Summerfest attendance falls-C.C. Sabathia meets the substitution effect

Last week the Milwaukee Journal Sentinel reported that attendance was up at Miller Park, but down at Summerfest.

MJS reporter Don Walker wrote that more than 400,000 fans, a record, visited Miller Park during the Brewers' ten-day homestand, noting the team was "well on track to hit 3 million in attendance, a franchise record."

The poor economy and high gasoline prices, he wrote, didn't seem to be hurting sales.

On the very same day, another MJS reporter, Tom Held, blamed the poor economy for much of the decline in Summerfest's attendance: "The hosts of Milwaukee’s Summerfest learned this year how tough it can be to throw an outdoor party in rainy weather and a slumping economy."

Attendance at the 11-day music festival on the lakefront slumped to 831,024, the smallest crowd since 1993. Revenue from ticket, food and beverage sales also feel by roughly 4% below the previous year.

So according to the MJS, rising gasoline and foods prices and the weak economy didn't hurt attendance and hurt attendance. Hmmmmmmmmmmm!

History tells us that rising joblessness, inflation and declining real wages reduce discretionary income and expenditures. Since entertainment is a discretionary expenditure, it is among the first causalities of a slumping economy.

But if the weak economy was causing entertainment expenditures to decline, it should have effected the consumption of similar products like Summerfest and Brewers baseball similarly.

Perhaps there is a different, more coherent explanation for this contradictory experience. Call it C.C. Sabathia meets the "substitution effect."

Most economists agree that professional sports don't increase a community's aggregate entertainment spending; it simply redistributes it from one form of entertainment to another.

Brewers' fans have relatively inflexible and limited entertainment budgets. The money they spend on a attending a game is a substitute for other entertainment such as the movies or Summerfest. So when the Brewers are hot, fielding a competitive team, and management is making aggressive moves to improve the team by trading for Cy Young winner C.C. Sabathia, consumers in the Milwaukee area will spend more on baseball and less on other forms of entertainment like Summerfest.

This analysis received an unexpected endorsement recently from none other than the Seattle, or should I say, Oklahoma City Supersonics.

That's right, the Supersonics who are leaving Seattle for the greener pastures of Oklahoma City argued in U.S. District Court that the team's departure would not hurt the city's economy because there is no net economic gain from professional sports.

"The financial issue is simple, and the city's analysts agree, there will be no net economic loss if the Sonics leave Seattle. Entertainment dollars not spent on the Sonics will be spent on Seattle's many other sports and entertainment options. Seattleites will not reduce their entertainment budget simply because the Sonics leave," the Sonics said in the court brief.

This is, of course, exactly the opposite of what the Sonics had claimed when asking for taxpayer help to build a new arena. And it conflicts with what boosters in Oklahoma City are saying in their attempt to pass a $100 million tax package to spruce up its six-year-old Ford Center and build a practice facility for the team.

But it concurs with what economists, other than those paid by major league franchises, have been arguing for years. And it certainly explains why Summerfest's attendance plummeted while the Brewer's attendance soared.

Study misrepresents Miller Park's economic impact

Tax for Miller Park didn't help economy
By MICHAEL ROSEN

http://www.jsonline.com/story/index.aspx?id=741107&format=print

Opening day is a time for optimism. Warm weather is just around the corner. Another Bucks' season comes to a merciful close. And this year, we can hope that our Brewers will make a real run at the pennant.

But opening day also raises the question that the Journal Sentinel's Don Walker asked about whether "the stadium has been a net economic benefit to the community." ("Miller Park: Economic promises got it built. Has it paid?" April 4).

Walker refered to a 2-year-old Major League Baseball study by Leon Schur and Swarnjit Arora that gave new meaning to the baseball fans' maxim that "hope springs eternal" when it asserted that: "The direct and indirect economic impact by visitors (Brewers' fans) from outside the area, a majority of whom came from outside the state, resulted in $327.3 million in increased spending and the creation of 4,683 additional full and part time jobs."

