Archive for September, 2008

An Economics Lesson for Commissioner Nasuti

The AJC runs a piece this morning that looks at the role of stadium construction on economic development. Dennis Coates explains the findings from the economics literature.

But economists almost unanimously agree such stadium deals are bad for taxpayers. A 2005 survey found 90 percent of economists agreeing that governments should not subsidize sports teams.

“The only ones who think they’re going to create development and jobs aren’t economists,” said Dennis Coates, a University of Maryland-Baltimore County economics professor who has been studying stadium financing deals for 13 years.

Coates said economists find that spending on hotels, meals and similar side fare to a baseball game represents leisure money that probably would have been spent on another recreational activity anyway. Development around stadiums would have been built elsewhere, they argue. And to top it all off, studies show that per-person income in communities with professional sports teams is sometimes lower than in those without because of all the money that gets siphoned off to the places where players live and the team’s corporate ownership is located.

But, Commissioner Bert Nasuti doesn’t get it.

Such arguments are nonsense to Gwinnett County Commissioner Bert Nasuti, who came up with the idea of bringing pro ball to the county and has been an unwavering defender of the deal to build the stadium for the top minor-league affiliate of the Atlanta Braves.

Nasuti said he doesn’t understand how the county won’t gain with an estimated 400,000 people spending money at the stadium each baseball season, not to mention all the people who will live, work or shop year-round at developments now under review around the stadium site.

“I really don’t believe that without the anchor amenity of a baseball stadium there that Brand Morgan or any other developer would do the level of development that’s going to be there,” he said.

Nasuti, who claims to have majored in economics as an undergraduate commits a major fallacy in his analysis—the type of gaffe that shouldn’t be made by someone who holds the power to tax. He focuses on the seen benefits and ignores the difficult-to-see costs. 19th-Century economist Frederic Bastiat eloquently pointed out the deficiency in this type of argument in his classic essay “What Is Seen and What Is Not Seen.”

In the economic sphere an act, a habit, an institution, a law produces not only one effect, but a series of effects. Of these effects, the first alone is immediate; it appears simultaneously with its cause; it is seen. The other effects emerge only subsequently; they are not seen; we are fortunate if we foresee them.

There is only one difference between a bad economist and a good one: the bad economist confines himself to the visible effect; the good economist takes into account both the effect that can be seen and those effects that must be foreseen.

Yet this difference is tremendous; for it almost always happens that when the immediate consequence is favorable, the later consequences are disastrous, and vice versa. Whence it follows that the bad economist pursues a small present good that will be followed by a great evil to come, while the good economist pursues a great good to come, at the risk of a small present evil.

It is easy to envision a stadium full of fans watching a Triple-A baseball team in Gwinnett County: fans paying for parking, buying tickets, purchasing concessions. How could anyone argue that this isn’t an economic benefit? It’s all very simple to a “good economist.” The money that fans spend on the game has to come from somewhere; and that somewhere is likely other entertainment options within the community. Professor Coates details this quite clearly in his preceding statement.

It is incorrect to claim that such expenditures are net beneficial to the community. Instead, we are seeing dollars shuffled around the community from one area to another. These effects are possibly quite difficult to see. If every restaurant in the area lost a waiter as a result restaurant patrons choosing to attend Braves games, the opportunity cost is not immediately visible for those who are not trained at where to look. Professor Coates’s work with economist Brad Humphreys have looked the aggregate effect on communities and their findings are unambiguous that sports teams convey zero economic benefits to their hosts. If Gwinnett is going to be an exception, we need to hear an explanation as to why.

There is no doubt that Brad Morgan and other nearby land owners will gain from being close to the new stadium, but other local merchants will be worse off as consumers shift their purchases to the stadium. The estimated 400,000 people’s expenditures represent a wealth transfer, not new wealth.

Another argument made in the article is that there exist non-monetary benefits to the stadium, and that the added taxes borne by citizens is low enough that citizens would tolerate it.

