Category Archives: economic impact studies

Sacramento arena projection: JOBS! JOBS! JOBS!

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It’s time to play “What’s Wrong With This Arena Impact Report,” with your special guest, University of the Pacific Business Forecasting Center director Jeff Michael! Take it away, Sacramento Bee:

The planned construction of a new Kings arena in downtown Sacramento should provide a significant boost for the area’s economy and job market, a University of the Pacific forecaster said today.

Although the region’s job growth will remain modest this year, the effect of arena construction should begin to be felt sometime next year, said UOP’s Jeff Michael in his quarterly forecast.

Michael, director of the university’s Business Forecasting Center, said California and the Sacramento area are experiencing another year of moderate economic growth this year. Prospects should improve statewide in 2014, he said, and the arena effect in Sacramento will bring a spark to the region’s otherwise “tepid job growth.”

I bet you’ve already spotted the problem here, but to make it easier, let’s make this multiple-choice. Is it:

  1. The Sacramento arena financing plan still hasn’t been approved by the city council, so it’s uncertain at best whether the project will get underway and start hiring people until well into 2014.
  2. Sacramento is paying for the arena out of future parking revenues (and probably hotel taxes as well), yet Michael fails to take into account the opportunity cost of the lost economic activity that would arise if the city were spending that money elsewhere (or lowering taxes with it).
  3. Even if the arena does start construction soon, and does front-load the 6,000 construction jobs that the city is promising, the short-term effect on unemployment may be fairly modest. The unemployment rate in Sacramento County is 9.2%, out of a labor force of 679,939. That would mean the arena could put one out of every eleven unemployed county residents to work — assuming they’re all trained construction workers, of course. If not, then the project would have to bring in workers from elsewhere, not helping Sacramentans any. And, of course, those jobs would disappear once the arena was complete — but the construction bills would keep on going.

And the answer is: all of the above!

Now, for your bonus question: When Michael wrote that the arena project “has the potential to accomplish broader city goals and help other city assets like the Convention Center,” what is the appropriate response?

Oh, I’m sorry, the correct answer was “shake your head sadly, with just the faint hint of a bitter laugh.” But we have some lovely parting gifts.

Those Deadspin charts on Final Four spending may not mean what you think they mean

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Deadspin ran a really cool graphic the other day claiming to show how spending in Atlanta was up during the Final Four relative to the previous week. (They later posted an even better-presented comparison, with one of those slidey things.) Sales tax data isn’t available nearly that fast, so instead Deadspin used data from Square, a company that makes credit card readers for cellphones, and which apparently knows how to make cool graphics to get some free publicity.

Deadspin’s conclusion:

Square reports that this is a week-to-week 11 percent increase in total sales, from $1.6 million to $1.8 million. This is more than double the $800,000 in sales that Square reported for their similar Super Bowl map, which makes sense given that that bigger event took place in a much smaller metropolitan area.

An 11% increase in sales sounds at least moderately impressive, and would counter previous reports that cities don’t see any jump in spending from hosting events like the Final Four. There are two problems with the Square numbers, though:

  1. Just because people spent more money using Square devices doesn’t necessarily mean people spent more money overall. Square provides readers to vendors, remember, not consumers, so if they handed out lots of card readers to people operating during Final Four weekend (which you’d think they would, if they’re going to go through the trouble of touting their product based on the resulting numbers), then this just might mean there were a lot of extra Square-enabled folks running around Atlanta last weekend. If people were spending less money at, say, restaurants across town that don’t use Square devices, then that wouldn’t register on the Deadspin maps.
  2. Even if people in Atlanta spent more money during the Final Four, they could have spend less money at other times as a result. Call it the “temporal substitution effect”: If I go splurge on, say, tickets to the All-Star Weekend Futures Game (as I, in fact, have done), that means I spend more money in Queens on a certain weekend in July; but it also means I have less money left in my back account, so I’m less likely to, for example, splurge on those crazily overpriced tickets to see Tom Petty play at the Beacon Theater in May. To see that, we’d need to examine spending over several weeks and months, not just a weekend, and compare to a similar time period in the previous year — which is what the economic studies that found no positive impact from the Final Four have done.

So: Nice maps, but they should be used for amusement purposes only. It’s possible that there is some increase in spending in Final Four cities — people do come from out of town, after all, and don’t drive absolutely everyone else away during that time — but these numbers don’t tell us much about what that might be.

Nine out of ten economists agree: Sports stadium subsidies are dumb

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The Tampa Bay Times ran a story on Saturday headlined “How much do the Tampa Bay Rays boost the local economy?“, and for once, this one talked to actual economists. The result was an article that provides an excellent primer on how it is exactly that despite all the people you see attending games and spending money, study after study shows that sports teams have minimal economic impact.

Do local economies see increased activity when a sports team is playing?

In 2008, [Holy Cross economist Victor] Matheson studied sports projects from across the country to see if taxable sales rose after stadiums were built. The study also examined whether tax collections dipped when sports leagues shut down for strikes or lockouts.

“There was simply not any bump at all,” Matheson said.

But what happens to all that money that fans are spending, then?

