Talking Points for
Presentation by Ronald Utt
To the
Citizens’ Task Force on Chargers Issues
January 8, 2003
San Diego, California
In most instances where public funds are sought, new stadiums are sold as engines of
economic development, and there are a dozen or so consulting companies available to
quantify these alleged “positive” economic impacts on the community.
Typical is that prepared for Baltimore cited by a witness in an earlier statement here:
“An average Orioles season will generate $117 million in gross sales, $44 million in
earnings, and over 1,500 full-time jobs”. Claims 46 percent attendees from outside area?
What’s the area? Total statewide impact said to be even greater
…or the one prepared for Cincinnati, where two facilities are said to have an impact of
$1.1 billion. Residents gained $373 million in earnings, and got 18,641 new jobs from
construction process…
…or Cleveland’s Jacobs’ Field, which is said to have created 6,269 jobs, and $6.5 million
in payroll taxes.
For some cities – especially those like the three above which have struggled
economically through most of the postwar era, and are still on the downward slope – such
prospective benefit claims are seductive, particularly when made by top-notch consulting
firms.
Consider the case of Baltimore, which in the 1980s enthusiastically embraced the
entertainment infrastructure strategy to an extent that is probably greater than any other
city with new stadia, Orioles Park and Ravens Field, museums, subsidized harbor/park
facilities, parking, convention centers, light rail and stations – called Harbor Place. It is a
wonder, foreigners come to study it and imitate.
Yet what was the result? Not much, or even worse. Between 1990 and 2000, Baltimore
was just one of a handful (15 %) of U.S. cities with over 100,000 people to lose
population. Within the top fifty cities, Baltimore’s decline was second worst – St. Louis
was the worst, and it too, had a new football stadium to house its new team, the Rams. If
we extend scope of review to top 55 U.S. cities, Cincinnati recorded the third worst
decline.
So, notwithstanding the extraordinary public commitment and investment, these few
anecdotes suggest that the economic impact, based upon what actually happened, was
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fairly dim, and certainly not in keeping with the magnitude of economic benefits the
consultants suggest occur.
Lets look more closely at Baltimore:
--Lost people, jobs and business consistently through two stadium cycles.
--Government perennially short of money: Closed one-fourth of public libraries in last
few years.
--Public school students rank last in state. Fewer than 10% rank “proficient” or better in
standardized test.
--Crime rate is still severe despite national decline. The Morgan Quitno organization
ranks Baltimore the second most dangerous of cities with more than 500,000 population.
--Only 62 percent of Baltimore school –aged children had their documented
immunizations compared to 80 percent in Kenya, as estimated by U.S. AID.
--An estimated 60,000 people, or ten percent of population, are estimated to be heroin
addicts.
The absence of any appreciable or discernible positive stadium related economic outcome
in Detroit, Baltimore, Cleveland, St. Louis and others, would not have surprised those
academic, university-based economists who have studied the economic impact of such
facilities by way of systematic analysis of nationwide data for dozens of cities. Unlike
almost any other sub-field of economic inquiry where contending and contrary views
prevail and economists batter each other with alternative findings, in this field the many
studies reveal almost universal agreement on the absence of any meaningful positive
economic impact from any of the stadiums built/or teams created or relocated.
Explain ex post nature of these studies: What actually happened vs. What could happen.
The consultant studies noted earlier and summarized to this task force by an earlier
witness are likely of the What could happen type, and are based upon what we
economists refer to as “multiplier analysis”. As I will discuss a little later, multiplier
analysis has validity only under a limited range of somewhat artificial assumptions, and
as such are of limited usefulness in trying to estimate the actual benefits that may follow
from a new sports facility.
By way of contrast, in the What Actually Happened studies, the analyst looks back over
the community’s economic performance since the facility was built and asks the question
of whether we can actually identify any economic improvement attributable to the
facility’s construction and operation.
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Using a few anecdotes to illustrate the case before discussing the results in detail, the
question being asked is: How is it that Los Angeles and Houston can lose a football team
but have economies that grow at above average rates, while Baltimore and St’ Louis each
gain a team and a new facility and have economies that faltered?
Or consider this: How is it that George Steinbrenner can believe that moving the
Yankees out of the economically-depressed Bronx neighborhood it is in will help his
team, but that the sixty some year presence of the Yankees in the Bronx seems not to
have helped the neighborhood?
But these are just anecdotes, lets look at the studies:
Robert Baade and Richard Dye (1990) performed a comprehensive, muti-year, multi-city
statistical analysis and find that “stadia and new franchises have little discernible effect
on the income level of an SMSA.” (“Stadiums and Professional Sports on Metropolitan
Area Development, in Growth and Change, 12, 1-14)
Robert Baade (1994) studied 48 cities over 30 year period to estimate impact. In the
thirty-two cities that experienced a change in the number of sports teams, thirty saw no
change in per capita income, one improved and one worsened. Of the 30 having a change
in the number of stadia or arenas, 27 showed no influence on income, but three
experienced significant negative effects.
Upon some reflection, sports slow growth pattern should not be surprising. The
slower growth reflects the kind of economic activity that investments in
professional sports spawn. Sports divert economic development toward labor
intensive, relatively unskilled (low wage) part-time jobs. Other cities in the
region that invest in economic activity that promotes full-time, non-seasonal, and
high wage jobs can be expected to capture a greater share of the regional
economic pie.
(From Robert Baade, Statement to the Subcommittee on Antitrust, Business Rights and
Competition, Senate Committee on the Judiciary, November 29, 1995, reprinted in
Should Congress Stop the Bidding War for Sports Franchises, Heartland Institute.)
