Category Archives: economic impact studies

Cuyahoga exec: We never said LeBron was worth $500m/year

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I was traveling much of yesterday, but in the afternoon I received an email from Richard Luchette, the press spokesperson for Cuyahoga County Executive Ed FitzGerald. Luchette said that, contrary to widespread media reports, FitzGerald’s office never meant to imply that LeBron James’ return to Cleveland would add $500 million to the local economy. Rather, he said, the estimated economic benefit of LeBron’s return will be more like $53 million, bringing the team’s total impact to $500 million.

It looks like the blame here mostly goes to some terrible reporting in the initial story by Bloomberg News, which cited FitzGerald’s economic development director Nathan Kelly as saying (in its paraphrase) that “a more robust Cavaliers with James playing increases the total economic impact to about $500 million a year with direct and indirect spending,” but in its lede interpreted this as meaning “the return of the star forward to his hometown Cleveland Cavaliers will have a $500 million a year impact on the local economy” — and doubled down on the wrong with a headline stating “LeBron James’s Return to Bring Cleveland $500 Million a Year.” Though Kelly certainly could have been clearer — I haven’t been able to find a direct quote of how he brought up the $500 million figure in Monday’s press conference — and taking two days to clarify a misstatement that was all over the Internet on Monday wasn’t great work on FitzGerald’s part either.

In any event, $500 million in total annual economic impact for the Cavs is still pretty implausible: The team currently only sells $30 million worth of tickets, remember, and much of that spending would take place elsewhere in Cuyahoga County even if the Cavs played entirely before empty seats. Even if you add in spending on concessions, LeBron souvenir jerseys, hotels for fans who travel from out of town just to see Cavs games (do such people really exist?), and a multiplier for all the money that LeBron-souvenir-jersey vendors will go out and spend at local stores, it’s hard to see getting anywhere near $500 million. I’m still hopeful that Kelly will get back to me with his calculations, though, so stay tuned.

In any event, this is a great cautionary tale about economic impact statements: You can make “economic activity” numbers say just about anything you want them to, and then the press will get it wrong anyway. But at least FitzGerald got on the telly.

Ohio official says LeBron’s return worth $500m, or $50m, or something with a “5″ in it, anyway

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Early yesterday, the office of Cuyahoga County Executive (and Ohio gubernatorial candidate) Ed FitzGerald, he of the “win tax,” announced that FitzGerald would be giving an afternoon press conference on just how much money LeBron James’ return to Cleveland would mean to the local economy. FitzGerald had previously claimed that county ticket tax receipts measurably went down when LeBron left four years ago — not too much of a surprise, since people stopped going to Cavs games and presumably did something else not subject to the ticket tax — so the only question was how huge a number FitzGerald was going to come up with.

The answer: $500 million. Per year.

That certainly sounds crazy, but let’s do some rough math and figure out just how crazy. The Cavs had about $145 million in total revenue last year, about $30 million of it via gate receipts, the rest from concessions, cable fees, and so on. Let’s assume that every single Cleveland fan were to double their spending as a result of LeBron’s return — buying twice as many tickets, twice as many hot dogs, twice as many cable contracts. Let’s further assume that 100% of that money would otherwise have been spent outside of Cuyahoga County if not for LeBron, because we all know how many attractions there are in the distant Cleveland suburbs. And then let’s apply a multiplier of 2x, just for the hell of it, under the assumption that all money spent on Cavs games is recirculated in the local economy, because surely NBA players cash their paychecks and immediately spend them at the local Dave’s.

This would get us a yearly impact of $290 million. Still not half a billion.

Or to look at it another way: Last year the Cavs sold 710,000 tickets, and had 132,000 go unsold. Even if the team were, let’s say, to double ticket prices next year, each of those 132,000 new attendees would have to spend $3560 apiece on their visit to a game in order to generate $500 million in economic activity.

