FoS 20: Geoffrey Propheter on what we know about stadium impact, and what we should study next

Ever since we first started researching Field of Schemes more than two decades ago, it’s been consensus that virtually all economic studies show that sports stadiums and arenas don’t do much for the localities that build them — but most of those studies were done in the 1980s and 1990s and never updated, if only because academic departments don’t take kindly to doing the same research over and over again.

Enter Geoffrey Propheter, who as a George Washington University grad student in 2012 burst onto the scene with an innovative study of NBA arenas that studied not just how cities did overall compared to similar cities without pro hoops teams — no better at all, just as prior studies had found —  but also if any cities did better than others. His finding, as I wrote at the time:

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.

Propheter has since moved on to the University of Colorado, where he is continuing to push the boundaries of what we know about stadium economics, while joining the chorus of researchers trying to throw some cold water of hard data on teams’ rosy economic claims, particularly in the case of his hometown Sacramento Kings. Listen in on our discussion below, which manages to take in the cutting edge of stadium research, the importance of eSports to the future of research, and whether Roger Noll was right that it’s better to give team owners cheap land than piles of cash.

ND: Hi, and welcome to the latest installment of the Field of Schemes 20th anniversary interview series! I am extremely psyched for today’s guest, economist Geoffrey Propheter, who burst onto the sports stadium scene in 2012 with a study of cities with NBA arenas, which showed in the most exhaustive detail of any study yet that having a pro sports team doesn’t produce any measurable economic benefits for a city. As Propheter wrote at the time, “After controlling for economic strength, the impact of an arena is negative and significant at the 96 percent level. Each facility is associated with a real per capita income decline of $2,430.”

Propheter has since gone on to work for the New York City Independent Budget Office as a property tax specialist and is now an assistant professor in the University of Colorado’s School of Public Affairs. Geoff, it is awesome to have you here.

GP: Thanks for having me, Neil.

ND: So tell me a little bit about how you got involved in looking into sports stadiums and arenas. This is an issue, I know, that academics have sort of considered asked and answered 20 years ago, right? Where there were a lot of studies late ’80s, early ’90s showing no sign of measurable economic impact from sports stadiums. And you took this to a new level with some of your work. What to talk a little bit about how you got involved and what your approach was?

GP: Yeah. So I spent a good deal of my life, pre-college anyways, or pre–graduate school, in Sacramento. So I’m essentially a Sacramento kid. And I grew up loving the Kings, and an arena issue has been on the local policy agenda since at least the late ’90s, in one capacity or another. So it’s been on my radar. And then I get into grad school in public policy, studying taxes, public finance, local government things like that, and I end up finding out that there is an entire field of research out there where you can make money talking about sports. And so this made absolutely perfect sense.

And as most academics do when they set out a path for a future research agenda is you’re trying to figure out where are gaps in our existing knowledge. And at least at the time that I was doing that that basketball arena paper, the one gap that I felt was inadequately addressed in the existing research up until that point was this difference between single and multisport cities. At least at that time, where I was primarily focusing on the NBA and the NHL, this distinction between single and multisport wasn’t appreciated in the existing literature, and yet I felt that there should be a difference. That the marginal cost, marginal benefits of adding one more team should decline with each additional team. But that means that going from zero to one team should have a bigger effect than going from one to two to three and so on.

The other element I tried to capture in that is potential differences within metro regions of interregional inequities or differences in economic activity. So I attempted to account for that to deal with sort of the redistribution arguments that often come up. But the main contribution of that paper is the single versus versus multisport cities.

ND: Right. So you found that it is comparatively better — comparatively more advantageous for a city that doesn’t have any sports team to actually get a sports team, right? So whether it’s a Sacramento or an Oklahoma City or someplace like that. To the degree that you can tell, is it enough to push some of these things over the top, to where it winds up becoming a reasonable economic investment? Or is it just at least it’s a less bad deal than if you already are on the map because you have three different teams and it’s just adding a fourth one.

GP: Yeah, so I think the first thing to keep in mind is that’s probably always better to talk in terms of likelihoods and probabilities. So I like to say that a single city going from zero to one has a higher probability of being better off than a city going from one to two. Now that’s a relative evaluation — you’re comparing cities based on their number of teams that they have. Whereas the question I interpret you asking more is “Does this particular team or this deal make this city better off, or is this a net gain for this particular city?” And that’s sort of this absolute evaluation. And the answer to that, as with all of these is that it depends, right? The devil’s in the details. And you may be better off, you may not be.