Rodney Fort, a sports economist at the University of Michigan, said the intangible value of having a new recreational opportunity, team to root for and all that goes along with it can produce quality-of-life benefits that can help justify public spending on a project.

The dollar figures are often fairly small spread out across a community’s population, Fort argues.

Seattle officials used a similar argument in seeking to publicly finance a new stadium years ago, Fort said. Backers produced ads comparing the cost to that of a Big Mac sandwich every month.

“A lot of people are going to say, ‘No, it’s not worth a Big Mac a month,’ ” Fort said. “But a lot of people are going to say, ‘Yeah, that’s worth it.’ “

I agree. In fact, I have told numerous individuals that I might be willing to support the Gwinnett plan if it had been sold to the voters differently. Instead, the deal was cut in a back room and without any opportunity for public feedback. Despite what community leaders claim, I have never seen a project pushed through in secret. The public was told that the stadium would pay for itself from day one, which is untrue and deliberately misleading. Furthermore, the stadium proponents have done nothing but tout the economic benefits of the plan. If you are going to take people’s money, just take it. Don’t couple it with a lecture on how your taking it is good for everyone, especially when you are wrong.

So, how much will the new stadium cost? I broke it down to the household level here: $110 now, with an additional $90 spread out over the next 30 years. If the stadium generated $15 million in economic stimulus every year, this would be a good deal, but it won’t do so. And the fact that government officials with the power to tax have taken so little care to research the facts ought be embarrass them.

Putting Things in Perspective

$700 billion could build 437.5 new Yankee Stadiums. I’m not sure which is more absurd: that $700 billion buys so many stadiums or that it buys so few.

Addendum: Alternatively, it could build 11,864.4 Gwinnett Braves stadiums (at $59 million a pop). Expect this number to fall in the coming months.

A Lesson in Opportunity Cost: This Is Too Easy

Per AJC.

“We need to demonstrate to our citizens that we are doing everything we possibly can,” County Administrator Jock Connell said Wednesday after announcing the initiative.

The groups will seek to find $35 million in reduced expenses or increased revenues, and should make their recommendations by November, in time to be included in the 2009 budget.

“There will be some aggressive recommendations,” Deputy County Administrator Michael Comer predicted.

The $35 million figure roughly matches the amount of money county officials have budgeted to spend from the county’s reserve fund this year due to stagnant or declining revenues and rising costs.

The figure also roughly matches the tax revenue ($31 million) and first-year bond payment($2.4 million) devoted to the new Gwinnett Braves stadium. But, don’t worry, Gwinnett government officials are looking out for their citizens.

Connell said he told department heads to remember that their jobs are to serve residents.

Just like the stadium is already paying for itself.

A Divorce on the Horizon?

Terance Moore reveals some infighting within the Braves organization involving some guys at the very top.

When Hank Aaron leaves you a message to call his southwest Atlanta home as soon as possible, you dial his number even faster than that. Said the man who is baseball’s legitimate home run king instead of that other guy, “Something has just been bothering me, really. I don’t mind other things, but somehow, some things need to be spelled out correctly.”…

“I was listening to something [last week] on television where Bobby was talking about how, when Chipper came to the team, he took him aside to tell him what we did to get him here, and I was stunned, really,” said Aaron, before recalling a conversation he had with Braves officials in 1990 when they owned the No. 1 pick before that June draft. By the time of the draft, Aaron had been promoted to senior vice president.

Said Aaron, with a sigh, “I told Bobby. I told them all, and I told them, ‘Y’all better go and get Chipper Jones.’ “

That was opposed to pitcher Todd Van Poppel, Cox’s first choice, according to Aaron. “I talked to Van Poppel’s daddy, and he told me that he wasn’t going to sign with the Braves, but that’s who Bobby wanted with that first pick, because he always was into getting pitching.”

