With the Arizona Coyotes departing for Utah (for now), the Arizona Republic’s Sam Kmack set himself the task of determining what, if anything, this will mean for the local economy. Let’s see what the experts say!
[Grand Canyon Institute research director Dave] Wells believes the Coyotes’ departure will have “close to zero” economic effect, because of how consumers behave regarding entertainment spending.
“Most people have a limited leisure budget to start with. So, they’ll just reallocate it. You might see an uptick in attendance at ASU basketball games or something like that,” said Wells. He added that a “small core of people” in Arizona may now shift some of their spending to Utah to follow the Coyotes.
And:
[Arizona State University Seidman Research Center director Dennis Hoffman] pointed to three factors related to the Coyotes’ departure that could have an impact:
- Canadian snowbirds choose to vacation in Florida or another warm state with NHL hockey, rather than coming to Arizona and spending cash here.
- The loss of the roughly $200 million in revenue he expected the Coyotes would generate, plus the broader economic activity that initial income drives.
- The loss of the NHL franchises employees who both spend money here and pay state income taxes.
Hoffman said “we could be losing significant money” because of the cash Canadian retirees have invested in Arizona’s economy. Hoffman said that money could “migrate” out of the state, if snowbirds chose Arizona because of the Coyotes.
“How many Canadian winter visitors have historically chosen to locate in Arizona as opposed to Florida because they can go to NHL games?” Hoffman asked. “It’s unknowable. But I think it does a disservice if we just say we’ll ignore it because it’s unknowable.”
And:
Nope, sorry, two economists is all we have time for today! All the better for framing this with a heading reading “Experts are divided” and a framing about how this has “reignited an old disagreement between two experts” over the Coyotes’ proposed Tempe arena deal, albeit a disagreement where one side (Hoffman) was being paid by the Coyotes for his time.
While this may be news to the Republic, there are other economists out there, many of whom have looked at things like what happens when a team leaves a city! As a public service to Kmack, I spent 30, maybe 40 seconds crafting an email to several of them yesterday, and here’s what I got back:
J.C. Bradbury, Kennesaw State University: If Dennis Hoffman honestly thinks that the Coyotes generate a significant economic impact on Phoenix, then he needs to write that up and submit it to peer review where it will be vetted by other economists. That’s the normal process for academic researchers. You don’t get to dismiss the academic consensus by flippantly stating the opposite to the media, especially after producing the estimates for a fee. That’s completely inappropriate, and it does a disservice to the community, which is largely ignorant of rigorous economics research standards. I’m at a total loss to understand why a PhD economist with an academic appointment thinks a pro sports team has such a large economic impact on the community. I mean, maybe I’m wrong; but the burden of proof is on him to demonstrate it to his economist colleagues who have found the exact opposite.
Victor Matheson, College of the Holy Cross: Anytime an economist says there are “untold benefits” from hosting a franchise, either the economist is too lazy to estimate them or is afraid of calculating them for what they might show.
As for actual losses, the state income tax losses from a group of highly paid athletes leaving the state is real, in my opinion, so that is a few million a year. There is an actual “feel-good” loss for the actual fans. (Of course, the fact that the Coyotes are moving suggests there aren’t many of those fans.) Other than that, pretty much no losses.
And the idea that Canadians might not relocate to AZ is absurd. Small numbers in the first place and no consideration that people bring costs not just benefits when they live in a community.
Geoffrey Propheter, University of Colorado: I agree with Victor’s take. It’s silly on its face that people from anywhere outside the state, let alone the country, travel to Arizona strictly because of the Coyotes and for no other reason in such large and frequent numbers to justify the cost of a consultant’s economic impact study, let alone the subsidies for the Coyotes themselves.
I’ll add that the income tax loss is a loss to state public goods. Players pay about $1.8m in state income tax this season, and based on anecdotes about salaries for non-players from NBA teams, I’d put the total (non-players + players) at $2.5-$3.5m. Which on a per capita basis means the hit to state public goods is less than 50 cents per person. The state’s general fund budget is $17.8 billion, or $2,405 spent on state public goods per person. So the income tax loss of the Coyotes leaving the state is at most 0.021% of the state’s total per capita spending on state public goods. Yes, there is a state income tax hit, and yes that translates in theory (ignoring fiscal illusion/obfuscation issues) into lower quantity and quality state public goods, but the magnitude of lost state public goods is so tiny I frankly have a hard time trying to figure out a practical comparison to make it meaningful.
But a little algebra tells me 235 people working 20 hours a week for 52 weeks at the state minimum wage will generate $3.5m in state income tax too. So if folks really care about that couple million dollars of state income tax, there’s other ways to get it.
Matheson: Yeah, I agree with Geoffrey about all of this. I like to put it this way regarding the potential $3.5 million in player taxes. At current interest rates, that amount is sufficient to finance roughly $50 million in stadium construction. So, if you propose a $1 billion stadium deal where the team pays $950 million in construction costs and the state offers up $50 million in subsidies, I probably wouldn’t argue too much.
Brad Humphreys, West Virginia University: New sports facilities do not drive migration between US cities
And there you have it: Economists are actually very much in agreement on whether the Coyotes leaving will have a significant impact on the Arizona economy (LOL, no), except for the one guy who used to work for the Coyotes. The answer must lie somewhere in the middle!
It’s still weird, though, that nobody at the Republic thought to call any other prominent economists to ask — wait, what’s this, also dated yesterday?
What does losing a pro sports team like the Coyotes mean for the metro Phoenix economy?
By Corina Vanek
Arizona Republic
[Phoenix’s] status as a sports hotspot translates little into economic activity, two sports economists said…
[Kennesaw State University professor J.C.] Bradbury said there is “no evidence whatsoever that communities are harmed when teams leave,” when looking at economic activity…
[University of Michigan professor emeritus Rodney] Fort said there are other, measurable benefits that come with sports teams, however. Those are outside ripple effects, Fort said, such as increased sales for businesses near stadiums, making a market more attractive for people to move to and creating a sense of value for fans. The benefits can be small, like if someone goes to a bar to watch the game and buys a drink, but they could add up to notable economic activity…
But, Fort said, it is important to note that those effects are “a drop in the bucket” to a place like Phoenix, which has an annual budget of $6 billion. The economic impact of a sports team annually is about the same as the impact of a large anchor department store, he said.
So one economist says there’s no evidence that economies are significantly harmed when a team leaves, however, another economist says that communities may be harmed, but not significantly. The answer must lie somewhere in the middle!
Anyway, Arizona Republic left hand, meet Arizona Republic right hand. You two clearly have lots to talk about.