The Sacramento case, which stands out in the study that I did, is fairly unique. That was a positive gain, at least when we measure the economic activity in per capita income at the MSA level. But the context of Sacramento at that point in time is extremely unique. Probably the closest thing that we have to a similar circumstance would have been Oklahoma City when the Sonics were relocated there, where you had this latent fan base. People liked sports in Sacramento, but it wasn’t it wasn’t clear to the nation that this was a budding hotbed of basketball crazies. And you had a couple of, I don’t know if “visionary” is the right word, but at least highly motivated Sacramento-based developers who bought the Kansas City Kings, went through the stadium debate over there, ultimately did the Art Modell thing and moved them to Sacramento, put them up in what’s by today’s standards a shanty of a temporary arena for a couple of years — I think the capacity was like 10,000. The grandstand flooring was plywood packed full of people. The sound of all these people stepping on essentially plywood during a basketball game — that’s when the cowbells started supposedly.

So that sort of environment really helped boost, not just the city’s image on a national scale, but it did have — at least based on these numbers — an economic effect on on local incomes. I don’t think that that is the rule for most cities going from no team to one team.

ND: Does this indicate that maybe the places where it might make more sense for cities would be someplace like Las Vegas getting a hockey team or, I mean, Portland already has basketball but if it were to get baseball it would be a little bit more on the map. Is there any way to tell what the dynamic is that’s going on here? Is it literally just that you’re putting your city on the map in a national conversation in a way that it that it wasn’t before?

GP: Well, I don’t think the Sacramento getting the Kings all of a sudden made people go out and draw down their savings to increase local economic activity. I think some component of, in that particular case the Kings and I guess all cities in that zero to one circumstance, drawing in some economic activity that otherwise would not be there.

But the question really is that it’s a matter of degree. How much is that team drawing in is going to vary from one city to another. Sacramento had a lot of other things going for it: being the capital of California, being an outlet for people being priced out of the Bay Area, which is still something true to this day. And maybe Sacramento would’ve been better off or at least not any worse off than it is today, at least as a metro region, if the Kings never came. I can’t tell. I don’t know. But it’s certainly plausible.

The actual mechanics and the factors and the inputs that go into how a city ends up faring both in the short run and in the long run when you add professional sports is so locally context dependent that that it’s hard to get at those distinguishing factors using sort of the standard academic approach of systematic data collection. Really what you need is in-depth case studies, and then try to you do enough of those, and you can extrapolate the narratives and the stories and the circumstances that led to success or failures — however that’s defined — across multiple studies.

That case study approach, though, that qualitative research design that I think would be more beneficial at this point in the academic literature, just is not something that economists or policy analysts are trained to do.

ND: So if you were to design a study — I’m a rich dude and I want to give you a whole lot of money to study something is really going to answer some of those questions you were just talking about. What would it look like?

GP: Oh.

ND: Not to put you on the spot.

GP: My reaction to any sort of any sort of policy intervention is we’re trying to mimic what’s done in the physical sciences in a laboratory with randomized controlled trials. And so the question is first can you do a randomized controlled trial? And depending on how much money you’re willing to give me, what that would look like is you essentially build two identical cities, you give one of them a pro sports team and you don’t give the other one the team, and you see what their outcomes are like after you give them give the one the team. And, you know, that’s a lot of money. It’s also a lot of time. So we would never ever actually be able to do something like that.

ND: Well, I will say that the sports owners of America seem to be trying to give you as many data points as possible. If we were having this conversation 20 years ago it would be like, well, everybody builds a stadium or arena and then we have to wait 40 years for them to build a new one before we can tell anything. But now, we’re talking 15, 20 years we’re going to have a lot more opportunities for comparative studies now.

GP: Yeah, but I think the way into this is eSports. Because right now eSports doesn’t really have the same sort of structure as professional. It doesn’t have sort of this cartel element to it. Anyone can generate their own eSports tournament and charge a fee. It’s not very regulated. It’s really popular. It’s a lot like the gambling and marijuana industries right now.

And I think eSports is sort of this future and it actually is a potential way in which we could increase the usability of existing sports venues and so might also be an interesting impact for future research and for local governments more generally.

ND: Right. Because the NBA isn’t going to expand by 50 teams, but you could easily have 50 new eSports centers in different cities. That’s interesting, I hadn’t really hadn’t really thought about that.