Cox looked perplexed when informed of Aaron’s remarks, saying, “Well, we had a lot of people see [Van Poppel], and they liked him. Some other [Braves scouts] went to see Chipper, and they liked him a lot. I can’t remember if I had Hank talk to Van Poppel’s father or not, but [Van Poppel] was unsignable. And we needed to know that beforehand. So that’s why it really was an easy decision to take Chipper. He wanted to sign. He wasn’t playing games with the college thing. It was simple. I mean, Chipper was the guy.”…

If this sounds like a conflict between Aaron and Cox, now the Braves’ field manager, well, you make the call. Said Aaron of his relationship with Cox, “I just talk to him, you know. What bothers me is that when he became general manager [in 1985], there absolutely was no connection between the two of us.

I’m not surprised with a clash of egos, but I am surprised that this has gone so public. Aaron wasn’t caught off guard by a good question. He called a columnist at the AJC and gave him something to put in his column. It sounds like Aaron does not plan to continue to work with/for the Braves. I’m surprised that Aaron’s participation in an ownership group seeking to purchase the Cubs has gotten little media attention.

One of my favorite things about being a sports fan is reading between the lines. We don’t know what front office personnel do behind closed doors, and it’s fun to speculate based on actions that we can observe. This season, a few events have caused me to believe that serious rifts exist within the Braves management.

First, we had the demotion/promotion of Jeff Francoeur. He spent three games in Mississippi, where we were told he would spend a few weeks. His immediate recall, following vocal on-the-record comments blasting Braves management by Francoeur, was completely out of character for the Braves. It was only a few years ago when John Smoltz had to apologize for calling John Schuerholz a “homeboy”. Frenchy said much worse and never backed down nor apologized; yet, his starting right field job was waiting for him after his brief hiatus. Frank Wren glossed over Francoeur’s comments as fiery competitor talk. In other words, Frank Wren may have the title of GM, but he’s not calling the shots on his own. Someone changed his mind—or wasn’t in on the initial demotion discussions—after Francoeur was sent down. Also, evident is that though Bobby Cox was in on the demotion discussions, he did not agree with the decision as Frenchy returned to the starting line-up immediately upon his return.

Next, we had the rumors of Bobby Cox’s retirement. Several sources close to the Braves reported that Cox’s return to the Braves next season was in doubt. There was open speculation that several coaches were on the hot seat. Reading between the lines, inside sources were telling reporters off the record that either: there was a high probability that Cox and some members of his staff would not be back or tensions between the front office and the managers were escalating. Cox put a stop to the rumors by declaring that he would be back, and the Braves soon released a statement saying that all the coaches would be back.

And now we have Hank Aaron making comments about decisions that were made two decades prior. Does it really matter what happened? Do these guys have memories good enough to remember exactly what went down? This was a personal shot.

Some sort of conflict is going on within the Braves organization. I’m not sure what it is, but all signs point to an agitated group. It looks like Hank Aaron will be leaving soon, and I won’t be shocked if others follow him out the door.

Guess Who I Ran into Last Night

I went to the Braves-Phillies game at Turner Field last night. As with all games at the Ted, it was a fun affair. It turns out that it was Gwinnett Braves night, and my seats were right around the corner from a suite reserved for the Gwinnett Braves.

As I waited in line for my $1 hot dog—hot dogs are $1 on Thursdays in September, but I’d prefer a price hike to keep the lines down—I had a direct view into the room full of Gwinnett County power brokers. I saw Commissioner Bert Nasuti. A friend of mine was egging me on to go introduce myself, but I didn’t want to ruin his night nor mine. If he won’t return my e-mail, I suspect he wouldn’t be to keen to have surprise face-to-face meeting. I was there to enjoy the game, and so was he. As I learned from living in Washington, DC, you don’t talk politics when your out to have fun.

After I gave up on the hot dog to go get a beer, I walked right by John Schuerholz. Again, I was encouraged to approach him, but I wasn’t in the mood. I suspect he doesn’t enjoy being accosted by random people at the ballpark.

The person/thing I most wanted to meet was Gwinnett Braves mascot General Gimme. I was hoping for a picture with him for the website. Unfortunately, our paths never crossed, or he was scared of my shadow.

