Yesterday, Rays owner Stuart Sternberg stated that if he is not able to secure a new stadium, he will sell the team to investors who will likely move it out of the area. There is currently a proposal up for approval by the St. Petersburg City Council that would set terms to allow the Rays to investigate stadium options in both Hillsborough and Pinellas county, and provide a buy out to terminate the current lease.
As they vote on this proposal, and during the subsequent stadium search if it is approved, local lawmakers will need to put a monetary value on how important it is that they keep the Rays in Tampa Bay, and in their city.
The arguments for assigning public money, land, or tax breaks to aid in the build of sports stadiums often revolve around the question of whether and how much having a sports team in a city contributes to the local economy, either through direct job creation, sales and property tax dollars, hotel and restaurant patronage, and other means. As participants in a democracy, it is our responsibility to be informed about these arguments.
I am not an economist, but I asked Philp Porter, economics professor at the University of South Florida, for some reading recommendations on this topic, and he graciously obliged. I'm going to slowly step through it here, and we'll all become better citizens together. Note that Dr. Porter has zero responsibility for any errors I may make. They are my own.
In Volume Eight, Number Three of the Journal of Sports Economics (June 2007), Kaveephong Lertwacharra and James J. Cochran published "An Event Study on the Economic Impact of Professional Sport Franchises on Local U.S. Economies."
Because of an isolationist copyright system that ensures that most discussion is dominated by think tanks with monied backers and an agenda to push rather than by peer-reviewed academic journals, I cannot legally reproduce this study in it's entirety or in part without paying what for this site would be a silly amount. Instead I will describe Lertwacharra's and Cochran's work, and urge you, if you value the details, to read it for yourself (at a cost of $30).
What is an event study?
An event study is a tool used by economists to determine the effect of an "extraordinary event." It is commonly used to evaluate the effect of a merger on a company, or in a larger scale, the effect of a change in tax codes on an economy.
Essentially, the event study involves making a projection of how the entity being studied would have been expected to perform in the time after the event, were that event not to have occurred, and then comparing that projection to the actual performance of the entity. This projection is made by looking at entity performance pre-event and regressing that with the performance of the entire market.
To put that in baseball terms, say I wanted to study the effect of the birth of first children on the offensive output of major league baseball players like Evan Longoria.
I would find all the relevant players and use their pre-fatherhood hitting statistics, regress them using what I know about performance and aging curves (yes, this is what projection systems like ZiPS and Steamer do) and what I know about the declining offense in the league overall. This would tell me what I think these first-time fathers should have hit had they remained celibate. I would then compare that to what they actually hit.
The next, and very important step would then be to determine the significance of the difference between the expected and the actual post-event performance. I haven't got the foggiest clue if Longo's dropoff has to do with being a father, and I don't especially care, but if you want to do an event study, that's a perfect example, and I'd love to read it.
What does this event study examine?
This particular event study looks at metropolitan areas with new sports teams in either Major League Baseball (MLB), the National Basketball Association (NBA), the National Football League (NFL), and the National Hockey League (NHL). It includes both expansion teams and teams that relocated from one area to another between 1969 and 2000. That means four baseball teams, seven basketball teams, nine football teams, and 13 hockey teams.
It examines per capita income growth in each metropolitan area, and uses two methods to take inflation into account.
Do sports franchises benefit their local economy?
The results of this retrospective study are in line with basically every other retrospective study on the topic: There is no evidence that the arrival of a major sports team helps grow the local economy.
In fact, the study found that per capita income declined, relative to expected growth rate, in metropolitan areas that acquired a franchise.
The decline was different for each of the two methodologies, and showed different rates of decline for each of the different sports.
For instance, one methodology showed baseball cities to have insignificant gains in the short term and insignificant losses in the long term, while a football team coincided with more significant losses in both the short and the long term -- but the overall conclusion is clear.
Economic arguments for the positive effect of a sports team on are at best anecdotal and unfounded in reality, and at best willfully misleading.
Here are a few questions the study raises:
- Did economies strengthen or falter if a region lost a team? The Tampa Bay area is not looking to acquire a new team. It's facing the question of whether or not to keep its existing one, and that may not actually be the same thing. I would like to see an identical study that looks at areas that lost sports team to either contraction or relocation.
- If so, why? If you accept that the addition of a major sports franchise does not cause economic growth (as defined by per capita income), and may actually hurt the local economy, the next question is why? Is it merely the presence of the team, diverting dollars that would otherwise be spent elsewhere in the community to pockets with a smaller Keynesian multiplier (the Keynesian multiplier is a measure of how much an influx of cash to an individual or sector reverberates around the entire economy, getting spent over and over)? Or is it specifically related to the opportunity costs of stadium construction itself? Are state and local governments without new teams spending their budgets in more effective ways? There's more to be investigated.
- Does the economic impact of moving the Rays change fan perception? Does your desire to have the Rays in your community have anything to do with the alleged economic impact?