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

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

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.

Cuyahoga exec says subsidy-for-wins plan just one option: “Hey, I’m open to ideas”

As promised, Cuyahoga County Executive Ed FitzGerald held a press conference yesterday to propose taking 20% of the public “sin tax” subsidies approved for the Cleveland Cavs, Indians, and Browns last month and making them contingent on the teams winning games. Under FitzGerald’s plan, which he called a (wait for it) “win tax,” a “fan advisory council” would come up with the actual criteria for how the $52 million in tax money would be divvied up among the teams based on wins and losses.

A couple of hours after that, no doubt spurred by my description of his idea as “walking the fine line between stupid and clever” (politicians just can’t resist a good Spinal Tap reference), FitzGerald called me to explain further just what the heck he was thinking. Among the questions he answered:

What on earth made you come up with this idea? “The tax issue that passed didn’t set up a distribution method,” he explained. When his staff got together after the vote to talk about how to divide the $260 million pie among the three teams, one idea he came up with was to “do something to address performance of these franchises over the past 50 years.”

Do the teams really need an added incentive to win, given that they’re already rewarded with 1) wins and 2) added revenue from people buying tickets to see winning teams? “I don’t think this is something that is going to be of such force that it’s all of a sudden going to take a team not inclined to care about winning and turn it around,” said FitzGerald. Not that he wanted to imply that Cleveland’s sports team owners didn’t care, mind you — the man’s a politician after all — but, as he put it, “Have there ever been instances in America of team owners not caring about winning? Yes.” Adding an additional economic incentive might tip some kind of balance, or at least let teams know that Clevelanders want their teams to win, in case the Indians’ attendance numbers didn’t tip them off.

Is winning games really the most important thing to be paying teams for? What about economic impact or something more tangible? FitzGerald said he’s open to ideas for tying subsidy levels to other factors as well, such as economic development or local hiring. (I threw out Jay Weiner‘s old suggestion for requiring a certain number of affordable tickets in exchange for public subsidies, and he said that could be part of the mix, too: “Hey, I’m open to ideas.”) There’s still that other 80% of the money that needs to be handed out, after all, so somebody needs to come up with some criteria for how to do that.

Is all this legal? FitzGerald’s lawyers think so. Scoring systems for payment are something that “happens with construction contracts all the time,” he said, so why should this be any different?

Did he really say that Cuyahoga County had to adjust its budget when LeBron James left?That’s what he said. More specifically, overall ticket tax revenues went down the year that James bolted for Miami, something he attributes to suburban fans spending their money closer to home rather than going to Cavs games: “It doesn’t mean they all stayed home on their couch.”

In short, FitzGerald made clear that he’s mostly just trying to start a conversation here, though you’re welcome to wonder how much his big ideas are motivated by wanting to reform the process and how much by wanting to juice his gubernatorial campaign. (Not that you can really ever separate the two when someone is running for public office.) Nothing’s going to get decided until the county council signs off on it, which doesn’t need to happen until the sin tax extension kicks in next spring, so this is likely to be a long conversation.

On the stupid side of the ledger, none of this really matters, because the teams are going to get the $260 million regardless — any funding criteria will just determine who gets what. (In other words, if all three teams continue to lose, they’ll still get paid.) And as Deadspin points out, paying based on straight wins could encourage bad long-term decisions, since “there are often times when it’s good to lose, like when tanking for a draft pick.”

On the clever side, though, it’s never bad to be talking about what you can demand from team owners in exchange for public funds, even if it’s just a matter of trying to get them to compete with each other for a pool of preexisting money. Yes, it might have been better for FitzGerald — who signed off on the sin tax referendum back in January — to bring all this up before the vote, so that taxpayers would actually get their money back if the teams didn’t live up to their promises of creating economic development and winning championships. But, you know, baby steps.

UPDATE: Just noticed that WCPN’s Nick Castele (whose show I appeared on yesterday — listen to it here) points out that Ohio state senator Shirley Smith did propose a subsidies-for-wins formula before the sin tax vote. It went nowhere, but credit for trying.

Cuyahoga official wants to tie Indians, Cavs, Browns subsidies to teams actually winning games

Cuyahoga County Executive Ed FitzGerald has an idea for deciding how to hand over those $260 million in new cigarette and alcohol taxes approved last month to the Cleveland Indians, Cavaliers, and Browns, and it’s a doozy:

FitzGerald is expected on Thursday to propose tying distribution of 20 percent of the county’s sin tax to on-the-field performance from Cleveland’s professional sports teams, according to sources briefed on the plan.

The 20 percent — estimated to be at least $2.6 million a year — would be awarded to FirstEnergy Stadium, Progressive Field or Quicken Loans Arena based on the success of the teams using the facilities.