When a couple spends $100 for dinner and a movie, much of that money goes to waiters, ticket takers and other local workers and suppliers. Those people, in turn, spend their paychecks on rent, food and other sectors of the local economy.

Each dollar of original spending can contribute $3 to $4 to economic activity and job creation.

Professional sports mute this ripple effect.

“Spending that goes on inside a stadium tends to flow into the pockets of a relatively few, high-income individuals who live a large portion of the year outside the city,” [University of Maryland economist Dennis] Coates said. “Much of that money flows out.”

What about all those economic impact studies released by the teams that show massive tourism revenues as the result of sports spending?

One, commissioned by the Rays, noted that 160,000 tickets were bought via credit cards with out-of-state addresses — presumably tourists. Since the average Florida tourist spent $775 on their visit, the study estimated that the Rays added $122 million to the economy. The actual impact could be higher, the study suggested, because the credit card count did not capture cash-paying tourists.

However, this methodology failed to distinguish between tourists coming specifically for Rays games and tourists who came for other reasons and just happened to take in a ball game.

“A person in town to visit relatives or attend a business meeting or conference is already in town,” said Matheson, the Holy Cross professor. “That visitor would have stayed in a hotel room, gone out to dinner, even if the Rays had not had a game.”

The economists note other reasons why sports spending is overblown (some studies could be double-counting fans for each game that they attend even if they’re in town for an entire series, among other things); the whole article is worth reading. And when you’re done with that, check out Shadow of the Stadium’s rundown of other reports on how economists nearly unanimously agree that stadium subsidies are a really, really bad idea. Not that economists are always right, but it should if nothing else put the burden of proof on team owners to show why the heck they should be getting hundreds of millions of dollars in public cash, when nobody can spot any significant public benefits.

No, the NCAA tournament isn’t an economic boon, next question

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With the NCAA basketball tournaments about to kick off, it’s only a matter of time before some reporter somewhere calls me to ask whether they’re really a benefit to local economies in the cities that are chosen to host games. So I’m really glad that Travis Waldron of Think Progress has written an item making clear that the answer is: no, no, a thousand times no.

In their analysis of Final Fours from 1970 to 1999, for instance, professors Victor A. Matheson and Robert A. Baade found that the average economic impact of hosting the NCAA Tournament was actually negative…

Matheson and Baade cite various reasons for the inflated economic estimates. For one, cities estimate the money spent by attendees at the events without accounting for money that goes unspent in that area. NCAA Tournament games surely attract fans to certain locations, but they can also prevent local residents from spending money at the same time, as they seek to avoid the crowd. And the estimates rarely account for the cost of putting on the events, so while a city may gross millions in new economic activity, the net gain is much more often closer to zero.

None of this should be new to anyone — even if you missed Matheson and Baade’s paper when it came out back in 2003, we just went through the exact same thing last summer with the Olympics. Not that this will stop reporters from writing stories in upcoming weeks on all that the NCAA means to its host cities, but at least now when they do, we can say “We told you so.”

Zimbalist’s “Rays need stadium” statement made while under contract with MLB

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It’s been a while since I picked on sports economist Andrew Zimbalist in this space for his habit of changing his tune on stadium subsidies depending on who’s proposing them — I even gave it a pass when he reused a report he’d written for the city of Anaheim as a report for the city of Seattle, changing “Angels” to “Sonics” and rewriting the conclusion to say that instead of the Angels’ miniscule $8 million economic impact, the Sonics leaving could have a potentially huge $2 billion one. (Zimbalist was a paid consultant for the city of Seattle at the time, which was trying to prove in court that it would be harmed if the team left.)

Now, though, it appears that Zimbalist’s penchant for getting hired by the same people whose projects he’s asked to comment on as a sports economics expert has landed him in hot water again. Last Monday, Zimbalist gave a long interview to the Tampa Bay Times in which he asserted that the Rays need a new stadium, that it should be built in downtown Tampa, and that MLB could either contract the team or let it go into bankruptcy (notwithstanding that the Rays actually turn a sizable profit each year, according to Forbes) and be moved if no new stadium is built.

Noah Pransky of the indispensible Shadow of the Stadium blog (and also WTSP-TV reporter) was skeptical of some of these assertions, and after some digging made an interesting discovery:

Andrew Zimbalist is currently paid as an MLB consultant.

Zimbalist confirmed in an email he has worked off-and-on for the league over the years (including now).  He said he has also worked for the player’s association, various teams, and numerous municipalities, but never directly for the Rays.

This isn’t to question the validity of what Zimbalist was saying; merely to point out his realtionship with MLB.  It’s an important disclosure that was omitted from the Times article; especially significant given the “MLB has lost faith in Tampa” statements made just days later.

Now, it’s not that unusual for sports economists to get hired as consultants or to write reports or testimony for one side or another in stadium conflicts — most of the economists I know have done it at least a couple of times. But it’s indeed a major omission for Zimbalist not to tell the Times that he was employed by MLB at a time when the league is actively trying to get the Rays a new stadium. That may or may not have influenced Zimbalist’s statements, but it’s something that readers should know so they can judge for themselves. (After Pransky pointed it out, the Times updated its story to include a mention that Zimbalist is an MLB consultant.)