Fortunately — or unfortunately, depending on your perspective — it’s not clear that FitzGerald himself believes that $500 million figure. Sure, his deputy chief of staff, Nate Kelly, said it at yesterday’s press conference, but the actual figures mentioned by his staff were far lower. (I’ve requested a spreadsheet or any kind of document at all detailing the economic impact data, but I’m still awaiting a promised call back from FitzGerald’s economic development aide.) From the summary published in today’s Cleveland Plain Dealer:

  • Cuyahoga County will collect about another $3.5 million in ticket taxes this year. The ticket tax rate is 8%, so that would imply an additional $43.75 million in ticket sales, which if they jack up prices to $60 a pop and go deep into the playoffs … sure, maybe.
  • Cavs fans will spend an additional $34 million a year, and the Cavs’ overall economic output would rise by $53 million. Again, that’s not unreasonable, though at least some of this spending would be cannibalized from money that would otherwise be spent on other things in Cuyahoga County, something FitzGerald’s office didn’t attempt to account for.

And … that’s it? That’s not anything close to $500 million a year, and probably not that close to $50 million a year either. The Plain Dealer called Kelly’s half-billion-a-year claim “a much more aggressive interpretation of the data,” which is a nice way of saying “we have no clue why that came out of his mouth.”

Meanwhile, the source of these numbers is in dispute as well: The initial Bloomberg News report said they came from “calculations by the Cuyahoga County Fiscal Office,” but the Plain Dealer reports that FitzGerald said his office worked with the tourism agency Positively Cleveland, drawing on a dubious study commissioned by the team in the heat of last winter’s sin tax extension battle.

In other words, this is a big-ass mess, and there’s no reason to take any of these numbers the slightest bit seriously. Yet the headlines have been written, and you know that the next time some sports team owner is looking for cash to subsidize a new arena, or tax breaks to boost his profits at an old arena, or the purchase of a new point guard, someone will point to this and say, “Keep in mind that even a single player like LeBron James can be worth $500 million a year to a local economy.” (We already went through this with the last NBA superduperstar, don’t forget.) Zombie ideas can be a dangerous thing.

Hartford Double-A stadium would fall woefully short in job creation, local newspaper fails to notice

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An article in yesterday’s Hartford Courant analyzed the proposed $60 million deal to bring the double-A New Britain Rock Cats to town, and found that the key to making it pay off in job creation will be “keeping the park in use throughout the year with lots of concerts and other events.”

Okay, that seems reasonable — the more the stadium is in use, the more people will have to be employed there. Who did the Courant get its information from?

“That’s the number of jobs that will have to be filled,” said the [Hartford city] consultant, Jason Thompson, a vice president at the Brailsford & Dunlavey management firm… “Brand new, successful ballparks operate this way.”

Okay, so the guy the city is paying to estimate its job creation projections (650 full-time equivalent jobs, if you were wondering) thinks that it will create jobs in line with what he projects it will create. What else you got, Courant? Let’s see, the director of a “year-round” ballpark in Birmingham, Alabama that has 25 full-time staff and between 75 and 275 part-timers on event days, which is a lot less than 650 full-time jobs. The president of a team with another minor-league stadium in Fort Wayne, Indiana, which despite nearly 600 (!) events a year has just 30 full-timers and 600 part-timers.

Finally, at the very end, we get an actual brief quote from someone who isn’t in the business of promoting the economic benefits of minor-league stadiums:

“Certainly 600 seems way out of the ballpark,” said Nola Agha, an assistant professor of sports management for the University of San Francisco. “You’re never going to get close to that 600 number in reality.”

The story here, then, seems to be that even the most successful minor-league baseball stadiums come nowhere near generating the kinds of jobs that Hartford Mayor Pedro Segarra is promising. (It’d also be interesting to hear how many of Birmingham’s events, say, could be held year-round in considerably chillier Hartford, but that’s something else the Courant didn’t explore.) Instead, we get the headline “In Minor-League Cities, Stadium Use Key To Job Creation” — which is true, so long as you acknowledge that it’s the key to the difference between crappy and crappier.

