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October 20, 2011
NBA lockout: When it hurts, when it doesn't
Hey, look! It's yet another news story about how the NBA lockout is hurting local economies!
The NBA lockout means lost income for workers at Oracle Arena, reduced takings for some Oakland bars, restaurants and hotels, and a drop in revenue for the city of Oakland, which operates the arena and also gets sales-tax revenues from many affected businesses.
Those who read my recent Slate article, or my FoS posts since then, know that this is what economists refer to as "a load of crap." To their credit, the above-cited article in the San Francisco Chronicle quotes economist Roger Noll as saying that there's no indication that lost sporting events have any significant effect on the local economy — less to their credit, they then counter Noll with figures lifted from the Boston Globe and "an NBC affiliate report in Indianapolis" that claim otherwise.
The Chronicle didn't bother to include links, but I dug up the Globe article, which, it turns out, cited the Boston Redevelopment Authority, which just added up all spending in and around Celtics games and came up with a figure of $1.8 million — with no adjustment for money that's being spent elsewhere now that the NBA is on the shelf. The Indianapolis report's source was a consultant behnd the Pacers' latest subsidy deal; the station didn't give details about how the numbers were derived. In either case, though, it's not exactly a peer-reviewed study, like some I could mention. It's just another example of how bad journalism can take on a life of its own, long after it's been debunked.
I would make the same complaint about this report out of Memphis, except that there's a twist here:
The city of Memphis is considering getting involved in the NBA owners' lockout of the players. Memphis taxpayers stand to lose a lot of money if game revenue doesn't come in to pay off the bonds used to build the FedExForum.
Research is still being done, but early estimates indicate taxpayers could have to pay $18 million in bond payments if the entire season is cancelled...
At the suggestion of Chairman Myron Lowery, the council approved a resolution that would ask City Council Attorney Allan Wade to explore all options, including a lawsuit against the NBA.
So if the claims of economic losses from an NBA lockout are nonsense, then a lawsuit to regain those losses would be even bigger nonsense, right? Not quite: In Memphis' case, the Grizzlies actually cough up a share of arena revenues to help pay off the city's construction costs on FedExForum, as part of the team's complicated lease deal. In that case, the city actually is losing real money — rent money, effectively — to the lockout, and has a right to try to sue to get it back, though it seems a longshot whether they'll be successful.
In Indianapolis, by contrast, not only aren't the Pacers paying rent, they're actually now being paid by the city just to play there — or not to play there, as the case is so far this year. So the only money being "lost" is sales taxes and other taxes in the arena district, which according to economic studies should be recouped from increased sales in other parts of the city — something that every sports economist is aware of, but not so much, for example, the Indianapolis Business Journal.
It's taking longer than we thought, indeed...
What I'd like to know is why this seemingly coordinated set of articles is coming out now. I don't remember seeing them back during the last lockout. Now it seems as though every NBA-City has one of these articles. It almost seems like it's part of an NBA PR-campaign; someone from the league is calling journalists to say, "Wow, your town is going to go broke without the NBA. You better write an article about it."
That sounds conspiratorial, I know, but still, it wouldn't surprise me.
What sickened me is the letter from 14 "NBA-City" mayors:
sports.yahoo.com/nba/blog/ball_dont_lie/post/Several-NBA-city-mayors-including-Kevin-Johnson?urn=nba-wp9572
The letter:
www.usmayors.org/pressreleases/uploads/20111013-letter-nba.pdf
And one mayor refused to sign the letter:
newsok.com/mayor-cornett-refuses-to-sign-letter-to-nba/article/3614960
Posted by MikeM on October 20, 2011 01:57 PM
The Pacers report was a puff piece put together to justify keeping the Pacers in Indianapolis and to give them an additional 33.5 million dollars.
Posted by IndyRes on October 20, 2011 03:28 PM
The problem with the Warriors is that there are no bars anywhere near their arena. Perhaps people drive from the suburbs to the game, and then an Oakland bar somewhere else in the city afterwards, but that's gotta be a pretty small number. I doubt that many people use hotels in connection with attending a game, either. Other cities would probably be better examples.