That’s … kinda crazy, but it just might work? An example of walking the fine line between stupid and clever? On the upside, if part of the value of a sports team to taxpayers is getting to jump up and down when your team wins, then creating an incentive for your team to win — other than the normal incentive of, you know, winning — makes a kind of sense. On the other hand, I have no idea how they’d write this into law — subsidy dollars based on winning percentage? bonuses for making the playoffs? — so right now it seems a bit like pandering to sports fans unhappy with their favorite teams’ owners getting money when the teams all suck. Tune in this afternoon for more details, maybe.

Voters approve $260m in new sin tax money for Cavs, Indians, Browns

The extension of Cuyahoga County’s “sin tax” on alcohol and cigarettes passed yesterday by a 56-44% margin (with 97% of precincts reporting), providing an estimated $260 million over the next 20 years to fund venue improvements — including in at least one case a new scoreboard — for the Cleveland Cavs, Indians, and Browns. If the tax had failed, the teams had threatened to … well, we’ll never know what they were threatening to do now, will we?

With the votes counted, the next challenge is to figure out whether this ballot lives up to the 100-to-1 rule, where stadium funding is only approved in public votes if the proponents outspend opponents by more than that margin. At first glance this rule still holds — the three teams spent “at least $1.8 million” on the pro-sin-tax effort through early May, according to the Cleveland Plain Dealer, while opponents reported raising only $6,500 — but another group spent $125,000 on last-second TV ads opposing the plan, which would make the spending ratio more like 13:1. Unless the teams had a last-second spending splurge of their own, which is always possible. We’ll just have to wait for the final box score.

Cleveland votes on sin tax as teams lobby heavily for measure they say isn’t to benefit them, heaven forfend

It’s Cleveland sin tax vote day today, with opponents decrying what they say is a $260 million giveaway to the city’s sports teams (more like $160-200 million in present value), and proponents saying the city will give the money to the teams anyway, so the sin tax extension is just a way to pay the public’s already-accrued bills.

If the latter is true, though, you have to wonder why those teams that would get the money regardless are working so damn hard to get this ballot measure to pass:

The three teams are fighting to ensure that sin tax money will help assuage those costs—of the $1.4 million raised by Keep Cleveland Strong, the pro-sin-tax PAC, more than $1 million has come from the Browns, Cavs, and Indians. The opposing PAC, Coalition Against the Sin Tax, has raised a mere $6,500.

Teams aren’t just tossing in cash to make sure taxpayers help foot the bill for new scoreboards. The Indians instructed ushers to wear pro-sin-tax stickers on Opening Day, according to an employee instruction sheet a former usher gave to Cleveland.com. While the Indians had told reporters that the stickers were purely voluntary, the handout reads, “An Issue 7 Keep Cleveland Strong sticker is part of your uniform. Place it chest high on your outermost layer.” The former usher, Edward Loomis, said he was fired by the team after refusing to wear the sticker.

Even as Cuyahoga County voters cast their ballots, they still don’t have an answer to the question: What happens if the sin tax extension fails? Depending on how things go today at the polls, we could have an answer starting tomorrow.

Cleveland council prez says ad that calls giving tax money to teams a gift is “far from honest”

The Cuyahoga County vote on a sin tax extension to fund venue improvements for the Cleveland Indians, Cavs, and Browns isn’t until next Tuesday, but we already have supporters of the measure accusing opponents of dirty pool:

The Coalition for Greater Cleveland’s Future says in a complaint filed Wednesday with the Ohio Elections Commission that an ad paid for by the Citizens Against Unfair Taxes (CAUT) makes several false claims about the proposed countywide tax on alcohol and tobacco sales. Among them is the assertion that Issue 7 will give the owners of Cleveland’s professional sports teams “$260 million more.”…

“CAUT has been caught misleading the public,” Cleveland City Council President Kevin Kelley, the chief spokesman for the coalition, said in a statement. “Their commercial inaccurately gives the impression that money from extending the tax on alcohol and cigarettes would go to the team owners. That is false. Honest argument is always welcome. This is far from honest.”

The rhetorical pin head that everyone is dancing on here is this: The sin tax will raise an estimated $260 million over 20 years, which would be used to pay renovation and upgrade costs of the teams at their publicly owned buildings. But according to Kelley, the county would have to pay those costs anyway, according to the crappy leases that public officials agreed to with the teams. So it’s not that “money from extending the tax on alcohol and cigarettes would go to the team owners,” it’s that money from extending the tax on alcohol on cigarettes would go to replenish the county’s general fund, and that would be given to the team owners.

Kelley has made this kind of “we have to spend it either way, so we might as well have a way to pay for it” assertion before, but to my knowledge has never actually come out and said that if the sin tax extension is defeated, he and the council will just allocate the money anyway and take it out of other county spending. For that matter, the team owners have never said what they’ll do if the county just up and refuses to pay for venue improvements, even when asked point blank. These issues — as well as whether funding mechanisms that would hit the teams’ bottom line instead of the public’s, such as ticket taxes, are allowable under the lease — would seem to be worthy of discussion in the days leading up to the sin tax vote, but instead we just get each side trying to bash each other public. Ah, democracy.