Baade and Sanderson (1997) conducted a ten city analysis and concluded that:
“…the results of this study do not support a positive correlation between
professional sports and job creation. This study suggests that professional sports
realign economic activity within a city’s leisure industry rather than adding to it.
Furthermore, there is evidence to indicate that creating jobs through subsidies for
sports is inefficient and costly. In addition, the jobs can be characterized as low
paying, and the present value of the return on a city’s investment is likely to be
quite low in comparison with investment alternatives such as the subvention for a
location of an industrial park or department store.”
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(From Robert Baade and Alan Sanderson, “The Employment Effect of Teams and Sports
Facilities” in Noll and Zimbalist, Sports Jobs and Taxes, Brookings Institute Press,
1997.)
Mark Rosentraub (1997) conducted a 12 city study to determine if stadia have a positive
influence on core, or slow the rate of decline.
“In contrast to cities that did not build downtown sports facilities, the experience
of cities with these assets is not encouraging. For example, from 1980 to 1995,
the population levels in downtown areas in cities with downtown sports facilities
declined more than in the other communities. Job levels in the CBD areas
declined in both sets of communities at relatively the same rate. CBDs with
downtown sports facilities did lose fewer service sector jobs, but the presence of
sports facilities did not substantially affect the loss of jobs in the [other] sectors.”
(From Mark S. Rosentraub, “Stadiums and Urban Space”, in Noll and Zimbalist, 1997)
Perhaps the most disturbing finding was that from one of the more recent studies, a 1999
report by Professors Dennis Coates and Brad Humphreys which, in a study of 37 metro
areas, concluded:
In contrast to other existing studies, we find evidence that some professional
sports franchises reduce the level of per capita income, casting doubt on the
ability of a new sports franchise or facility to spur growth.
( Dennis Coates and Brad Humpreys, “The Growth Effects of Sports Franchises, Stadia
and Arenas”, University of Maryland Baltimore County, January 22, 1999)
Reason for this may have to do with over investment in less productive assets (stadia vs.
schools), shift from high impact to lower impact leisure spending (local golf vs.
professional football), or leakages out of the community – player salaries.
Around 55 % to 60 % of team revenues go to player salaries, and in most metropolitan
areas professional sports team members live elsewhere. According to a New York City
stadium study in 1998: “just two of the current Yankees and Mets players (and none of
the managers and coaches) have their primary residence in New York City.”
In contrast to these universally negative findings of the What Did Happen studies, the
often positive findings of the What Could Happen studies usually, but not always,
prepared by consultants on behalf of team advocates, often show very bullish outcomes.
For the most part the predicted impacts of these studies are prepared according to what
we economists call multiplier analysis – the idea being that any dollar spent on something
circulates several times from business to business so that its impact is multiplied several
times.
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Example: Buy a hot dog… part of price pays the vendor and cook, in turn, that fraction of
pay to them helps buy their groceries, or pay rent, and so on and so on until only pennies
are left.
Problem is that this type of analysis offers an accurate description of the process and its
impact only within a narrow range of assumptions that generally don’t exist in the typical
community for the typical sports team.
1. Is new money – Often assume all revenues generated are net new spending for the
community
2. No substitution – Spending on sports attendance is often at the expense of other
entertainment options – less golf, more NFL attendance
3. No leakage from area – all money is spent in community, and assumes that all
players reside there full time.
When adjustment is made for each of these shortcomings, properly done multiplier
analysis often yields estimates of negligible impact. Moreover, competing studies often
find contrary results.
A What Could Happen study for Baltimore Ravens stadium predicted a very positive
impact but two studies by Maryland government agencies concluded otherwise. An
analysis by Maryland’s Economic Development Department concluded that the state’s
then projected $177 million investment would produce 1,394 full time jobs, or a cost of
$127,000 per job. A later study b Maryland’s Office of Policy Analysis upped the cost
to $200,000 per job. By way of contrast, another Maryland job’s program called the
Sunny Day Fund cost $6,250 for each job it created. (See sources of Baltimore references
in Ronald Utt, “Cities in Denial: The False Promise of Subsidized Tourist and
Entertainment Complexes”, Heritage Backgrounder No. 1223, October 2, 1998)
In New York City, in response to a request for a publicly funded ballpark to serve the
Mets and Yankees, a What Could Happen study by the city’s Independent Budget Office,
which incorporated the types of leakages discussed above, concluded that a new park
serving both teams would add just 570 new jobs to the city, increase city tax revenues by
$4.9 million, and increase city output by $111 million. (“Double Play: The Economcs and
Financing of Stadiums for the Yankees and Mets.” Independent Budget Office, City of
New York, April, 1998)
The real flaw in any of these What Could Happen analyses is that they don’t ask the
question: In Comparison to What? If the city really was interested in promoting
economic development, and suddenly $300 million was dropped on the steps of City
Hall, would city leaders conclude that a stadium offers the best deal, or would it rebuild
and enhance the public schools, or add another university, or build a new medical school,
or improve roads, or clear blight? That’s the real decision.
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What can a city buy for $300 million? Domino’s Pizza founder Thomas Monaghan is
planning to spend $220 million of his own money to build a brand new university in near
Naples Florida. Thus, the amount of money at stake in your typical stadium decision
buys quite a bit, and some of those alternative purchases may be more highly valued by
the citizens. But that is your choice, and your decision, and certainly something worth
considering as you work your way to a final recommendation.
