Professional Sports Teams Do Not Have A Net Positive Economic Impact

Ted Bulthaup's recent success in obtaining economic disaster credits for his former Hollywood Bar & Filmworks business in downtown Indianapolis demonstrates exactly what every objective, economic study has shown--there is no positive economic impact from professional sports teams. Bulthaup reminds us of the study performed by the respected and local Kelly School of Business at IU on the impact of building the Lucas Oil Stadium for Jim Irsay, financed entirely with public tax dollars. As Bulthaup observed, city leaders deep-sixed the study it had originally requested to make its case after learning its findings. The City later got Coopers & Lybrand to do a study showing a big positive economic impact at a cost of $100,000, which was badly flawed.

A 2004 study by the University of Illinois and the University of Maryland, like the Kelly School of Business study, found a net negative economic impact from sports stadiums and arenas. “Our conclusion, and that of nearly all academic economists studying this issue, is that professional sports generally have little, if any, positive effect on a city’s economy,” Brad Humphreys and Dennis Coates wrote in a report by the Cato Institute in Washington, D.C. The study looked at the economic impact professional sports facilities had on 37 cities across America. There were continuing negative patterns of business activity that the study found in all of the cities, including:

• a statistically significant negative impact on the retail and services sectors of the local economy, including an average net loss of 1,924 jobs;
• an increase in wages in the hotels and other lodgings sector (about $10 per worker year), but a reduction in wages in bars and restaurants (about $162 per worker per year).

As a long-time downtown resident, I can attest to the negative economic impact. I enjoy shopping at Circle Centre Mall and eating out at our many, fine downtown restaurants. But if I know there is a Colts or Pacers game going on, I avoid the downtown area like the plague as do many others. Most of the people who attend sporting events drive in, park and leave without frequenting downtown businesses. Those who do frequent them typically create a rush before the game, but the businesses become ghost towns while the events are taking place. A smaller rush occurs after the games end, but it's not significant. If you ask any downtown business whether they would prefer expanding convention business versus investing in sports teams, you would get 9 out of 10 of them to choose the convention business. Conventions take place year round, create a captive audience lasting days and increase foot traffic downtown tremendously.

Humphreys noted that studies which show the opposite of his tend to ignore what economists call the "substitution effect." As he points out, as spending for sports events increases, other spending declines. “If the stadium simply displaces dollar-for-dollar spending that would have occurred otherwise, there are no net benefits generated.” People have so much in discretionary money they spend for sports and entertainment. They don't stop spending that money in the community if the sports team goes away; they just spend it elsewhere.

Bulthaup's business was the victim of what economists call "crowding out," which results when congestion caused by a game discourages local residents from going near the playing venue. Bulthaup's customers couldn't justify paying higher event parking fees to come into his establishment when games were taking place downtown at Conseco Fieldhouse.

A third problem with professional sport team investments by local taxpayers is "leakage." Much of the spending that occurs as a result of the presence of a professional sports team does not stay in the local economy. Studies show that only 29% of NBA players live in the metropolitan area where their team is located. I suspect the percentage is even smaller for Indiana Pacers players. Professional sports teams are just as likely to reduce taxable sales in a given metropolitan area as producing an increase. The studies note that when strikes or lockouts have happened in the past, the affected communities saw no decrease in taxable sales.

As I previously blogged, that $30,000 the City paid to produce a claim that the Pacers contribute $55 million in economic activity to the economy that would be lost is simply not credible according to every single objective study conducted in the past to determine the economic impact of professional sports teams and the facilities that are built at considerable cost with local tax dollars. It's pretty much a waste of time to point out the facts as opposed to the propaganda our media so easily buys into that is fed to them by the sports teams, the CIB, ICVA, IDI and other elected officials and civic leaders. The media enjoys an economic benefit from the presence of the sports teams that few residents or businesses receive. That's why they ignore the facts.