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.

2 Responses “Gwinnett’s $15 Million Myth”

  1. Don S says:

    I have been told that there is no such report on the economic impact of the stadium outside of the CSL report. This is substantiated by the fact that Alife Meeek stated no formal study on this has been completed in the article by Michael Pearson of the AJC.

    So the way I see the $14.6 million in economic impact is, $6.9 million in ticket sales ( 8k tickets sold per game at an average price of $12 with 72 home games), $1.08 million in parking revenue ( 5k cars at $3 each with 72 home games), and then $3.45 million in food sales ($6 each person, 8k people with 72 home games), anf about $3.2 million in team promotional sales (t-shirts, hats, etc).

    I really think my 10 year old could have done a better job that the ones involved in this.

  2. robert says:

    jc — do the economic impact studies take into account things like increased property value (and increased property taxes) for real estate around a sports complex?  do new developments (shopping centers or apartments) tend to follow shortly after a stadium is built in a neighborhood?  is there any measure that shows neighborhoods around a sports complex become more desirable?  or is that another myth told by the teams and pols?