Friday, April 13, 2007

UWM Study Misrepresents Brewers' Impact

Opening Day is a time for optimism. Spring and warm weather are just around the corner. Another miserable Bucks season comes to a merciful close. And we can hope against hope that our hapless Brewers will finally make a real run at the pennant or at least a winning record.

But a recent piece in the Journal Sentinel by Leon Schur and Swarnjit Arora gives new meaning to the baseball fans' maxim that “hope springs eternal” when it asserts 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 academic studies of professional sports teams. Studies done by independent economists, not those paid for by stadium proponents or the professional sports cartel like this one which was financed by Major League Baseball, are unanimous that there is no real economic benefit from public subsidies of sports stadiums or teams. A study done by Robert Baade 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 cities experienced a negative economic impact.

An anthology edited by economists, 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. No recent facility has been self-financing in terms of its impact on net tax revenues. Regardless of whether the unit of analysis is a local neighborhood, a city, or an entire metropolitan area, the economic benefits of sports facilities are de minimus.”

The Schur and Arora study makes two major errors: it ignores the substitution effect and grossly overestimates the number out of town visitors and their expenditures. Both contribute to grossly overestimating the Brewers contribution to the local economy.

Schur and Arora acknowledge that their argument relies on historical local economic impact multipliers. But these multipliers misrepresent the effect of consumer expenditures on professional sports because sports expenditures are subject to extraordinary consumer substitution away from other local entertainment expenditures.

Money spent on the Brewers is not new spending. Most Brewers' fans have a relatively inflexible and limited budget for recreational and leisure activities. The money they spend on a sporting event is a substitute for other local entertainment such as movies, restaurants, or Milwaukee Wave games.

Brewers’ baseball doesn’t increase the aggregate amount of entertainment spending in metro Milwaukee; it simply redistributes it from one form of entertainment to another.This reallocation of expenditures creates a zero net effect (or close to it) in the metropolitan area.

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 Schur and Arora study fails to take into account.

Schur and Arora estimate that 57% of Miller Park attendees came from outside the metropolitan area, “a majority of whom came from outside the state,” and spent an additional “$327.3 million”. This is almost double the most successful export facility, Oriole Park, where less than a third of the crowd at every game came from outside the Baltimore area. (Baltimore's baseball exports were enhanced because it was 40 miles from the nation's capital, which had no major league baseball team until a few years ago.) Even so, the net gain to Baltimore's economy in terms of new jobs and incremental tax revenues was roughly $3 million a year—not much of a return on a $200 million stadium investment and not close to Schur and Arora’s $327 million.

The evidence is overwhelming that sports facilities and professional teams attract relatively few visitors (except for the visiting teams themselves) nor industry.

Schur and Arora even overestimate the spending of the Wisconsin visitors the Brewers’ attract. Fans from Green Bay and Wausau don’t spend nearly as much as projected because tailgating, one of the rationales’s for locating the stadium outside downtown Milwaukee, ensures that visitors spend their food and beverage dollars in the communities they come from. Put simply, people who tailgate buy their beer and brats at the local grocery before the game.

Schur and Arora attribute 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—all well above the earnings of people who work in the industries that are substitutes for sports. Most stadium employees work part time at very low wages and earn a small fraction of team revenues. Thus, 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. In fact, since Miller Park was built Milwaukee has lost 19,000 jobs!

Professional sports expenditures also suffer unusually large first round leakages from the local economy because players export their earnings to the locale of their permanent residency. Very few Brewers reside in Milwaukee full time. When Robin Yount was the highest paid Brewer in the early 1990’s his permanent residence was in Arizona. Moreover, players make inflated salaries for only a few years, so they have high savings, which they invest in national firms. Most of the millions that Schur and Arora count simply leaves this community 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. For example, in Milwaukee, with the 7th highest poverty rate in the country and an African American unemployment rate of 44%, there are strong arguments that the public dollars that financed Miller Park would have been better spent on education (in the early 1990’s MPS Superintendent Howard Fuller unsuccessfully proposed a $400 million construction and maintenance program for the Milwaukee Public Schools) or in subsidizing programs that provide full time, family support jobs or training.

According to researchers Noll and Zimbalist, “the opportunity forgone in building a stadium is not the cost of the stadium, but the benefits from the other ways this money could be spent (including tax reductions).”

Finally Schur and Arora argue that the Brewers are an amenity “… helping to decrease the recognized brain drain from Wisconsin.” This is circular reasoning at best. 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 Schur and Arora are correct, the strike would have had a significant and negative impact on Milwaukee's economy. It had none. In fact, a study by John Zipp, formerly of UWM, found:”… the strike had little, if any, economic impact on host cities. Retail trade appeared to be almost completely unaffected by the strike...."

Dennis Coates and Brad R. Humphreys from the University of Maryland Baltimore County arrived at similar conclusions writing:” …work stoppages in professional football and baseball had no impact on the economies of cities with franchises. Further, the departure of professional basketball from cities had no impact on their economies in the following years. These results refute the idea that attracting professional sports franchises represents a viable economic development strategy.”

There may be good reasons for rooting for the Brewers. Economic development isn't one of them.


julillywk said...

Home run analysis. Not only did the State and the 5-county citizens pay for the stadium when Selig promised he would pay for it, because Selig used team money to buy back outstanding shres so that he would own a larger porportion of the team, they had a high debt so that they couldn't afford high priced, winning players, as promised. THEN, when Selig came to sell the team, which had increased in worth becasue he hadhis free new stadium, HE DIDN'T PAY THE STATE BACK out of the increased price he got for the team, so we're all still payingfor his profits by our increased sales tax! TALK ABOUT HUTZBAH!

Michael Rosen said...

I remember sitting in Robert Baird's office the day that the GMC annouced that Milwaukee either had to build a new stadium or rennovate. The cost was $120 million each in round figures. By the time the stadium was built it was $400 million and the real cost with interest will be closer to $900 million.

Selig made millions because the new stadium increased the value of the team, one of the League's least valuable franchises, which he then sold.

The deal was subsidized by the public-another example of crony capitalism (as was naming his daughter President and his son-in-law a top exec.) at its best