A Tale of Two Counties

This editorial in the Rome News-Tribune is too good not to post the whole thing. I can’t find anything to cut. Please visit the paper’s website to patronize its advertisers. The paper also offers a link to e-mail the article to anyone whom you think might be interested.

Gwinnett strikes out
Email this story to a friend
09/17/08

LUCKY THEY don’t live here … that’s how the commissioners in Gwinnett County should feel. If they had Floyd Countians as constituents instead of suburbanite sheep, they’d already have been tarred, feathered and run out of office.

Rarely does one get to see a tale of two counties that so clearly demonstrates not only the difference in the way they are governed but also a difference in respect for the electorate.

Gwinnett and Floyd will shortly share a major asset: professional baseball of the Braves variety. Gwinnett is going to have the triple-A franchise whereas Floyd for a few years now has had the lower class A franchise. Both require new stadiums holding a playing surface of similar dimensions and seating not all that much different in numbers.

Floyd voters barely approved a special-purpose penny tax with which to build theirs after a very loud, contentious election. Hence, the $15 million structure is bought and fully paid for.

Gwinnett citizens didn’t get to vote on the prospect, instead having a $45 million structure rammed down their throats in a deal cut secretly. Now, the Gwinnett commissioners say an additional $19 million will be needed,

THEY’RE GOING to take it out of the county’s rainy-day reserve fund, so at least it doesn’t mean a property-tax increase … but. Apparently a “rainy day” doesn’t include hiring freezes and other cutbacks due to the general revenue dive as those continue in that county.

Floyd Countians have certainly learned to appreciate the added value to the community, in fun and visibility, of having a Braves team. Those sort of neighboring antics serve to give them new appreciation of having elected leadership that takes even high-risk, possibly unpopular decisions that involve wads of money directly to the people.

Indeed, there was another one on Tuesday in the $88 million SPLOST for continuing construction of new schools and classrooms. In Floyd County the voters have the final say when tons of money are going to be spent, not school board members or commissioners.

Just how beaten down Gwinnett citizens are by their county dictators was reflected in the published response to the latest stunt by one of them. Raising a fuss “wouldn’t make any difference,” he said, calling commissioners a “lost cause.”

WHAT A DIFFERENCE! Gwinnett is now going to get a stadium that costs roughly $59 million ($64 million with the land purchase figured in) and seats 5,500 while Floyd got one for $15 million, including land, that seats 5,100 — and that the voters, not just a handful of commissioners, decided would be of value to the community. Even of more value, which seems not entirely understood in many of suburban Atlanta counties, is the importance of relying on the democratic process to make the final decisions on the really big questions.

When this Gwinnett stadium deal first appeared, this newspaper commented that one could bet the secret spending wasn’t over yet … and it wasn’t. It also concluded, in words that bear repeating:

“Better still, Floyd Countians have local governments that trust their citizens and keep them in the loop. Having baseball is good, but having a leadership that knows how to play the game is even better.”

No secret deals and a voter-approved stadium. Looks like the Gwinnett Board of Commissioners’s excuse for secrecy is a farce. For more on the Rome experience, see Frank Stephenson’s post.

Thanks to Frank for the pointer.

Why Did the Brewers Fire Ned Yost?

I’m not going to deny that there are plenty of legitimate reasons for firing Ned Yost. I don’t have an opinion on the issue. What I do know is that his firing wasn’t motivated by these reasons.

The Brewers have been a nice story this season, but they really haven’t been as good as their record. Their performance has to do with the assembled talent, and not Yost. In fact, on August 4, I wrote the following.

The Brewers are not that good, and I think there is a decent chance that the front office will realize this before the month is over.

In fact, the Brewers winning percentage today (.557) is virtually the same as it was when I wrote this (.553). Might Yost have been partially responsible? Yes, but why wasn’t he fired six weeks ago?

The real reason he’s being fired is that the Brewers need a scape goat now that the team’s playoff chances are in doubt. The Brewers want to send a message to the fans that if they don’t make the playoffs, Yost was the reason. Now that he’s gone, they hope the fans will keep supporting the team. He might not really be the reason, but it’s something that fans can easily understand.