Before we move on from Sacramento I want to talk a little bit about the Kings. Everything that we were just saying obviously is about the Kings coming to Sacramento from Kansas City. Whereas there was also the whole more recent fight over the new arena which I know you got dragged into a little bit, in that at least some Sacramento Bee columnists were calling you for comment. Any thoughts on sort of how that whole thing went down? It’s kind of interesting in that it’s one of the few examples of a reason stadium or arena battle in California where a bunch of public money wound up going into — I mean, California is really the exception to the rule for these things. The Giants couldn’t get public money, and the Chargers couldn’t get public money, and in city after city — the A’s are probably not going to. But the Kings did. Any thoughts both as someone who’s studied this stuff and as a Sacramento native sort of how that whole thing evolved?

GP: My thoughts are sort of scattered, as with most of my thoughts on arenas and stadiums and economics in general. As a fan, there’s a part of me that is glad that the team is staying. But since I’m not a Sacramento resident, I’m also glad that I don’t have to pay for it. And so I’m freeriding. As long as I’m not a Sacramento resident, I’m going to support Sacramento subsidizing the Kings every single day and twice on Sunday, because I’m not there to pay for it, but I get to enjoy the benefits.

So on the one hand that’s sort of the fan in me. On the other hand, [if I try to take myself out of being a fan] originally this facility was going to be on the other side of the river in an abandoned rail yard, as opposed to where it is right now, which is in downtown near the Amtrak terminal. And that rail yard location — I can’t recall specifically why it was moved just a mile south, but I presume it had something to do with some federal regulations that rail sites — brownfield, it continues to receive a lot of remediation. It may have taken too long of a time given you know the NBA threats to approve a relocation to Seattle, and so maybe the downtown location was the more expeditious of the two given given the constraints. And the downtown location is not a horrible location except for traffic.

So I get the location. It’s part of this new wave of creating integrated urban real estate development projects. You’re going to build a facility as an anchor in this larger development site where you’re going to build up hotels and residential towers. So within that sort of perspective it makes perfect sense. The traffic I still don’t get how it solves that problem when you also don’t spend money to improve alternative infrastructure.

ND: I mean it makes sense from an urban planning standpoint I guess that makes sense from an economic development standpoint if there’s so much evidence that you’re mostly just moving economic activity around?

This is one of the questions I always ask is are stadiums acting as catalysts to help develop neighborhoods or are they just helping to redirect it to the area that city officials or developers particularly want. Like the Nationals Park in D.C., for example. I think you certainly see more development happening now there than before the stadium. But it took a while to get going. And I mean, it’s D.C. There pretty much isn’t a scrap of land anyway that doesn’t have a crane on it. So would it have happened anyway without the stadium but it just got sped up?

GP: Yeah. So the one thing that’s always good to keep in mind: Anything you want to do with a stadium you can do without a stadium. So if you’re using a stadium or an arena — a sports facility — as justification to revitalize an area, the reality is you can do revitalization without sports. You don’t need sports for that. We have existing public policy tools that can do that.

The two big ones that are on my radar, at least on a research standpoint, are both tax incentives and rezonings. And I think both of these, when we look at Barclays — your neck of the woods — we see how these interact and could have produced the same or more development in an area without sports than with, and without a sports facility. So in the case of the Barclays Center, it’s located in — well, it’s not technically in downtown Brooklyn, at least according to the city maps but it’s right next to it. And that big chunk of downtown Brooklyn got rezoned in 2004 and it was an upzoning, so you released all of this buildable space that was cut off from the market due to government regulation and you open it up.

Alright, so now you have this increase in buildable space. Now at the time this is happening, there’s increasing demand for housing in Brooklyn — in particular in downtown Brooklyn, where you have access to the lines that go directly into lower Manhattan. And highest and best use during the housing boom was residential, so whereas this upzoning was supposed to increase commercial property, it actually ends up increasing residential property by ten times more than anticipated. And the Barclays Center site, the Atlantic Center site, is right on the outside of this rezoning. And so over time, as prices in the rezoned Area increase, people start to search for cheaper land prices, and they’re going to be pushed out of the rezoned area towards Atlantic Yards. That would have happened regardless if Barclays Center was there or not, just in virtue of the fact that the area was rezoned in 2004. And so when we look at the Barclays Center and we see activity development activity that’s going around the Barclay Center, notwithstanding the actual Atlantic Yards development itself, that development was bound to happen.

