Study rebuts NBA effect

UMBC economists say team would hurt area

September 28, 1999|By Jon Morgan | Jon Morgan,SUN STAFF

Bringing an NBA team to Baltimore would not only fail to create jobs, it would actually diminish the region's economy, according to a study by economists at UMBC.

If an NBA team were to move to a new arena in the city, the resulting shift in consumer spending would reduce the personal income of every resident in the metro area by an average of $44 a year for the first 10 years, one of the authors, Dennis Coates, an assistant professor of economics, said yesterday.

Coates presented the findings to the UMBC Social Sciences Forum. He and fellow faculty member Brad R. Humphreys published their paper in the current issue of the Journal of Policy Analysis and Management.

FOR THE RECORD - Because of incorrect information provided by the City of Baltimore, an article that appeared yesterday in the Sports section of The Sun misstated a consultant's estimate of how many jobs would be created by a new arena and NBA team in Baltimore. PriceWaterHouseCoopers estimates a net gain of 1,320 jobs in the metro area, said David Frey, managing consultant for the firm's sports, convention and leisure industry. Baltimore's planning department had put job gains at 4,480 in written material, based on an inaccurate interpretation of the study. The Sun regrets the error.

"We find no evidence of any positive effect and some evidence of negative effects," Coates said of sports teams and stadiums.

The calculation is in stark contrast to a study, funded by supporters of a proposed new arena, that estimates such a project would create 4,400 new jobs. That study was performed for the city by PriceWaterhouseCoopers.

A growing consensus among independent economists in recent years has cast doubts on claims that teams and stadiums contribute significant wealth or jobs to a community. But the conclusions of Coates and Humphreys go even further, suggesting no gain in jobs and a slight reduction in average incomes. Several factors could explain the loss of income, the study says. For one, money fans spend on sports ends up in the pockets of wealthy team owners and players. This diminishes the local economy because many players and owners live out of town. Furthermore, they earn so much they tend to save more and spend less of their income relative to middle-class wage earners.

Under this analysis, local dry cleaners, restaurants and other businesses would do better and hire more workers if Cal Ripken's $6.3 million-a-year salary were spread among 210 people earning $30,000 each.

Better quality, diverted funds

Another explanation is that sports teams enhance the quality of life in a city, attracting residents in need of jobs. Local businesses don't have to pay as much to lure workers and, as a result, incomes are depressed, under this theory.

Yet another possibility is that the tax money spent on stadiums and arenas is diverted from projects that might juice up the economy, such as building a road, improving schools or cutting taxes. The result: lower productivity of local businesses, or higher taxes to make up for the sports spending. Either way, local incomes suffer.

"We are just less productive because we have less productive capital," Coates said.

The PriceWaterHouseCoopers study, by contrast, estimates that a new arena in downtown Baltimore and the NBA team it could attract would result in $36 million in net new spending and 1,050 jobs. When a multiplier is included, the direct and indirect impact is estimated at 5,700 jobs, according to the national consulting firm.

"The operations of the proposed arena can represent a significant source of annual impacts for a community," the firm concludes. The PriceWaterhouseCoopers executive in charge of Baltimore's study was unavailable to comment late yesterday.

Coates contends such projections exaggerate the impact of sports by merely adding up the dollars spent on and by sports teams and then enlarging the total with a too-large "multiplier" to estimate the impact of dollars changing hands. Such methodology fails to properly account for sports spending that is merely diverted from other recreational activities, he said.

37 metro areas studied

The UMBC economists chose another route: They measured the economic performance of 37 metro areas between 1969 and 1994, using federal "personal income" statistics as a yardstick. They then equalized the figures for unrelated factors, such as national and local economic trends, and isolated the impact on each city of pro sports franchises moving away or migrating as a result of stadium construction.

The economists found a wide range of impact among different leagues. Having a baseball team in a city, for example, diminishes local incomes, on average, by about $10 a year for every man, woman, and child in the metro region.

A football franchise reduces incomes by a little less than $8 a year. Coates speculates that a football team does less damage to local incomes than a baseball club because a football season has fewer games and that they tend to be daylong events played on weekends that encourage more spillover spending by fans in area pubs and other businesses.

Basketball produced the worst figures, possibly because an NBA season has many games -- some played during the week -- and the arenas hold fewer fans than baseball or football stadiums. His figures do not include the impact of non-sport events that an arena could attract, and which supporters often cite as contributing to the economic impact.

The Journal of Policy Analysis and Management is published at the University of Maryland, College Park's school of public affairs for the Association for Policy Analysis and Management.

Pub Date: 9/28/99

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