My point is that Yost wasn’t fired because he mattered, but because he doesn’t matter. Maybe he was too hard, too soft, or made some dumb tactical moves; but, he also probably made some good decisions. In the grand scheme of things, I think it’s difficult for a manager to really screw up a team over the course of an entire season.

The Best Statement I Read Today

“When it comes to professional sports, we become socialists. With everybody else, we’re capitalists.”

That’s New York Assemblyman Richard Brodsky commenting on public subsidies to the new Yankee Stadium.

He continues.

“Critics on both the left and right have decried these taxpayer subsidies as socialism, wasteful, corrupt, anti-free enterprise, and unfair to the average citizen,” Brodsky’s report stated. “Yet the phrases `economic development,’ `job creation,’ `growth,’ etc. retain enormous political clout. A real analysis of these subsidies has yet to be done.”

How is it that these phony economic impact studies get so much play in the media? A quick search of “economic impact stadiums” via Google News finds mostly reporting of stadium proponent propaganda. In terms of Gwinnnett, I don’t think I’ve seen a single critical comment of the County’s economic impact projection since several officials touted it after approving $19 million from the reserve fund.

Thanks to Zach and Cyril for the pointer.

Addendum: Here is the dumbest statement I read today.

“I don’t really favor giving away taxpayer assets for nothing,” Commissioner Mike Beaudreau said.

Yet, he voted for the Gwinnett Braves stadium and its cost increase.

Gwinnett’s $15 Million Myth

A few weeks ago, there was a rumor circulating that a carcass of a Bigfoot creature had been discovered in north Georgia. The only problem was that no one had been allowed to see more than pictures of it frozen in a cooler. Upon further investigation, the mass of skin and fur was revealed to be nothing more than a frozen Halloween costume.

The case of the North Georgia Sasquatch bears a resemblance to Gwinnett County’s economic impact study of the Gwinnett Braves stadium, which boasts a $15 million annual boost in economic activity. The study is often mentioned by a secretive Georgia group as evidence of the stadium’s economic impact, but outsiders are forbidden to examine it. My requests to see this study have received no response. And though the County’s economist Alfie Meek has visited this site, and stated his confidence in his estimate, he has not shared how he estimated that the new stadium would generate a $15 million increase in economic activity.

The study will almost certainly never be released to the public. The reason for this is simple, the economic impact estimate of $15 million is too ridiculous to be believed. Just as a hairdryer revealed Georgia’s Bigfoot to be a fraud, so too will economists quickly spot the holes in the analysis.

Economists have studied the issue of economic impact of sports facilities to death. The findings are clear: there is virtually no positive economic impact from sports facilities, games, or events. (See below for brief summaries of the economic literature on the subject.)

Because county officials refuse to release the study, I thought I would attempt to reverse-engineer it. First, I want to point to the County’s citation of the study on its website.

The County’s economist conservatively estimates the annual impact at approximately $15 million. Economic activity generated by the stadium and the Braves should support an additional 200 jobs countywide and generate $6.5 million in new local personal income.

Recently, Michael Pearson of the AJC talked with the study’s author, who provided a more precise estimate.

County economist Alife Meek has estimated that the 72 home games scheduled for the stadium will produce $14.6 million in new economic activity in the county, a small portion of which the county will capture in the form of tax collections.

The good news is that we have a good place to start in backing out of the $14.6 million projection to determine its parts. The GCVB hired the consulting firm Conventions, Sports & Leisure International (CSL) to conduct an feasibility study of the stadium. (I think it is interesting that CSL does not have a Ph.D. economist on staff despite conducting economic impact analyses all over the country. In fact, only one employee has a graduate degree, an MBA.) Though the projected economic output of the CSL analysis differs from the County’s study—it is lower—a few components are likely comparable.

Economic impact studies of this type typically focus on two types of spending: direct and indirect spending. Direct spending is the first round of spending on activities related to a facility or event. Direct spending includes spending at the event, complementary consumption such as hotel stays, other local entertainment before or after the event, and incidental expenses (gas, snacks, etc.). Indirect spending captures the second round effects of re-spending these dollars in the local economy. Sometimes “induced spending” is considered separate from indirect spending, but I see little reason to make the distinction here.

