Tuesday, March 13, 2012

State venture capitalists who subsidize pro teams usually derive more benefits from those teams than constituents do

In her book, The Shock Doctrine, Naomi Klein observes that in the wake of disaster profiteering developed over the last 50 years, government has shifted from the role of an administrator managing contractors to "a deep pocketed venture capitalist" that provides seed money and becomes a customer.

Klein's point is particularly salient with regard to Metro Nashville's relationship to the corporate entertainment industry. The Tennessee Titans agreement organized by Phil Bredesen includes kickbacks to the team from Metro Water Services revenues and the Nashville Predators get to keep sales tax revenues from non-hockey events at Bridgestone. Metro Nashville does not treat these arrangements so much with an air of administrative oversight, but it projects itself an equal partner in the "private-public partnership," insisting that the hard-to-demonstrate economic impact is huge.

Sacramento, California is in the process of reviewing its relationship to the NBA's Sacramento Kings franchise with some of the same themes heard in Nashville. One observer notes the difference in findings on economic impact from different sets of researchers:

When the study is completed by paid consultants prior to the public money being spent, the benefits from sports are numerous are large. However, when independent researchers – who are not paid by professional sports teams or leagues – look for these benefits after the fact, evidence of more jobs and economic growth are hard to find.

Baade and Matheson offer three reasons the impact suggested by proponents of sports fail to appear:

  • The Substitution Effect: Sports are just one form of entertainment. If the Kings didn’t play in Sacramento, the people in Sacramento would simply spend the portion of their entertainment budget currently dedicated to the Kings on something else (i.e. dining out, movies, etc…).
  • The Crowding-Out Effect: Sporting events attract crowds. When people know those crowds are going to appears, those who are not attending the sporting event tend to avoid the general area. For example, Baade and Matheson note that the 2008 Olympics in Beijing failed to increase the number of tourists in Beijing in August of 2008 relative to what the same city saw in August of 2007.
  • Leakages: The Kings do employ very high-priced labor. But many of those players probably don’t live in Sacramento. This means that the income earned by these players doesn’t stay in the Sacramento economy.

Given these three effects, the empirical evidence suggests quite strongly that sports do not create many jobs or generate much economic growth. And such evidence has proven to be quite persuasive. In fact, a survey of economists by Gregory Mankiw noted that 85% of economists agree that local and state governments should not subsidize professional sports. Mankiw also notes that only five issues have more agreement among economists.

I would imagine that elected officials who provide venture capital for pro teams are the ultimate winners for the influence created in attracting pro sports to cities. However, it really is a matter of devoting everyone's money to businesses that benefit a relatively small number of people.

1 comment:

  1. Let me add another reason why economic impact does not appear as projected:

    --> When a projection is done to spend other people's money, the results are always optimistic, sometimes wildly inaccurate. This is not limited to sports teams.

    See, for example: the Music City Star.