[UPDATE: Meanwhile, the Rock Cats owner says he had to engage in secret negotiations to move the team because a Red Sox prospect slipped and sprained his ankle on wet turf in New Britain two years ago. Really.]

Author of study showing spring training is huge boon to Florida says spring training not actually huge boon to Florida

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So Charlotte County, Florida released one of those studies a couple of weeks ago that claimed to show that Tampa Bay Rays spring training games “generated an estimated economic impact of $20,978,500″ in spending by out-of-towners, which I ignored because if I wrote about every one of these things, I’d never get anything else done. But now Noah Pransky of Shadow of the Stadium has called up the author of the study and not only confirmed that the study didn’t try to account for visitors who would have been in the county anyway (since some people have been known to vacation in Florida in March), but got the study author to acknowledge that he doesn’t think spring training is that much of an economic boon at all:

[Walter] Klages’ response: His study sure didn’t take those things into account; it was never designed to do that.

He added that the majority of overnight visitors who went to Rays games while in Charlotte County likely came to the area for the beaches and weather.  And while he suspected baseball was a factor, he saw it “more like dessert on the platter, rather than the (main course).”

University of South Florida economist Philip Porter, meanwhile, told Pransky that since the county’s economy has grown at the exact same rate as the state’s, he suspects that having Rays spring training in Port Charlotte has had zero economic impact — or even a negative one, since it’s gotten Charlotte County visitors to spend more of their money on a business that takes its revenues and ships them out of the county (known in economics as “leakage”). It all sounded so much better in the press release, but then, that’s the point of press releases.

generated an estimated economic impact of $20,978,500 for Charlotte County – See more at: http://www.charlotteharbortravel.com/press/Charlotte_Harbor_Visitor_&_Convention_Bureau_Releases_Research_Findings#sthash.mBLZooiQ.dpuf
generated an estimated economic impact of $20,978,500 for Charlotte County – See more at: http://www.charlotteharbortravel.com/press/Charlotte_Harbor_Visitor_&_Convention_Bureau_Releases_Research_Findings#sthash.mBLZooiQ.dpuf
generated an estimated economic impact of $20,978,500 for Charlotte County – See more at: http://www.charlotteharbortravel.com/press/Charlotte_Harbor_Visitor_&_Convention_Bureau_Releases_Research_Findings#sthash.mBLZooiQ.dpuf

Cardinals leave Flagstaff training camp, local economy surges

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The Arizona Cardinals moved their summer training camp back to the team’s regular-season home in Glendale this summer after 25 years in Flagstaff, which no doubt was gripping news to all of you Arizona Cardinals training camp fans. But since the whole move was over money — money the Cardinals didn’t want to pay in rent to Northern Arizona University, money NAU didn’t want to spend on further renovations to its facilities, and money that football advocates claimed Flagstaff would lose without the annual influx of Cardinals fans — it’s interesting to see how the city fared with summer football gone.

And the answer is pretty darn well indeed:

Sales tax revenues from restaurants and bars for July and August were up by 5.3 percent over the same two months in 2012, according to city data.

For August alone, when much of the camp was held, restaurant and bar spending was up 11.6 percent even without the Cardinals.

Spending in hotels and motels also was up, although many Cardinals fans from the Valley are day-trippers. Lodging tax collections increased 7.7 percent in July and August, and 7.3 percent in August alone.

Taken together, August revenues from the 2 percent BBB tax were up 9.9 percent compared with August last year.

“This tells me that the Cardinals training camp has some entertainment value for Flagstaff but is not as significant an economic driver as we perhaps thought it was,” said Mayor Jerry Nabours.