To go from direct to indirect spending, we need a multiplier. The idea behind a multiplier is that every dollar spent in the community is recirculated within the community in successive rounds with diminishing impact. (There is little reason to expect a multiplier greater than one.) I determine the multiplier used to generate the total impact of the project by looking at the impact direct spending on total output. According to the CSL study, they anticipate the stadium will cause annual net new spending to be a minimum of $6.3 million, which will lead to a minimal total output increase of $10.2 million. Thus, $6.3 * m = $10.2; and m = 1.62. We’ve got our multiplier, which indicates that every new dollar spent in the community will translate into a $1.62 increase in total spending. I don’t put much stock in multipliers, but I’m not going to criticize this aspect of the report.

Next, I apply the multiplier to the County’s estimated total impact of $14.6 million. Direct spending = $14.6 million/1.62 = $9 million. Thus, the County anticipates $9 million in new direct spending every year from the stadium. We can use this number to estimate how much the County anticipates visitors will spend when they attend a minor league game in Gwinnnett.

Before I go any further, I want to explain why net new direct spending is important. New spending is spending in the county that would not be taking place without the stadium. You cannot simply take all stadium revenue and count it as an increase in spending, because it is likely that many individuals who attend games would have spent their money within Gwinnett anyway. Right now, people in Gwinnett may go to movies, go bowling, or visit restaurants for entertainment. When the team comes, we should not count the transfer of spending from these other Gwinnett businesses (who will suffer losses) to the Braves as new windfall of spending. Therefore, this net new spending is mostly going to come from people who live outside the county who come to Gwinnett for the sole purpose of seeing the Braves, and otherwise would not have spent any money within Gwinnett’s borders.

So, let’s take the $9 million and divide it by the number of home games: $9 million/72 = $125,000. The CSL study anticipates the Gwinnett Braves will draw 6,500 fans a game. If 100% if the fans come from outside the county, then each fan would have to spend $19, or $76 per family of four (family calculations will come in handy a bit later). Theses expenditure numbers seem reasonable; but, the initial assumption is absurd, because many people who attend the event—I would argue the vast majority, but the CSL authors disagree—will be Gwinnett County residents.

CSL estimates that 54% of the gross direct spending will come from net new spending ($6.3 million/$11.7 million). How much revenue would the ballpark have to generate per visiting fan if 3,5000 of them (approximately 54%) came from outside the county? The answer is $36 per visitor or $144 per family of four. If a more-reasonable 1,625 fans (25%) came from outside the county, then it would take $80 per visitor, or $320 per family of four, which is outrageous.

Though, I believe the latter estimate of visitor attendance is more reasonable—there is no way that a majority of gross spending is new—I will stick with the calculation from the CSL report just to make a point. Even with their own number, the revenue expectation per fan is too high to be believable.

Every year, Team Marketing Report releases its Fan Cost Index (FCI). The FCI uses a consistent basket of goods across different teams and over time to measure the cost of going to a baseball game for a family of four.

The Fan Cost Index™ comprises the prices of two (2) adult average-price tickets, two (2) child average-price tickets, two (2) small draft beers, four (4) small soft drinks, four (4) regular-size hot dogs, parking for one (1) car, two (2) game programs and two (2) least expensive, adult-size adjustable caps.

I believe the basket is a bit on the high side—do you buy hats and programs (2!) at a game?—however, it serves the purpose of comparing costs of attendance across teams and time. In 2008, the FCI was calculated for a few minor league baseball teams. The Minor League FCI indicates that the average expenditure by a family of four attending minor-league game is $99. The most-expensive Triple-A club on the list (Indianapolis Indians) has an FCI of $112. This means that in order to generate $9 million in net new direct spending, the team would have to generate revenue 45% higher than the minor-league average or 29% more than the Triple-A maximum. This is certainly an unrealistic expectation, but that is not my main concern.