There’s also the question of just what exactly Zimbalist is doing for MLB, since so far as I know no sports economist has ever taken a gig with a central league office before. Maybe he’s doing some bulk economic-impact number crunching for the Rays and any other teams that are pursuing stadium projects (though that’s a short list: the Oakland A’s, Chicago Cubs, um…), or maybe he’s working on something completely unrelated to stadiums, like how to tweak the league’s revenue-sharing system or something like that. Either way, it’s a far cry from the days when Zimbalist was threatening to form a rogue baseball league featuring player ownership.

No, Virginia, there isn’t an NHL lockout economic crash

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The other holiday news tradition, of course, is to slack off from actual reporting by writing vague analysis pieces on things that aren’t really new news, like the NHL lockout, since you can write them anytime in December and then keep them in the can until Christmas week. Last Thursday it was San Jose Inside asserting that the lockout is hurting local businesses; on Sunday, it was the Columbus Dispatch claiming that local government is losing millions of dollars because the Blue Jackets aren’t playing:

Roosting birds outnumber rowdy fans lately in Nationwide Arena, left empty most nights during the bitter NHL lockout.

It’s an attendance figure that is not lost on state, Columbus and Franklin County officials, who estimate they’ll lose $3 million to $4 million in tax revenue if the NHL season is canceled.

That sum represents lost income taxes from players and other workers associated with hockey, and sales taxes from concessions, restaurants and other commercial activity near the arena, which the city and county bought last year.

Really? Do we have to go over this again? Okay, fine: Yes, people are spending less money at the arena because there’s no hockey. And yes, that means less sales tax money from spending around the arena going into public coffers.

It doesn’t mean less sales tax money overall, though. As I’ve noted before, studies of sales tax revenues in cities during sports work stoppages found “no statistically significant effect on taxable sales is found from the sudden absence of professional sports due to strikes and lockouts.” That’s because when people aren’t spending their money on hockey, they’re usually spending it on something else — and they’re almost certainly spending it within the same state and county, and given that Columbus has become the largest city in Ohio by annexing every suburb in sight, likely within the city limits, too. So if tax revenue is going down in downtown Columbus, it’s likely going up everywhere else.

And while the county is now the owner of the arena (since it bought out the arena from its private owners as a bailout of the Blue Jackets last year), it only gets to collect parking and concessions sales for non-hockey events — so if anything, the county should be in a position to bring in slightly more money since there are fewer hockey dates cluttering up the schedule. Emphasis on “slightly,” though, since it’s tough to book vacant dates when the NHL has so far only been cancelling games a few weeks in advance. Still, even in its capacity as arena manager, the lockout shouldn’t be hurting local government revenues.

A more honest headline, then, would have been “NHL lockout has both tax costs and benefits.” And maybe reporter Lucas Sullivan could have called one of the five economists who’ve studied the economic effects of strikes and lockouts for comment, instead of the only quotes coming from county and league officials. Hey, it’s nice to want things.

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

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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.

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

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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.

AP: La la la, we can’t hear you, economists!

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Last Wednesday, I published an article in Slate on why the NBA lockout isn’t likely to harm local economies, providing evidence from multiple economic studies of previous work stoppages. The explanation is the same as for why new sports stadiums don’t help local economies much: Most sports spending is just reshuffled from elsewhere in your local region, so what’s good (or bad) for sports is bad (or good) for movie theaters, restaurants, bowling alleys, etc.

Twenty-four hours later, the Associated Press ran this:

Harry Buffalo is one of the downtown restaurants in Cleveland that counts heavily on the beer-drinking, burger-devouring NBA crowd to keep its doors open. Operations manager John Adams has taped an internet report outside the kitchen for his waitresses, bartenders and cooks to read.

With yellow highlighter, he’s shaded the grim news of the NBA labor impasse for his employees, some of whom may soon lose their jobs if there’s no deal.

This is where the lockout hits home, and hits hardest.

“It’s rough,” Adams said, glancing toward The Q. “I’ve got three single moms on my wait staff and two single dads in the kitchen. I’ve got their 11 children to think about. It’s painful when it’s out of my control, when I have to put the business first and say I can’t have 15 servers on staff because we don’t have the business.”

Now, all of this is true — but in both economic and journalistic terms, utterly beside the point. If a restaurant across from the Cavs arena is facing layoffs if the NBA season is cancelled, there’s almost certain to be a restaurant across town that will end up hiring as a result — people in Cleveland have still gotta eat. (Some people, anyway.) But that doesn’t fit the desired narrative as well, so instead we get stories of how “ushers, security personnel, parking lot attendants, concession workers, restaurant employees and others all stand to have their hours cut or join the country’s 14 million unemployed.” Number of actual economists consulted by the six AP writers who contributed to this 1200-word article: zero.

On Friday, incidentally, I wrote another article for the Village Voice on how claims (this time by the New York Daily News) of a lost economic windfall from the Yankees not making the next playoff round were hogwash, for the same reasons as the mythical lockout disaster. So far as I can tell, the AP hasn’t written an article yet directly contradicting this one with no evidence, but maybe they were all off for the holiday weekend.