Grand Prix not so grand for Baltimore

Revenue estimates are exaggerated

why should the public pay for this?

August 16, 2010|By Marta H. Mossburg

When you're stuck in construction traffic on Pratt Street throughout the next year, take comfort that your sacrifice will allow Indy race car drivers and promoters to earn millions next August when Baltimore hosts the Grand Prix.

Gov. Martin O'Malley, Mayor Stephanie Rawlings-Blake and other officials claim the event will inject about $70 million into the local economy, but the numbers do not compute.

The Baltimore Racing Development report from which the figure is taken assumes hotel rooms booked would not have been captured otherwise through other activities. For example, it estimates Grand Prix visitors will add 58,000 net new hotel room nights in the state, with 28,200 of them being used in Baltimore City over four nights.

That works out to 8,400 rooms for three nights and 3,000 on one night. The problem is Baltimore City has a total of about 8,000 hotel rooms downtown, which are occupied at an average rate of 70 percent in August, according to Visit Baltimore. There are about 5,000 other rooms in the outlying region, including more within city limits but outside of walking distance to downtown.

So, first, its questionable the city could accommodate everyone the report says will stay in the city. Second, the event may boost occupancy rates and tax revenue, but it is mainly replacing people who would already be there rather than adding 58,000 net new room rentals to the overall total rented in the city, surrounding counties and state for the year. When the final tally comes in, that means the net boost to the economy will be a tiny fraction of the $12.77 million for hotel nights noted in the report.

It also means the $43 million expected to be generated through food, retail sales, other entertainment and local transportation is also grossly exaggerated, as the majority of revenue generated by the event will be replacement revenue, not net new dollars. And then there is money that will be lost the weekend of the race as many flee the city rather than face the crowds — on top of the headaches the construction causes and other costs, including security.

As for jobs, the report estimates the Grand Prix will create 400 full-time equivalents each year it runs, many from construction. If the road repair would have to happen anyway, as multiple officials have been quoted saying, no construction jobs should be included in the total. Where the remainder come from is anyone's guess.

According to published reports, the city will spend $7.75 million to improve roads for the 2.4-mile track weaving through downtown. Baltimore Racing Development is supposed to pay an annual fee and about $14 million to prepare for the race.

Tellingly, the economic impact report created by Baltimore Racing, which public officials have quoted as if it were the Bible, includes no estimate of how much the organization plans to make from the race. A spokesman for Baltimore Racing did not respond to a request about what percentage of profits the organization plans to share with the city from ticket sales.

Why do officials accept such self-serving numbers as fact?

According to University of Maryland, Baltimore County sports economist Dennis Coates: "The reports are not about the truth, they are either about ducking for cover for doing what you long ago decided you were going to do or about convincing a small number of uninformed and uncritical voters how lovely the emperor's new suit is."

Mr. Coates recently released a report, " World Cup Economics: What Americans Need to Know about a U.S. World Cup Bid," that shows how the mega soccer event most recently hosted in South Africa actually costs host countries billions in lost revenue. He notes that analysis shows the 1994 U.S. competition cost host cities an average $712 million while bringing millions to national and international soccer organizations.

Baltimore is one of the potential host cities for the World Cup the U.S. hopes to win in 2018 or 2022.

None of this is to say the city should not host the Grand Prix — or a World Cup match. They are exciting events and would generate positive attention for the city. But it does not follow that taxpayers should pay to accommodate either event. Let those who reap the greatest rewards from them finance them.

Marta H. Mossburg is a senior fellow at the Maryland Public Policy Institute and a fellow at the Franklin Center for Government and Public Integrity. Her column appears regularly in The Baltimore Sun. Her e-mail is martamossburg@gmail.com.

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