chargers stadium, drain hotel tax base for Raiders stadium (and kill millions of people, oh yeah)

access_time personNeil deMause

And so we come to the close of Week 2 of Coronavirusworld, with still little way of knowing what Week 3 will bring, let alone Week 8 and beyond. (I just now started to write about this far less grim response to Tuesday’s London study, until I noticed none of the authors are infectious disease specialists and the claim that contact tracing can keep infections under control was cited to a single Chinese news story that said nothing of the sort, so maybe stay grim for the moment?) With pretty much all of the sports world now shut down, though — except for Australian Rules Football for some reason — sports journalists have begun looking down the road at longer-term effects of the pandemic, resulting in some useful and some not-so-useful reporting:

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Friday roundup: Dolphins owner seeks Formula One tax break, Tacoma okays soccer subsidies, plus vaportecture from around the globe!

access_time personNeil deMause

Happy coronavirus panic week! What with stadiums in Europe being closed to fans and stadium workers in the U.S. testing positive for the virus, it’s tough to think of much right now other than what song to wash your hands to for 20 seconds (this is my personal preference). But long after we’re done with our self-quarantines, the consequences of sports venue spending will live on, so to the week’s news we go:

  • Miami Dolphins owner Stephen Ross is seeking a sales-tax exemption for tickets to Formula One racing events at his stadium, saying that without it, Miami might not get a Grand Prix. The tax break is expected to cost the state between $1.5 million and $2 million per event, but Formula One officials say each race would generate an economic impact of more than $400 million, and what possible reason would they have to lie about a thing like that?
  • The Tacoma city council voted 8-1 on Monday to approve spending on a $60 million, 5,000-seat stadium for the Reign F.C. women’s pro soccer team. According to a letter of intent approved by the council, the city will provide $15 million, while the city parks agency will provide $7.5 million more, with perhaps another $20 million to come from federal tax credits for investing in low-income communities. The parks body still has to vote on the plan on Monday as well; given that Metro Parks commissioner Aaron Pointer — who is also a former Houston Astro and a brother of the Pointer Sisters — said he doesn’t see “really any benefits at all” for the city or its parks, it’s fair to say that the vote there will be more contentious than the one in the city council.
  • Brett Johnson, the developer behind a proposed $400 million development in Pawtucket centered around a pro soccer stadium, says he has lots of investors eager to parks their capital gains in his project tax-free under the Trump administration’s Opportunity Zone program, but it might take a while to work out all the details because reasons. But, he added, “My confidence is very high,” and confidence is what it’s all about, right?
  • Nashville’s Save Our Fairgrounds has filed for a court injunction to stop work on a new Nashville S.C. stadium, on the grounds that no redevelopment of the state fairgrounds can take place without a public voter referendum. This brings the total number of lawsuits against the project to … umpteen? I’m gonna go with umpteen.
  • There’s now an official lawsuit against the Anaheim city council for voting on a Los Angeles Angels stadium land sale without sufficient public meetings. The People’s Homeless Task Force is charging that holding most of the sale talks in private violated the state’s Brown Act on transparency; the city’s lawyers responded that “there could be a myriad of reasons” why the council was able to vote on the sale at a single meeting in December despite never discussing it in public before that, though they didn’t suggest any specific reasons.
  • Wondering what vaportecture looks like outside of North America? Here’s an article on Watford F.C.‘s proposed new stadium, though if you aren’t an Athletic subscriber you’ll be stuck with just the one image, though given that it’s an image of Watford fans stumbling zombie-like into the stadium out of what appears to be an open field, really what more do you need?
  • There are some new renderings of the St. Louis MLS team‘s proposed stadium, and once again they mostly feature people crossing the street, not anything having to do with watching soccer. Are the clip art images of people throwing their hands in the air for no reason temporarily out of stock or something?
  • Here are photos of a 31-year-old arena being demolished, because America.
  • The Minnesota Vikings‘ four-year-old stadium needs $21 million in new paneling on its exterior, because the old paneling was leaking. At least the stadium’s construction contractors will be footing the bill, but it’s still an important reminder that “state of the art” isn’t necessarily better than “outmoded,” especially when it comes to new and unproven designs.
  • And speaking of COVID-19, here’s an article on how travel restrictions thanks to the new coronavirus will cost the European tourism industry more than $1 billion per month, without wondering what else Europeans (and erstwhile travelers to Europe from other continents) will do with the money they’re saving on plane tickets and hotel rooms. Where’s my article on how pandemics are a boost to the hand sanitizer and canned soup industries?
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Friday roundup: More Carolina Panthers stadium demands, D-Backs explain Vancouver move threat, and giant soccer robots

access_time personNeil deMause

Good morning, and thank you for taking a break from your coronavirus panic reading to patronize Field of Schemes. Please wash your hands for 20 seconds with soap and water, and we can begin:

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Friday roundup: D-Backs, Angels hedge on new stadium plans, NJ demands 76ers repay 0.5% of tax breaks, and other foolishness

access_time personNeil deMause

Another busy Friday where I need to squeeze in the news roundup when and where I can! (Also, yeah, New Yorkers already knew this about Mike Bloomberg, who also was responsible for this.)