Crain’s Cleveland editors dis ticket taxes, reveal they don’t understand how ticket taxes work

This Cleveland Scene article about the stadium sin tax debate is a week old, but I just noticed something in it that really needs to be commented on:

Crain’s Cleveland Business published an editorial this week officially endorsing the sin tax as well. They insisted their stance had nothing to do with their connections to the business community; nor was the endorsement a snap decision. “It came after thorough consideration of the legal, practical and economic ramifications.”

Crain’s thinks an admissions tax is “not a smart” option because it would “dampen demand, which would defeat the purpose of using the buildings as magnets to attract people downtown.”

Let’s think this one through for a second. The argument that Crain’s is making (here’s the original editorial) is that tacking on an admission tax would raise ticket prices, making it less likely for people to go to games. And because going to games is the raison d’être of sports facilities — and publications like Crain’s pretend that people who don’t go to games just sit on their money and don’t spend it, but we’ll leave that aside for the moment — that would be a bad thing for the city.

Except that’s not how ticket prices work. Because the marginal cost of selling an extra ticket is pretty close to nil (you might have to hire a couple of additional ushers or hot dog vendors if more people are showing up to the game, but that’s a trivial cost per ticket), team owners are pretty much just setting prices based on what the market will bear — in other words, what people are willing to pay to go to a game instead of doing something else that night. So if Cuyahoga County were to apply a $2 per ticket surcharge, say, then the most likely scenario is that the Indians and Browns and Cavs would all cut ticket prices by around $2 to keep maximizing the amount of revenue they get from ticket sales. (Or, more likely, since teams hate to actually cut prices, they’d just hold off on ticket price hikes they otherwise would have implemented.)

It’s this pricing dynamic that is why virtually all economists count ticket taxes as part of a team owner’s contribution to a stadium project, even though it’s technically public tax money: It ultimately comes out of the owner’s pocket. If admission taxes are a legal possibility (some sports leases prohibit them), they’d actually be a great way for Cuyahoga County to live up to its lease commitment to fund upgrades to Cleveland’s sports facilities without hitting up local taxpayers too badly. Yet another important topic we didn’t have time for during the Octoboxathon.

Cleveland sin tax smackdown: Nobody wins

It’s all over but the shouting mutely because your Skype mic isn’t on, and the upshot of the Great Cleveland City Club Stadium Sin Tax Debate is that … people disagree, I guess?

  • That’s how WKYC-TV summed things up, certainly, recapping the panel discussion featuring Cleveland city council president Kevin Kelley, Cleveland Cavaliers president Len Komoroski, Coalition Against the Sin Tax organizer Peter Pattakos, and yours truly as “a two-on-two verbal showdown” — or as it’s better known, a debate.
  • Cleveland.com’s “five takeaways” from the event were that the Cavs exec and council president were “polished,” that they didn’t answer questions directly, that the anti-sin-tax organizer and myself were “populist,” and “Are there alternatives to the sin tax?” and “What would Cleveland look like without Gateway?” which are actually questions, not takeaways.
  • WCPN radio was the only outlet to note that almost all the audience members in the room were pro-sin tax (helping to explain the one-sided Q&A at the end), while counterposing a quote from Kelley touting the economic impact of sports facilities with a quote from me saying they mostly just move money around from one part of town to another.

If I had to pick one takeaway of my own, it would be: Cable-news-style panel discussions suck. The topic may be well thought-out, the moderator may try to probe for deeper truths (yesterday’s City Club moderator did press Komoroski on what the Cavs would do if the tax extension was defeated, something he ducked entirely, leading to that “didn’t answer questions” takeaway above), but still everyone knows that there are no penalties for unresponsive answers, so everyone just recites their own talking points without really responding to each other. It makes for a decent quote harvest, but doesn’t really enlighten anybody much at all, beyond leaving everyone with the warm squishy feeling that we’re all big enough people to sit together in a room (or appear via holographic projection) and agree to disagree, regardless of things like “evidence” and “facts,” and isn’t that what democracy is all about?

I would far rather have spent an hour having an actual journalist or three interrogate me and my panelmates on why we believe what we believe, possibly even referring to their own independent research on the matter. Instead, we get a situation where there’s no reason not to claim that the War of 1812 started in 1945 — especially when you know that the other guy is likely doing it, too.

Cleveland sin tax smackdown! Live at 12:30 pm ET!

I’m going to be taking part (via Skype) in a live debate today with Cleveland city council president Kevin Kelley, Cavs president Len Komoroski, and Peter Pattakos of the Coalition Against the Sin Tax about the plan to extend the city’s alcohol and cigarette taxes for 20 years and give the proceeds to local sports teams for building upgrades. Supposedly this is going to be webcast live at wkyc.com; tune in between 12:30pm and 1:30pm Eastern and see!

(UPDATE: This looks to be the preferred webcast link: http://learn.uakron.edu/video/cityclub/.)