ND: It’s something that’s always puzzled me. Because Ratner, who bought the Nets and then built Atlantic Yards and then immediately sold the Nets — this is not a guy whose life’s dream was to own an NBA team by any stretch of the imagination, if you’ve ever seen the guy, right? So it always baffles me what he was thinking. Was he thinking that, okay. he could make money on a building a lot of housing on the site, but he wasn’t going to get hold of the site because he needed to have the hook of something sexy, right? “I’m going to bring pro sports back to Brooklyn” was something that was going to get attention of local elected officials. Did he genuinely think that having the arena would stir up more interest, you would be able to get more development and sell housing for a higher price that he would have otherwise? I’m never quite sure exactly what his plan was. And I’m not really sure he made a ton of money off the deal because he wound up having to finance a lot of it during the financial crisis, which made it difficult for him.

But it always sort of baffles me what the developers are thinking. I understand the elected officials who may be drinking the Kool-Aid and thinking, well, it’s shiny. It’s something that we can point to and say “We brought a team back.” But you would think that real estate developers would be a little bit more hardnosed about this stuff, and yet they seem to drink their Kool-Aid as well.

GP: Yeah, I agree. I have thought about why franchise owners in general want to be real estate developers — because that’s the trend. And the best that I can come up with is being a landowner, both today and in the history of mankind, usually makes you better off. And in the particular case of sports, you can get the development without the without the arena. And that’s the weird thing for Bruce Ratner is he was not a franchise owner first. Sure, he bought the Nets, but he was always a developer and then got into sports, as opposed to most other owners that I’m aware of. Ranadive is not a real estate developer — that’s not his background — and yet he’s engaged in some real estate development around the new arena. And so that’s sort of the reverse of Ratner.

So Ratner does stand out. And the only logical explanation is the one that you just offered is that he saw this land — really it’s potential land, because before you box over the rail yard you can’t do anything with it. And in order to get buy-in from everyone you needed something sexy, and basketball was sexy enough. That’s the only explanation, that basketball was a means to an end.

ND: Let’s talk briefly about this new trend of sports team owners becoming real estate developers. because it’s obviously something we’re seeing in tons of places. I had Roger Noll on here, and he was talking about how this is a promising sign: they’re not asking for cash anymore, they’re just asking for land that they can develop. Which is on the one hand, I guess, better than asking for lots of cash. On the other hand, as we’ve seen in situations like the rejected Angels deal to redevelop the area in the parking lot around their stadium, you can wind up getting just as much value in free land or discounted land as you wound in a stack of twenties. So I’m curious what you think about this, both as someone who watchedthe sports industry and in terms of public policy as well.

GP: I’m split, but I think I lean slightly more to I think this is a better thing than a worse thing. And the main reason why is government is really good at one thing — regulation — and it’s okay at a lot of things, but it’s really really really bad at property management. And if government can get out of the property management business, most of the time, and state and local governments have eventually figured this out in the course of administering the property tax and tax liens, so now local governments across the country have tax lien sales, and that’s a way to get out of the property management business.

And the same thing with land. If you gave the land to private interests — notwithstanding some challenges with the property tax structure that can create some inefficiencies — you’re generally going to get higher and best use in the hands of private developers than if you left it in the hands of government ownership and then had the government try to negotiate with private developers and things like that. Soa very general sense, I like that aspect.

The fact that land, especially in urban areas is basically going to only increase in price and often at a much higher rate than either inflation or the next best alternative, 30-year Treasury bond, means that the government is giving up an appreciating asset in order to do what? In the case of sports is “I don’t want to give some cash either to build a stadium or to make some capital improvements.” That’s on my radar because that’s what happened here in Denver a couple of years ago where for Coors Field days they essentially traded land away so that they didn’t have to give something like 200 million dollars for capital improvements to Coors Field.

So on the one hand it intuitively is appealing. But on the other hand, I can’t shake the fact that land is in such short supply, especially in urban areas, that the government may have been able to, if they had the expertise, to do something more productive at least from a public policy, public values, social values standpoint. You can do anything with the land, and in this case you’re trading it for sports.

And that is the part that’s unsettling. Because generally speaking there are other things besides sports that we value in a community. I could have given it to a nonprofit who could then turn around and sell it, use the proceeds to, I don’t know, pay for homeless shelters or improved sewer lines or who knows, right? Some other local public good besides sports. And when I think about it that way, I kind of go, okay, this is less attractive. But I still think in general I err on the side of it’s better that they do this than just write a check or put themselves on the hook for debt service by issuing tax-exempt bonds.

