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.

8 Responses “An Economics Lesson for Commissioner Nasuti”

  1. Rick says:

    I don’t have an undergrad degree in economics or anything else in finance, but it doesn’t take a genius to see that all of the revenue generated from parking, ticket sales and the like goes back directly to pay off then debt from the stadium or goes directly to the Braves.

  2. LB says:

    While I accept and more or less agree with all your arguments above, I have a question largely born of ignorance about the Atlanta area.

    While those entertainment dollars surely would have been spent SOMEWHERE in the metro area in the absence of the team/stadium, is it a plausible argument they would have been spent outside Gwinnett county? That is, how many of those 400,000 fans would have instead gone to a restaurant/bar/movie in other neighboring communities?

    I could at least see a situation where the net for the metro area would be zero but where the county comes out ahead in its competition against other parts of the metro area. (Imagine the county is only as large as the stadium itself and the next best development option for the land is a strip mall full of Applebees and TGI Fridays, which almost necessarily will draw from a smaller geographic area than the stadium would.)

    I realize the answer to this is more empirical than theoretical, and my suspicions are that the relative gain by the county doesn’t offset the opportunity cost of the funds (that is, the hypothetical posed above is probably entirely ridiculous), but being generally unfamiliar with the municipal boarders, rooting interests, and population of the area, I wonder if the argument is at least plausible.

    If so, it poses a different economic problem whereby each municipality/county in a metro area acts rationally by offering incentives to locate in their jurisdiction to the detriment (or net zero, at best) of the region as a whole.

  3. Don S says:

    It is why with such logic as Bert Nasuti that we are going into our reserve funds here in Gwinnett. I think he needs to open up his brain and listen to the people that do this for a living. Who knows maybe we can get a federal government bailout like AIG.
    It is time that we have the BOC step back and only do zoning hearings and hire some professional people to run the government. It is thought processes like this that has our finalcial markets failing.

  4. JC says:

    LB,

    There is an argument to be made that the Gwinnett Braves will attract some dollars that would have been spent outside the Atlanta area.  The consulting firm’s economic impact analysis estimated more than half of the spending would be net new spending. This is unreasonably optimistic, but at least the consultants  acknowledge that only net-new spending is relevant here. Nasuti thinks that all 400,000 spenders are a net benefit. I talk about the potential impact of non-Gwinnett visitors in this post.

  5. Don S says:

    There is one large difference between Gwinnett and Frisco Texas, they built it and people came to a small town that had little to nothing to do for many miles, Gwinnett is already built for the most part and we offer many things to do here already.

    Rick, you need to read the contract with the Braves and really see what comes back to the county. Only ONE dollar per ticket comes back to the coutny with a minimum number of $400,000 paid to the county and this is not even close to paying the debt on 28 million in bonds they let ( about 2.5 million per year).  Also in the contract there is speak of all surplus must go into a capital reserve fund to pay for upgrades and maintenance. 

    The bottom line is that the powers to be never did an economic impact study and all of their belief is based on assumption and gut feeling.

    I should give Michael Pearson of the AJC credit at least he is writing on the subject although it seems as if he has been duped by some county officials on a few occasions.

  6. Rick says:

    Don-My point was that the revenue I mentioned from ticket sales, parking etc would not be new revenue. It shouldn’t even be counted as revenue since it would only be used to pay off the debt or go to the Braves. Believe me, I think this is a giant CF for the residents of Gwinnett. Makes me even happeir to be in Cobb.

  7. Cliff says:

    Don S (and others),

    Frisco Texas is a bogeyman for several reasons.  Already in place were several major corporate headquarters.  Travelers in and out of those had only 1, 4 star hotel choice.  The buildup in hotels was not driven by the sports facilities.  It had already started (or at least, before the base ball park.  The hockey practice facility was already in place).  The sports facilities  were complementary in offering the crowd in the area entertainment possibilites.

    And, Frisco, was NOT a small town.  Plano is right next door.  Frisco’s most comparable comparison to Atlanta is Alpharetta.  That is, a growing high end suburb with corporate headquarters and well away from the central city.j

  8. Don S says:

    Cliff:

    The differnece in Gwinnett and Frisco is that the leaders of Frisco had insight and there were several needs in Frisco. The first one is that there were no hotels for “corporations” in the area, ase in Gwinnett have no corporation headquarters really near the stadium. 

    I must ask the question of why did the leaders of Frisco join forces with Southwest Sport Group to head this project?  Could the answer be they wanted to do a joint effort since the leaders of the city do not specialize in sports and development. They had the forsight to see they needed guidance. The leaders of Gwinnett have not opted for this type of input from companieds that specialize in these types of projects. Out leaders are doing this by the “seat of their pants” and just htink they can build a stadium and let the private market move in without a plan.

    I would have been very happy to have leaders like Frisco had that shared their vision with the citizens of the town. They sold the concept and moved forward with a plan.