Would an urban arena be the economic engine it’s so often touted as?

A group of Sacramento residents were visiting San Diego this past weekend and they sent me the following email:

Isaac,

Here are some pics I took of vacant commercial spaces around Petco Park- these spaces are directly across the street on 2 sides of the stadium, including the street which faces the entrance to the park.  There were more vacant spaces than those filled.  We found the same thing when we went to the convention center in L.A. which is part of the same development as the Staples Arena.  

Now, the case can be made that Petco Park is a baseball stadium, not an “Entertainment and Sports Complex” like what is currently proposed for the Downtown Railyards in Sacramento. So, what are the benefits of an urban arena, and are they really as huge as widely reported on in the local media outlets? A study conduced by two economists at the University of Maryland raises questions about those claims.

From the study:

On the surface, sports facilities and franchises appear to be prime candidates for economic development projects aimed at revitalizing urban neighborhoods. Unlike abstract economic development tools like tax credits and empowerment zones, sports facilities – stadiums, arenas, football pitches, etc. – are highly visible structures. Sporting events are wildly popular throughout the world and widely understood and appreciated by residents of cities. In the United States, new sports facilities are frequently cited as important components of urban redevelopment initiatives and sources of considerable economic growth in terms of job creation and income generation. Cities provide the owners of professional sports franchises with hundreds of millions of dollars of subsidies for the construction of new stadiums and arenas and expect these facilities to generate economic benefits exceeding these subsidies by large margins.

However, a growing body of evidence indicates that professional sports facilities, and the franchises they are home to, may not be engines of economic growth in urban neighborhoods. Econometric studies of the determination of income and employment in US cities find no evidence of positive economic benefits associated with past sports facility construction and some studies find that professional sports facilities and teams have a net negative economic impact on income and employment. These results suggest that at best, professional sports teams and facilities provide non-pecuniary benefits like civic pride, and a greater sense of community, along with consumption benefits to those attending games and following the local team in the media; at worst, residents of cities with professional sports teams pay a high cost for the privilege, both in terms of large public subsidies and in terms of lost income and employment.

On the “studies” released by PR firms to hype up the benefits of a urban arena:

Every time the owner of a professional sports franchise wants a new facility built using public financing, an “economic impact study” is commissioned to justify the spending of hundreds of millions of dollars of public money on the projects. These impact studies are always prospective in nature – they forecast the future economic impact flowing from a new publicly financed sports facility – and always conclude that there will be large positive economic benefits to the local economy; these positive benefits typically include hundreds of millions of dollars of additional tax revenues and income, and hundreds or, in some cases, thousands of new jobs created. Impact studies commonly rely on the use of spending multipliers to arrive at these large positive economic benefits. Economic impact studies are commonly performed by consultants or large consulting firms. Referring to these studies, Crompton (1995) says, “Too often, the motives of those commissioning an economic impact analysis appear to lead to adoption of procedures and underlying assumptions that bias the resultant analysis so the numbers support their advocacy position”. He continues by critiquing the typical assumptions and procedures that produce the biased results, including frequent references to specific studies that made the unfounded assumptions.

Think BIG Sacramento released an “Economic Engine Report”, with no footnotes or information about how they came to their figures. That report was used widely in the mass-media over the past year and seldom questioned to be anything but the literal truth.

On the “new visitors” that are drawn in by an urban arena that the events at them:

Impact analysis studies also claim that a new sports facility will attract new visitors to a city, leading to additional economic benefits. Visitors attracted by a new sports facility may occupy hotel rooms and eat meals that would have been purchased by visitors who came to the city for other reasons, and the direct spending on sport made by these visitors would have gone to other entertainment establishments. Porter (1999) and Porter and Fletcher (2002) report little or no increase in hotel occupancy rates, retail sales, or airport traffic in cities that hosted Super Bowls and Olympic Games in the U.S. in the past ten years.

On the increased spending surrounding arena’s and where those funds end up:

The majority of the revenues from professional sports go into salaries for players, managers, coaches, trainers, scouts and to income for the ownership. Most of these individuals, especially the more highly paid ones, do not live full time in the city where the games take place. Unlike the wages and salaries paid to employees of local restaurants, movie theaters, car dealerships, department stores, etc., the large salaries earned by players and coaches leak out of the local economy. Moreover, the spending and saving patterns of relatively highly paid players, with relatively short careers, differ from those of typical workers. Specifically, players save a larger portion – and spend a smaller portion – of their earnings than the typical worker because the wealthy tend to save more than the non-wealthy and because the high earnings of players are transitory and a substantial fraction will be saved until the years after their playing days are over.

On the desire to raise the “status” of a city:

A common justification for subsidizing professional sports is that there are substantial positive externalities from sports and that these would not be available without subsidies. For example, proponents of sports led development frequently refer to the “world class” city status conferred on a city by the presence of professional sports franchises…

But,

…money spent subsidizing the professional sports franchises may come at the expense of other important and highly productive public services. For example, there may be fewer police on the street, fewer firemen, less frequently repaired streets and highways, a weaker education system, and so on. All of these may result in lower productivity of workers and, therefore, lower incomes. No evidence exists that professional sports have a detectable impact on local government spending or tax revenues.

But don’t take my word for it, read the entire study (all 23 pages of it and the 29 itemized footnotes denoting the sources of the information used to come to its conclusions) for yourself by clicking here.

And if you think ranSACkedmedia is being overly pessimistic about the arena push, please read the Sacramento County Grand Jury report about the shady dealings surrounding Measures Q & R, the tax measures that failed at the ballot box in 2006.

Related posts:

1. Sacramento City Council considers throwing $14 million towards Railyards Arena
2. Mayor Johnson: “This has never been about an arena for pro basketball” Say what?
3. “Here We Build” movement renamed, arena impact report released, NBA lockout looms