These findings contradict all serious research on the economic impact of professional sports. Studies done by independent economists, not those paid for by stadium proponents like this one, are unanimous that there is no real economic benefit from public subsidies of stadiums and teams.

Robert Blade of Lake Forest College, for example, studied 30 cities over 30 years and found that 27 experienced no significant impact from new stadiums, while three experienced a negative economic impact. An anthology edited by Roger G. Noll and Andrew Zimbalist concluded: "A new sports facility has an extremely small (perhaps even negative) effect on overall economic activity and employment. No recent facility appears to have earned anything approaching a reasonable return on investment."

The MLB study made two errors: It ignores the substitution effect and grossly overestimates the number of out-of-town visitors and their expenditures. Both contribute to overestimating the Brewers' contribution to the local economy. The Schur and Arora argument relies on historical local economic impact multipliers that misrepresent the effect of consumer expenditures on professional sports because sports expenditures are subject to extraordinary consumer substitution away from other local entertainment expenditures.

Brewers' fans have relatively inflexible and limited entertainment budgets. The money they spend on a sporting event is a substitute for other entertainment such as movies, restaurants or eating out. Brewers' baseball doesn't increase the aggregate amount of entertainment spending in southeastern Wisconsin; it simply redistributes it from one form of entertainment to another.
Similarly, most professional sports tax collections, almost $15 million according to the Brewers' study, are also substitutes: As other entertainment businesses decline, tax collections from them fall, something the study ignores.

The study estimates that 57% of Miller Park attendees came from outside the metropolitan area, "a majority . . . from outside the state," and spent an additional "$327.3 million." This is almost double the most successful stadium, Camden Yards in Baltimore, where less than a third of the crowd at every game came from outside the area and the net gain to Baltimore's economy was roughly $3 million a year - not much of a return on a $200 million stadium investment and not close to $327 million.

The study also overestimates the spending of the visitors the Brewers' attract. Fans from Green Bay or Chicago don't spend nearly as much as projected because tailgating, the rationale for the stadium's location, ensures that visitors spend their food and beverage dollars in the communities they come from.

Schur attributes significant job growth to the Brewers. But most sports revenue goes to a relatively few players, managers, coaches and executives who earn extremely high salaries.
Most stadium employees work part time at very low wages and earn a small fraction of team revenues. Substituting spending on sports for other recreational spending concentrates income, reduces the total number of jobs and replaces full-time jobs with low-wage, part-time jobs. Since Miller Park was built, Milwaukee has lost more than 19,000 jobs.

Professional sports expenditures also suffer unusually large first-round leakages from the local economy because players export their earnings to their permanent homes. Moreover, players make inflated salaries for only a few years. They have high savings which are invested in national firms. Most of the millions that Schur counts simply leaves Milwaukee with the players and their investment advisers.

Stadium booster studies fail to recognize that there is an opportunity cost involved in publicly financing stadiums. More than the price of construction, what communities sacrifice in other goods or services to build professional stadiums is critical in determining the benefit to the community. The District of Columbia spent $611 million on its new stadium even as it planned to close a staggering 24 public schools and reduce library hours.

A strong argument can be made that the public dollars that financed Miller Park would have been better spent on education, given Milwaukee's achievement gaps.

Finally Schur and Arora argued that the Brewers are an amenity ". . . helping to decrease the recognized brain drain from Wisconsin." This is circular reasoning. The Brewers have been in Milwaukee since 1970, well before the alleged "brain drain" began. If the Brewers were the solution, we wouldn't have the problem!

The 1994-1995 Major League Baseball strike was a natural experiment that sheds light on the impact of professional baseball on a local economy. If the study is correct, the strike would have hurt Milwaukee's economy. But John Zipp found "the strike had little, if any, economic impact on host cities. Retail trade appeared to be almost completely unaffected by the strike."

So there may be good reasons for rooting for the Brewers. But economic development isn't one of them.