Posted by Brian on October 20, 2011 03:37 PM
MikeM:
It may 'feel' conspiratorial, but in fact I'm quite sure you are absolutely right about the intent of these stories.
And in every one, the 'economic basis' for the losses claims is extraordinarily flimsy. I'd love to see a third party study of what the net impact of any sports league halting production is across a given market... I bet it would as close to zero as you can imagine.
As many others have said, when a given attraction disappears, consumer spending is simply redirected. Sports leagues are no more economic engines than art galleries or whack-a-mole stands are. They collect economic activity. They do not generate it.
The longer the lockout goes, the better.
I already have my FOIA request queued up for the California Board of Equalization and the City of Sacramento for tax receipts data.
I'm anxious to receive year over year data in order to pinpoint any decrease in overall revenue that might be attributed to the NBA Lockout. I understand it wont be the most comprehensive analysis of impact, but it sure will show if there is a "significant increase in sales taxes for the region".
Imagine if the data ends up showing no sales tax dip between last fall and this fall... well, what would that indicate about Sacramento's plans to build an arena because of all the "economic activity" it generates?
As a special bonus, Sacto geo-codes their receipts so you can even drill down to see if any discretionary spending moves away from Natomas.
Posted by Thomas on October 20, 2011 04:23 PM
How could a sales tax dip this fall be solely attributed to the NBA lockout when the economy is doing so poorly overall, and people have less money to spend because of underemployment, unemployment, home foreclosures etc.? Many people have less income to spend.
As well as a sales tax dip here (without an NBA team) we're seeing other measures of just how bad the economy is - increases in daytime home burglaries, petty thefts (such as bikes), door to door solicitors selling all kinds of stuff (like meat), more panhandlers on the street corners, people selling food on the street corners, etc.
In an NBA town, how does one go about separating a sales tax dip due to the lockout versus overall economic woes?
Posted by SantaClaraTaxpayer on October 20, 2011 07:55 PM
SantaClaraTaxpayer, you won't see a bit of change in tax receipts in California. Why? Because entertainment tickets aren't taxed in California. A sold-out 30,000 seat arena generates as many dollars in taxes from tickets as a 300 seat arena.
In Sacto, they want to move to a government-owned arena. No property tax.
The new arena will generate less sales tax revenue than a Chevy's and a Target. Not bad for $387M, eh?
Posted by MikeM on October 21, 2011 12:16 AM
MikeM - thanks for that info.
I was thinking of the 'outside the arena' businesses and the spending of entertainment dollars elsewhere during the lockout, versus the overall decline in the amount of money people have to spend on entertainment (therefore less taxes collected due to a poor economy).
FYI - here in Santa Clara, our city's agency is supposed to sell personal seat licenses for the stadium. Economist Dr. Vrooman wrote in an article on stadium financing that the reason teams want municipalities to sell PSLs is that no sales tax is collected, therefore saving fans money (and robbing city/state coffers of sales tax dollars.)
Good point about the lack of taxes on tickets, and that a government owned arena/stadium doesn't generate property taxes either (that's our situation too.)
Posted by SantaClaraTaxpayer on October 21, 2011 12:24 AM
Neil,
Can we at least replace "economist" with "blowhard with tenure"?
Your work is great, but can you at least acknowledge in these posts that sports/entertainment facilities generate *some* new economic activity beyond the "but, for"? And that local sports teams (especially when successful) do the same? These are points so obvious that they should be self-evident.
Posted by Ben Miller on October 21, 2011 10:53 AM
Some, as in more than zero? Sure. But whatever the amount is, it's too small to show up in the numbers.
The importance of citing economists has less to do with tenure than with the fact that they've actually attempted to evaluate what the actual figures show in terms of economic impact. If a non-tenured blogger did a similar study with enough statistical rigor, I'd happily cite them as well - in fact, if anyone out there wants to give it a shot, there's plenty of room for more study in this field.
