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.
Excellent analysis, as usual, Neil!
Economist still agree, the Coyotes are/had little impact on the economy.
A discussion of the economic impact of Canadien snowbirds in Phoenix. That is when you know they’re getting desperate.
Apparently Hoffman has never checked on flights from, say, Winnipeg or Prince George to Florida vs flights to Phoenix from the same locations.
He wouldn’t need to do any more research than that to know his claims are utter BS.
Yes, snowbirds do watch the Coyotes. They also watch Cactus league baseball (and the Arizona Fall League) and in much greater number than those who go to Coyotes games.
Even an economist paid by the team should have been too ashamed to make that claim.
Nice Zing! from the actual independent economists though… and Hoffman deserves every bit of it.
People go to AFL games? I thought they were played in essentially vacant stadiums with no staff.
I know of at least two people who claimed they did. I did not have access to the games on tv to confirm it.
Once it can be conclusively proven, you can bet there will be a need for publicly funded upgrades to the facilities.
LOL
I wish I could’ve been an economist, so I could make up numbers and be a “genius”. Like if this site goes down, it will bring the GDP down by a million dollars.
Source: Just trust me bro.
Well, my Greensboro NFL expansion application will now most definitely include terms like ‘untold’ and ‘unknowable’ to describe the benefits that will accrue to the region from essentially giving me $5Bn to bring a team and build a stadium there.
Not only will the state benefit from 50+ multimillion dollar NFL salaries and some hefty staff income taxes as well, there will be literally dozens of casual work min wage hours for each stadium service job (*during football season) as well!
Now that I think about it, $5bn isn’t nearly enough… Greensboro: DO you want to be big league or not? Don’t tell me. Show me.
Recall what former LA Kings owner Jack Kent Cooke said about the Canadian snowbirds who moved to Los Angeles, “they moved here because the hate hockey.”
Jack Kent Cooke was a terrible owner for the Kings. I really wish people would stop trotting out that quote like it proves something other than that he never should have owned that franchise.
But the heart of the statement is correct. Don’t rely on former Canadians to support your product. You have to build a fanbase from the overall population.
That is true. But I don’t think anybody not grasping at straws – or, in Cooke’s case, making excuses – would seriously suggest that Canadian migrants are the key to building a fanbase.
The Kings appear to have built a pretty strong fanbase now. Their attendance goes up and down a bit with the fortunes of the team, but that’s probably better for the fans that do care because it gives management an incentive to also care.
Always love the intangibles. This idea that the loss of major league status something something makes people not want to move here something something depresses people who do live here something something.
News: the loss of revenue for the state from the income taxes paid by 23 NHL players plus however many visitors pay the Jock Tax is not nothing, but this state watches so much of its revenue walk out the door through things like putting shipping containers on the border which it then has to remove, fraud, waste and other stupid things that you can hardly sound the alarm about the athletes.
All the arguments about teams relocating or potentially relocating or demanding new facilities at taxpayer expense are designed to prey on emotion. If they were just numbers, THE NUMBERS NEVER EVER ADD UP.
It’s because we, as a society, have a very strange relationship with sports, and give it/them way more credence and deference that we should, that a whole lot of other programs we could pay for that would benefit everybody don’t happen. I mean, sewers and other infrastructure literally benefit everyone, but they’re not on ESPN twice a week.
Unless we invented a sport that involves sewers and it got huge and became mainstream instead of some weird ESPN Ocho shit.
Does Vegas have an over/under posted yet on whether the hibernating Coyotes will complete a stadium within 5 years?
I will take the “over.”
Does Vegas do long term bets like that? The UK tickled me when I read about a guy betting on his 5 year old son becoming a Premier Soccer league player and collected
14 years later. Those people will bet on anything!
Do Coyotes hibernate?
Florida has 2 NHL teams so that won’t cause snowbirds to pivot.
The Coyotes attendance and low TV ratings show that they have very little impact, let alone net impact. There are some tourists but not a lot as the numbers show. The lack of interests indicates there isn’t much intangible benefits either
It’s hard to know. He now has a $1bn in his wallet, so he can definitely win that land auction, but the politics around building it are not certain.
This is such a kick in the cactus for the Coyotes fans. They lost their team but they’re still stuck with the shady owner. That’s the worst possible combination of things leaving and things staying.
Mereulo announced, unilaterally, that he’s planning to move the Tucson Roadrunners (AHL) to Mullet arena at ASU so that he can keep some of the Coyotes staff employed in Tempe. He owns the Roadrunners and it would cost about $3m to break his lease with their facility in Tucson (which is in the convention center).
He doesn’t seem to worry about the jobs of people in Tucson. He didn’t ask anybody in Tucson about that plan, nor did he ask ASU. ASU’s contract specifies that it only applies to the NHL team called the Coyotes, so he’ll need a new deal with them if he wants to move the Roadrunners. It might not make economic sense for them to do that.
The TCC is apparently the only rink in Tucson. At least for the next few years until they build another one, as planned. So if the AHL team leaves, the convention center might decide to use that space for something else, which would be huge blow to the nascent youth hockey scene and UA’s ACHA team.
I don’t know how that will work out, but it just shows the kind of businessman he is that he thinks he can just push people around and think nobody is going to notice.
“He now has a $1bn in his wallet”
Does he though? The NHL announcing they will (have) buy the Coyotes from Meruelo for $1bn (with or without the Dr. Evil voice) is not the same as the NHL transferring $1Bn in cash to Mr. Meruelo.
We don’t know what Meruelo might have still owed the league in relation to his purchase, advances of tv rights fees or other funds, or how much debt the club carried when he transferred ownership of it back to the NHL (all these items have been significant considerations in past sales of this very franchise). Meruelo doesn’t seem like the kind of guy who pays cash up front and in full for everything. We know that he routinely doesn’t make lease or other payments, for example, which is one of the reasons he ended up paying $20m (again “maybe”) to upgrade ASU’s college rink so he could use it for up to three years.
I would be willing to bet that the NHL did not transfer to Meruelo the entirety of Smith’s expansion fee payment less the vig they publicly stated they would take. I’m sure he turned a healthy profit on his temporary ownership of the franchise. Maybe he even doubled his money on the flip itself.
I do not believe he has a credit line item on his bank account that is ten digits long. Nor do I believe the NHL effectively gave him the money to purchase an expansion franchise (at whatever number they would like) down the road in the hopes that ‘might get it back one day’.
Well, yes, that’s an oversimplication.
They probably did not write a check for $1bn. And even if they did, he owes money all over town.
But it is probably safe to say that he is significantly more liquid today than he was a week ago, so I suspect he can cover the price of this land he’s trying to win at auction. That’s the important issue right now.
Of course, he’ll have to pay that within some specific number of days set by the regulations. He’d probably like to negotiate it, but I doubt that will be possible.
And if he actually wants to get the Coyotes back, he will have to actually build a “state of the art” arena and then pay back the league $1bn. That’s a bargain, but those are the terms that have been reported.
I’m not sure what the situation is with ASU. As you pointed out, they made him pay up front. I thought it was more like $25m, but I’m not sure. I think it worked out to $700k+ per year plus the cost of the upgrades. I read that somewhere. But they only played two years there, so do they owe him back the last year’s rent?
Putting the AHL team would not satisfy his end of the deal. He’s talking like it would, but ASU does not have to agree to that. Neither does the AHL, I suppose.
He made money on the deal, by all accounts. He paid $300m plus took on some unknown amount of debt, but still came out ahead, at least for now.
Worth remembering the next time you hear somebody say “billionaires deserve to be rich because they take such big risks!!”