Now, it’s hard to tell from these numbers alone whether the Cardinals leaving truly had no impact — local sales tax revenues have been up almost every summer since 2007, as the city has been marketing itself as a cooler summer destination for Arizona residents, so it’s possible the numbers would have been even better with the Cardinals. Still, it’s a pretty significant sign that losing visiting sports fans needn’t mean disaster for a local economy: If Cardinals tourists are being replaced by Grand Canyon tourists who don’t have to worry about fighting with football fans for hotel rooms and restaurant reservations, all the better — especially since the Grand Canyon doesn’t demand new locker rooms.

Study: Minor-league ballparks not quite as completely useless as big-league ones

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All you journalists and editors out there who like man-bites-dog ledes, check it out: There’s a new contrarian dog in town, and it’s Reason’s A. Barton Hinkle, who starts off an article with this monster of a sentence:

Is everything we know about sports stadiums wrong? Not really. But it might not always be right, either.

Boom! Time to step up your game, #slatepitches!

So, what exactly is the not-always-right thing that we don’t know about sports stadiums? In short: Minor-league baseball teams might actually have a small but positive impact on local economies.

The work comes from Nola Agha, an assistant professor of sports management at the University of San Francisco. It appears in the Journal of Sports Economics and arrives at what Agha terms “an unexpected outcome”: Certain types of teams and facilities can produce gains in regional income (albeit small ones: about $67 to about $117 per capita). This contradicts “the vast majority of academic research” on big-league sports, which “has found nonpositive effects on income…employment…sales tax revenues…and spending.”

I haven’t read Agha’s paper yet (it’s on my list), but this finding isn’t exactly surprising: Since one of the main complaints about sports facilities’ alleged economic benefits is that they mostly reshuffle spending in a region (the “substitution effect”), and minor-league teams tend to play in small cities and towns where reshuffled money is more likely to come from outside the city limits, you absolutely should expect to see a bigger economic gain.

Of course, minor-league teams come with their own pitfalls, first among them that they don’t stay put very long, raising the risk that any small boost in economic activity will be short-lived. (Hinkle notes that affiliated minor-league teams stick around for an average of 16 years, far better than the four-year lifespan of the average independent league team, but still pretty crappy if you’re paying off 30-year stadium bonds.) And Agha didn’t make any attempt at a cost-benefit analysis, meaning that even if per-capita income does creep up, it may not be enough to make the expense of building a new stadium, even at a minor-league price tag, worth it.

It’s a nice addition to the pile of stadium economic impact research, anyway. Coming on the heels of Geoffrey Propheter’s exhaustive research on NBA cities, it shows promise that economists are starting to be able to refine their view of stadium and arena subsidies from “not worth a damn” to “sometimes worth a fraction of a damn, depending on the circumstances.”

Economists duel over whether Republican convention did squat for Tampa

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If you’ve ever found yourself wondering, “Hey, that University of South Florida economist, does he spend all his time hating on Super Bowls and other mega-sporting events as having no benefit to local economies?”, the answer is no, he does not. He takes the time to puncture the economic-windfall balloon of political conventions, too:

Porter says the [2012 Republican National Convention in Tampa] fails to show up in tax revenue and taxable sales statistics for Hillsborough County. For the evidence, he says, look at this:

From August 2010 to August 2011, sales tax revenues in Hillsborough grew at 5.88 percent — faster than in the rest of the state, where growth was 5.44 percent.

But from August 2011 to August 2012, the month of the convention, tax revenues in Hillsborough rose about 6.75 percent — lower than the 6.92 percent seen in the rest of the state.

Taxable sales statistics were similar, Porter said.

From August 2011 to August 2012 sales in Hillsborough rose 5.83 percent — less than the 6.31 percent seen in the rest of Florida.

“Comparing August to August over time, it is apparent that the RNC did not stimulate economic activity in Hillsborough County,” Porter concludes.