I don't take the Humphreys, Baade, etc., papers as gospel by any means. But they present a lot more evidence than the economic impact studies cited in most newspaper reports, most of which limit themselves to "total up fan spending, add multiplier, serve," without taking into account any "but-for" at all.
I remain haunted by the consultant who told me he'd accounted for substitution in concessions sales but not ticket sales because "you can buy a hot dog anywhere, but if you want to see a baseball game, you're only going to buy a baseball ticket." And this guy gets paid to do this?
Posted by Neil deMause on October 21, 2011 11:03 AM
Ben, look at it this way: In the Sacramento metro area, it's what about 12,000 out of 1.5 million people do for entertainment 41 nights a year. That simply cannot amount to much.
You're talking 5% of Sacramento's budget for less than 1% of our City's economy. I just don't see how you get value for the taxpayer with that kind of investment.
In light of last night's developments, the plea letter from the mayors is looking more and more embarrassing. The 14 mayors who signed that letter will be disavowing it in about a month; they'll say they got bad advice from a zealous contributor, or something along those lines.
Posted by MikeM on October 21, 2011 11:39 AM
Hawking 49er PSLs = Vital Government function
Maintaining library hours = Not so important.
Posted by SANTA CLARA JAY on October 21, 2011 01:29 PM
Neil,
There are plenty of straw men (like hot dog man) out there for people on either side of the debate, but I'm happy that you'll at least admit that big time sports and new arenas tend to add some economic activity to an area.
The trouble I have with many studies (though admittedly you've looked over the ones you cite here more carefully than I have) is that it is really, really hard to get a control. My point is that if you believe in the fundamentals (i.e., true economic growth comes from increases in productivity), then it seems silly for politicians (both amateur and professional) to have adopted this attitude that no government money whatsoever should go towards these types of projects that present such a clear difference in "but for" productivity.
Posted by Ben Miller on October 21, 2011 05:29 PM
Mike,
I'd love to have Ticketmaster's data on how well old dumps like Arco Arena do when the Foo Fighters come to town vs. new stadia like Sprint Center. I have a feeling you'd see a striking difference.
On a broader note, it comes down to being a choice of what you believe government is for. Is infrastructure to enhance productivity (buses/freeways) or to protect elites from having to mingle with the lower classes (subways)? Is education about entrenched employment (teachers' unions) or opportunities for economic elevation (school choice)? Etc. etc.
If you believe in enhancing productivity, then it is hard to avoid supporting sports stadia with at least some public money. In small to mid sized cities (of which my beloved Milwaukee is one), private investment in a sports facility is illogical, but many of those sports facilities provide an opportunity for increased productivity. In those cases, it makes sense to earmark some type of program that allows sports facilities to be built and renovated.
Posted by Ben Miller on October 21, 2011 05:39 PM
"If you believe in enhancing productivity, then it is hard to avoid supporting sports stadia with at least some public money."
How so? Even if you believe in "enhancing productivity," it's totally possible to conclude that there are other things that give you more bang for your buck than sports facilities. Otherwise you enter this bizarro world where it makes sense for the government to spend a billion dollars on anything, so long as it creates a single job.
Posted by Neil deMause on October 21, 2011 06:09 PM
Stadium proponents would have you believe that dollars spent on sports facilities is a positive for their communities but the harsh reality is that those stadiums and arenas drain money and resources from those communities. We have the opportunity loss of the dollars used to build and maintain those facilities. We lose the property taxes that would be genearated by the land / business that was formerly on that site. As to enhancing producitivty, at what cost? The cost per job generated is excessively high while the jobs themselves are typically low paying and temporary. How is any of this a boon for the local taxpayer?
IndyRes,
Haven't you seen the Goldman Sacs ads for the Louisville Cardinal basketball arena they facilitated showing a picture of a waitress as an example of how it helps the community?
Posted by Jay on October 29, 2011 12:11 AM