When we compare this cost to the cost of attending an Atlanta Braves game, 30 miles south, we see that the Braves offer a better experience at a similar price. The MLB FCI indicates that the average expenditure at Atlanta games is $157–a mere $13 more than the the Gwinnett club anticipates. Why would all these fans travel to see the Gwinnett Braves, when they could see the Atlanta Braves for a similar price? They won’t. The point here is that these direct spending impacts defy reality, and were calculated deliberately to boost the economic impact of the stadium. Even when I factor in visiting team hotel and meal money as economic benefits, the required cost per fan falls only about $2.

Another consideration is that even the direct spending at the stadium won’t stay in the county for long. The majority of the labor expenditures will go to players and coaches; groups who have higher than average saving rates and are likely to have homes outside Gwinnett. Profits to the team will be distributed to Liberty Media shareholders who are dispersed around the world and spent elsewhere.

The fact that stadium proponents succeed at trumpeting such ridiculous numbers is disturbing. Villanova sociologist Rick Eckstein has studied stadium proposals and finds a common factor in succesful stadium campaigns.

In a just-released article in the Journal of Sport and Social Issues, my colleagues and I studied media coverage of 23 publicly financed stadium initiatives in 16 different cities, including Philadelphia. We found that the mainstream media in most of these cities is noticeably biased toward supporting publicly financed stadiums, which has a significant impact on the initiatives’ success.

This bias usually takes the form of uncritically parroting stadium proponents’ economic and social promises, quoting stadium supporters far more frequently than stadium opponents, overlooking the numerous objective academic studies on the topic, and failing to independently examine the multitude of failed stadium-centered promises throughout the country, especially those in oft-cited “success cities” such as Denver and Cleveland.

This isn’t the first instance of justifying expenditures based on numbers that were generated to serve a political function rather than provide objective cost analysis. The problem is that often times local media pick up stadium proponents talking points without viewing them critically.

The following papers provide summaries of the economic literature on the impact of sports facilities on economic development. I hope they are instructive.

Coates and Humphreys (2008)

There now exists almost twenty years of research on the economic impact of professional sports franchises and facilities on the local economy. The results in this literature are strikingly consistent. No matter what cities or geographical areas are examined, no matter what estimators are used, no matter what model specifications are used, and no matter what variables are used, articles published in peer reviewed economics journals contain almost no evidence that professional sports franchises and facilities have a measurable economic impact on the economy.

Feng (2008), Volume 2, Chapter 6

A growing body of independent empirical research has shown that professional sports facilities and teams have little or no significant positive impacts or even negative effects on the metropolitan economy. Different from the promotional economic impact studies from consulting firms, these independent studies usually employ a pooled time-series and cross-section regression model to examine the impact of sports facilities and teams on local economic development in terms of aggregate or per capita personal income and employment growth. These retrospective studies provide no significant evidence of positive effects when comparing metropolitan areas with a professional sports team to the ones without a team.

Whaples (2006)

This survey of a sample of Ph.D. economists in the American Economic Association reports that 85% agree that government subsidies to professional sports franchises ought to be eliminated. 10% are neutral, and only 5% disagree.


AEA Survey
Figure created from numbers reported in paper.

Coates and Humphreys (2003)

Local political and community leaders and the owners of professional sports teams frequently claim that professional sports facilities and franchises are important engines of economic development in urban areas. These structures and teams allegedly contribute millions of dollars of net new spending annually and create hundreds of new jobs, and provide justification for hundreds of millions of dollars of public subsidies for the construction of many new professional sports facilities in the United Sates over the past decade. Despite these claims, economists have found no evidence of positive economic impact of professional sports teams and facilities on urban economies. We critically review the debate on the economic effects of professional sports and their role as an engine of urban economic redevelopment, with an emphasis on recent economic research.