The article quoted above — by Tampa Bay Times reporter Richard Danielson — then goes on to quote rebuttals from University of Tampa economist Brian Kench, who was hired by the convention host committee to find an impact, and found $214 million worth, as well as host committee president Ken Jones, who accused Porter of comparing “apples to bicycles.” Kench said that Porter had erred in looking at onlytaxable sales, and then when you include overall sales — including untaxed items like groceries and services — “Hillsborough’s overall sales rose nearly 10.5 percent from August 2011 to August 2012 — nearly double the 5.8 percent growth in the rest of the state for the same two months.”

To which Porter replied … well, we don’t know, because Danielson ended his article there. But because this is apparently Email Economists So Journalists Don’t Have To Week here at Field of Schemes, I asked Porter what he made of this. His reply:

  • Taxable sales are absolutely the right metric to use, because “RNC visitors aren’t buying medicine, groceries, hiring attorneys and getting haircuts while in Tampa. They pay for hotel rooms, buy meals at restaurants, and buy souvenirs, all of which are taxable. … If taxable sales don’t respond, these visitors are no different than the visitors we normally have in town in August.”
  • Overall sales in Hillsborough were indeed up more than in the rest of the state from 2011 to 2012 — but that’s because they’re always up more in the Tampa area than the rest of the state: “Because we are a port city with significant export activity (not subject to sales tax), our gross sales are large relative to the rest of Florida and growing rapidly as we come out of the recession. …Comparing August 2010 to August 2011 gross sales in Hillsborough rose 11.7%.  Comparing August 2011 to August 2012 the increase fell to 10.4%.  This mirrors the rest of the state wherein August to August sales rose 1.5 percentage points less in the 11-12 period compared to the 10-11 period.”

So, it looks like the Republican convention, like most of the sports mega-events that Porter has studied, doesn’t actually do anything measurable to help the local economy despite how eagerly cities chase after hosting it. Unless Kench has a counter-counter-counter-counter-argument; I’ve emailed him as well, but haven’t — oh wait, here’s a reply from Kench right this second!

That assertion is proven false one month prior (July 2012), when the rest of the state grew faster (8.7% y/y) than Hillsborough county (6% y/y).

Time to go back to Porter to see what he says. I’m starting to have just a smidge of sympathy for why reporters on deadline don’t do this…

Chicago impact study assumes DePaul will nearly quadruple attendance at new arena

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That 12,000-seat DePaul University basketball arena that Chicago Mayor Rahm Emanuel wants to spend $125 million in city money on already sounded like a pretty bad idea, given that DePaul is 1) a private college that 2) only draws 8,000 fans a game and 3) has plenty of other arenas it can play at. But it sounds even more craptacular now that Crain’s Chicago has revealed the figures for how many of those tickets are actually used:

Attendance at Blue Demons home games in suburban Rosemont over the last three years has averaged around 2,900, according to Allstate Arena ticket records obtained by Crain’s. That’s about 35 percent of the school’s reported numbers and 30 percent of what McPier officials are projecting for the new arena…

This past season, the official average number of fans that went to DePaul home games at Allstate Arena was even lower: 2,610 based on the Ticketmaster scan system, which tracks exactly how many people come inside.

That is far below DePaul’s reported average home game attendance of 7,938 over those 16 home games. Over the course of the entire season, the school reported total attendance at Allstate Arena at 127,020. The actual attendance was 41,771.

Why are more than 5,000 people a game buying tickets and then not using them? They’re not, explains Crain’s — the discrepancy is largely because of tickets that the university itself buys, then makes available to students or charities free of charge. But even students and charities don’t want to go to DePaul basketball games, so the seats remain empty.

Why does any of this matter? Because the economic impact study commissioned to support the arena project counts those phantom fans as actual money-spending consumers:

That report projects an average attendance of 9,500 at DePaul men’s basketball games in the new 10,000-seat arena, or 152,000 people over 16 games. That’s more than 40 percent of the projected annual attendance of 370,000 for all events at the arena, including concerts, shows and conventions.

While the school would likely still pay to reserve student seats to games at the new arena, recent history suggests the butts won’t actually be in the seats, nor would the fans be out and about spending money in the neighborhood.

So, to recap:

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.