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The Wile E. Coyote of stadium consulting takes on Brewers’ stadium, gets crushed by anvil

access_time personNeil deMause

I (and you, if you read this site regularly) didn’t have to go much beyond the headline on this Milwaukee Business Journal story — “Miller Park has delivered $2.5 billion impact to Wisconsin, study shows” — to figure that it’s probably nonsense, for all the usual reasons: economic “impact” doesn’t really mean anything, most sports spending is just cannibalized from other local entertainment spending, and most economic impact reports are garbage. But you will be glad if you do, as I was, because then you will discover who wrote the report that was responsible for the rose-colored headline:

An independent study released by the Metropolitan Milwaukee Association of Commerce Monday shows Miller Park has generated $2.5 billion in economic output since 1999. It officially opened in 2001.

Miller Park and the Brewers delivered valuable exposure to the city during the 20-year period, according to the study performed by Conventions, Sports & Leisure International, including $131.8 million in media value. It also brought in out-of-state dollars, which include visiting teams and fans, and fans from across Wisconsin who do not live in Milwaukee or Milwaukee County.

Oh hell yeah, it’s everybody’s favorite incompetent cartoon supervillains, CSL! In this case, they were hired by the local chamber of commerce — surely a disinterested body if ever anyone has seen one, even if the Brewers are a member — to show how the people of Wisconsin’s gift of $310 million to one Bud Selig for a new stadium was totally worth it.

The chamber allows for downloading the full study by clicking on the “Download the Full Sudy” (sic) button on its website, so let’s see what the report has to offer:

  • “Cumulative net new impacts to the State … “totaled approximately $2.5 billion in total output, $1.6 billion in direct spending, $263 million in new taxes, 1,835 total annual jobs, and $1.2 billion in personal earnings.”
  • 86% of Brewers game attendees were from the state of Wisconsin. Of the others, 95% said their main reason for going to Milwaukee was to see a Brewers game.
  • That $2.5 billion in “total output” over the last 20 years comes from $448.2 million from construction, plus $152.5 million a year from new spending by fans who otherwise wouldn’t be spending in town.
  • The $152.5 million a year, in turn, is an estimate based on a multiplier effect (in essence a calculation of how much spending generates more spending when the places you spend your money then turn around and pay workers who then spend that money, etc.) applied to $99.4 million a year in actual spending.

Let’s do a smell test on that $99.4 million a year. If 14% of Brewers game attendees are from out of town, and they sell maybe 2.7 million tickets a year, that’s 378,000 people. To generate $99.4 million, each and every one of those people has to spend $263 per game, meaning no doubling up on Airbnbs. And, of course, these need to be people who would not have gone to see the Brewers if they were still in their old stadium.

And, of course, that’s just total money changing hands in the state of Wisconsin, not actually money that Wisconsin taxpayers get back in their pockets. To see that, we have to take a look at CSL’s estimates for net new tax revenue:

  • “Over the course of the previous 21 years, it is estimated that the operations of the Team and Ballpark have generated approximately $262.9 million in net new tax revenues to the State, $25.2 million to the County, and $24.3 million to the City.”

Another way of look at this then, is: In exchange for $310 million in cash in 1999 dollars, if you squint and make a lot of optimistic assumptions about out-of-towners and how much they’ll only spend if offered a new stadium to visit, the state of Wisconsin has gotten back $292.4 million in tax revenue, over the course of 21 years, meaning taxpayers have taken a loss on the deal, we’re just not sure how bad of one. That would arguably be more honest, but it also wouldn’t get CSL more chamber of commerce contracts if it made that the headline, so of course it didn’t play that up!

Or we could call up a legit economist, like the Wisconsin politics site The Center Square did, and see what they have to say about the CSL report:

“I refer to [CSL’s] approach as a ‘benefits-only analysis’ because it’s fundamentally one-sided; it never counts the negative economic impact of the taxes needed to fund the subsidy in the first place. And, unsurprisingly, it’s pretty easy to make arguments in favor of an idea if you ignore the cost,” said Dr. Michael Farren, a Research Fellow at the Mercatus Center at George Mason University. “At the end of the day, peer-reviewed academic research consistently finds that subsidies, especially stadium subsidies, don’t work very well to create economic development, and may even reduce it in the long-run.”

Really, Keith Law’s response is probably the best. But if you want the hard, cold numbers to back up your kneejerk derisive laughter, feel free to reference the above.

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