Siegfried and Zimbalist (2000)

Few fields of empirical economic research offer virtual unanimity of findings. Yet, independent work on the economic impact of stadiums and arenas has uniformly found that there is no statistically significant positive correlation between sports facility construction and economic development (Baade and Dye, 1990; Baim, 1992; Rosentraub, 1994; Baade, 1996; Noll and Zimbalist, 1997; Waldon, 1997; Coates and Humphreys, 1999).

These results stand in distinct contrast to the promotional studies that are typically done by consulting firms under the hire of teams or local chambers of commerce supporting facility development. Typically, such promotional studies project future impact and almost inevitably adopt unrealistic assumptions regarding local value added, new spending, and associated multipliers. They often use a regional input-output model that depends on outdated technical coefficients which are treated as invariant to shifts in supply and demand (Center for Economic and Management Research, 1991; Deloitte & Touche, 1994, 1996; KPMG, 1996; Economic Research Associates, 1996; KPMG, 1998; C.H. Johnson Consulting, 1999).

If Gwinnett County officials want to claim the stadium as an economic stimulus, the burden of proof is on them to prove it. It’s time for these numbers to be challenged.

UPDATE: I just ran across this interview of Brad Humphreys by Keith Law.

BP: How is it that owners and politicians manage to fudge the data so easily?

BH: Because nobody ever calls them on it. The media read these economic impact studies and take them at face value. They report the results as if they are facts and not wild guesses or outright overstatements.

Part of the problem is that the impact studies use methodologies that might appear reasonable to a layperson. It’s sort of like using batting average as the ultimate measure of a baseball player’s offensive output.

Also, nobody ever goes back and looks at how many jobs were actually created, or how much additional tax revenue was generated. There’s just no assessment. Except in the academic literature to which not many people pay attention.

Gwinnett DA Calls Stadium Spending Irresponsible

Per Patrick Fox for AJC:

Gwinnett County District Attorney Danny Porter called it irresponsible when Gwinnett County commissioners voted to fund $19 million in cost overruns and upgrades for the new Gwinnett Braves stadium project last week.

The decision left Porter flabbergasted.

“I think the commissioners are going to have to stand up and start making some real choices instead of just bread and circuses,” he said.

Although the $19 million outlay will come from the county’s reserve fund — not the general fund, which pays for the operation of county departments — the district attorney draws little distinction.

He enumerated a list of unfunded requests he had made for his office in the 2008 budget:

• two victim assistance positions;

• one prosecutor for juvenile court;

• two assistant district attorneys for drug task force;

• one criminal investigator for white-collar and computer crime; and

• three additional investigators.

Likewise, the county sheriff’s and police departments made requests for some new positions that went unfunded.

Bert Nasuti defended the decision.

County Commissioner Bert Nasuti, who has helped lead the drive for baseball in Gwinnett, said the stadium had no influence on the 2008 budgeting process.

“Whatever shortfalls he (Porter) felt, they weren’t related to baseball,” Nasuti said, adding that serious arrangements to move the Braves’ minor league team to Gwinnett did not occur until well after the budget process for 2008 was completeted. “It wasn’t a budget influenced by baseball.”

Opportunity costs are opportunity costs. The stadium isn’t free and necessitates trade-offs in the budget. Whether the DA’s requests were next in line for the stadium funds is an open question. But, I think few voters would prefer a stadium to the above forgone positions.

UPDATE: DA Porter responds to Commissioner Nasuti.

“That’s just…that’s just not right. That’s just incorrect. The budget process in Gwinnett County begins in June. The final budget for each department is submitted in June and the baseball decisions were made in the spring.”

Addendum: I should have caught Porter’s comments in a Gwinnett Daily Post article that I linked to last week. More kudos to GDP.

At a time when the county has instituted a hiring freeze in every department other than public safety and asked firefighters and police officers to conserve fuel, District Attorney Danny Porter said he could not believe commissioners voted for the increase.

“We can’t put enough cops on the streets, we can’t put enough deputies in pods and I can’t put enough prosecutors in courtrooms, but we can play baseball. It’s absurd,” he said. “It’s an unbelievable squandering of taxpayers’ money and to pull it out of reserves is just irresponsible.”