ND: Right. The trick I guess is just to make sure that once you’ve establish that it makes sense to do something with with the land for a public benefit — whether that’s, like you said, sports or something really different — that you’re actually getting something close to the maximum public benefit. In the same way that you know you want to make sure that if you’re you know giving land to the Rockies for Coors Field that you’re getting them to sign a lease extension for the maximum number of years, at least, that they’re going to do. As opposed to some of these places where, I forget if it was the Panthers, I think, wound up getting close to a hundred million dollars in renovation money, and they signed a six-year extension or something like that. And you’re, like, okay, sure, maybe 80 million dollars isn’t the worst thing in the world — but at least get them to sign like a 15-year extension or something like that, because what you’re giving away you can only give away once.

GP: Yeah. And in the case of this land if it’s it’s government owned that means it’s also exempt from property taxes, and as long as you’re not giving tax breaks to the developer to develop the land, then once you make that transfer it becomes taxable and you start collecting property taxes from it. Now, the developer could turn around and say, oh, if I have to pay property tax on this I’m going to lower my price for the land, or I expect you to pay me more in some other capacity. But notwithstanding that, the fact is as land returns to the tax roll — and again as a property tax researcher, I like the tax base to not be eroded by exemptions, so I also like that idea. But whether or not the franchise owner is able to secure additional tax breaks to ensure that that land remains tax exempt fully or in part — that also probably varies context by context. I’m not sure in the case of Denver if they also get an exemption for it. I don’t think they will. Denver is not as willy nilly handing out exemptions as New York City is.

ND: Right. I know that’s something that often gets little attention. The New York Islanders arena deal, I still don’t think they’ve really established what the tax situation is going to be with that, if I remember right. They had said, well, it’s still going to stay in state hands so there’ll be some sort of payment in lieu of taxes. But, again, “some sort of” could mean an awful lot of different things. And you’re seeing the same thing with the Diamondbacks right now where they’re talking about building a new stadium, and it could end up going on Native American reservation land. So there’s just so many different tax situations that they it makes a huge difference.

GP: And I’m fascinated that what happened with the Red Bulls arena in Harrison. How that didn’t spill over to other jurisdictions yet, where in New Jersey — and it could just be particularities about New Jersey law — where the government ownership of land was not sufficient to warrant exemption from property taxes for any private tenant.

ND: Right, the Red Bulls expected they were going to get a property tax break because it was going to be on government land, and a court ruled that it was because it was a private use that whoops, no, sorry you still got to pay.

GP: Yeah. So I haven’t heard of court cases like that challenging other instances. And one way to get around this, you mentioned PILOTs. Now the pilots in New York, it’s used a little differently elsewhere, but for eds and meds, higher education and hospitals, they attempt to avoid this situation, like the Red Bull situation, by voluntarily negotiating what’s called a payment in lieu of tax to local governments, to sort of mollify them so they don’t end up going to court and trying to get their exemption rejected or annulled. So, yeah, I’m fascinated why that Harrison New Jersey case hasn’t spilled over to other deals yet.

ND: So anything else that you see on the radar in terms of new fields of study or new discussions in the public sphere that you are looking ahead to involving sports facilities?

GP: Yeah, I think there’s a couple. Public finance and the real estate dimensions of sports facility research are the leading edge. It’s where I envision academics going. The real estate development aspect has seen considerable momentum in the last four to five years. And I think that’s only going to grow as we figure out where the limits of our existing knowledge is. Most of the research to date has focused on how stadiums affect residential home prices. I did one for the Barclays Center looking at commercial land prices. These are all attempts to estimate how does this hypothesis that a facility attracts economic activity to its immediate vicinity show up in, in this case, property markets. And we should be able to measure that economic activity in other ways as well. But the nice thing about property markets is that the data is readily available, and property markets also have some nice attributes: There’s a lot of transactions that happen, especially in residential property, and so it gives us a lot of data points as well.

ND: Geoff, thank you so much for being here. It’s always a pleasure to pick your brain on this stuff. It’s interesting to these sort of conversations about the nitty gritty of the economics of whether it’s sports stadium development or real estate, because you know these are really the questions that we need to answer to figure out not just are decisions that have been made in the past stupid, but what are the decisions that make sense going forward.

GP: Yeah, no problem. I appreciate the time to talk. The thing about sports is I love it both as a fan and as a player — rec player, anyways. I’m very unhappy that the Nuggets and Kings did not draft me this year. I will try again next year, and I will keep trying until I get that lucky phone call.

ND: We will all be rooting for you.