Sports Events and Economic Gains for Cities

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Dec. 19, 2014 (San Diego) The city approved the all-star game bid for San Diego, to become the host city in 2016. The argument made by city staff is one familiar to economists. The city will ultimately gain a lot of exposure international, which will convert into goodwill, and investment, we were told. It will also translate into an economic benefit to the city of $80 million in combined taxes and other benefits.

We at Reporting San Diego decided to look at the argument, since we also expect the Chargers to start pressuring the city once again for a new dedicated stadium One that is competitive to host the Super Bowl. The Chargers are already doing what many other teams have done, and that is to threaten to move if they do not get a new dedicated stadium. This is also what the Padres did, and it worked. We have a park downtown.

According to John L Cromton, Texas A&M University the financial projections used for those who promote stadiums and large sporting events: “Incorporate assumptions and adopt methods that facilitate their use as advocacy documents intended to provide a public subsidy for a sports project with a convincing aura of economic legitimacy.”

The public subsidy for the all-star game in San Diego will be up to $1.5 million according to City Staff. Given the size of the budget that is chump change, far more problematic is the subsidy for the Padres Stadium, because that will be the floor when the National Football League, and the Chargers organization come making demands or we will leave.

These are the numbers: The Stadium cost $411 million, with $275 million coming from the city, which meant the league got a subsidy of 67 percent from public monies.

For the record, 1.5 Million can go a long way in police funds or fire services for example. In fact, this is what is slated for police worn body cameras for fiscal year 2016 are at $1,572,585.  Yes, the body cameras are slightly above the subsidy, but they are part of an effort by the city to deal with community relations.

$275 million, even if over 30 years, is a large part of the city budget. So this is a large investment into a team by a city, never mind that teams at times demand a new state of the art station after just 20 years. This is what happened to the Atlanta Braves and the city of Atlanta. The stadium is not fully paid for, usual loans are for 30 years, but the Braves are moving in 2017 to Cobb County.

Why cities play this game? They are promised the moon by the leagues, and there is there are intangibles and no mayor wants to be the mean one that said no. Chambers of Commerce are also part of the game and see the stadiums as an intangible benefit of mass marketing for the city.

The analysis for the all-star Game, or a new stadium, promise an economic engine and a tax windfall for the city. These analysis ignore things like fund diversion. This is a well-known economic principle. A household has a finite amount of money they can spend in entertainment. It does not matter whether this is a day at the park, or a night out with dinner at a local restaurant and a movie. Incidentally, the local restaurant meal stimulates the local economy more than the ballpark. Regardless, residents will not spend more from their limited budget funds than they have.

The economic analysis also ignores that the few jobs created by this new park or one time event, are usually low wage and temporary. Nor does it take into account that the highly paid athletes will invest their money, since the careers are short. Or that the city is losing quite a bit in taxes from the land that the stadium sits at; Nor do they take into account the services that the city has to pay for. Whether this is new road infrastructure, or the police needed to keep the event safe and the overtime that goes with that. According to Brookings “Leagues maximize their members’ profits by keeping the number of franchises below the number of cities that could support a team.” They also maximize this with special one time events,

The intangible that is usually brought up is the idea of outsiders coming to town to spend their money, with a positive inflow of cash. There is some of that, but it is minor. According to Adam Zaretzky it is the “build it and they’ll come syndrome.” It is also that “intangible “civic pride” is evidently a powerful force. Thus, attacks on stadium proposals, no matter how persuasive, likely fall on deaf ears. More-convincing arguments would spell out the civic initiatives—education, housing and transportation, for example—that are passed over or forgotten in favor of a new stadium.”

The leagues know this. They also know this is a monopoly with a very limited number of goods and services that is kept artificially low. No mayor wants a team to leave in his watch. How you pay this, well, in San Diego it will not be his problem, since no mayor will be in office by the time the loan mature. They will not be in office by the time we reach the  first third of it either. So it is literally somebody else’s problem how you pay for it.

Now going back to the all-star game, and whether San Diegans will be able to partake in the all-star Game events, The Padres did not answer the council’s question as to the cost of the tickets. Why? They are sold in strips and the representative alluded to the secondary market, where a lot of these tickets will be sold. So we decided to do a search. The Google is a great resource.

The 2015 all-star tickets are already on sale. We found them at Vivid Seats, Now if this is a secondary market, why is scalping allowed over the net? If not, the cheapest ticket on sale is $363.00 at this moment in time. Now I do not know about most people in this town, but that is way out of my reach. I suspect I am not alone. I admit, I attended an all-star game, in Toronto, in 1991. The price for those tickets in the nosebleed section, were actually not that expensive. That was another time, when even daily games were more affordable. The prize of tickets with new stadiums has also gone out of the reach of people

Even the season packs right now are a tad pricey but nothing as crazy as the all-star. Given that the visiting team also takes a percentage of the till when they come to San Diego, Not all the money that is taken stays here either.

Specifically for the all-star Game, the city will not get one red cent from the merchandizing deals, this is standard practice by the League.

Yes, the ticket prize is set by the league, and the league will maximize income for the host team,, and the league, not the host city. The city, well given the diversion principle of economics, and other factors, like Councilman Alvarez hinted during the regular meeting, he still voted for it, will be doing a lot of finger pointing once the event passes, and the economics post event come in. Once we find out that the league over promised there will be people making excuses and saying, but how could we know? Well, there is plenty of economics studies that have been done over the last few decades. As more teams extort cities to get stadiums and over promise, more studies have home out.

On the bright side, the Padres are not threatening to leave the relatively new state-of-the-art facility, but the Chargers are with their older multipurpose facility. Their lease at the Q is done by 2017, expect the noise from the Chargers about pulling up stakes and leaving the city of San Diego to not just continue, but increase. In the view of this reporter, after looking at the economics of sport, the team is welcomed to leave. A new stadium will divert valuable tax dollars from programs that are far better investments, ranging from yes education (even though the city of San Diego has nothing to do with educational funds, but the county does), to needed infrastructure, and libraries.

Buying into the League’s project might lead to the selling city hall. Yes,it is happening  in other municipalities, While San Diego is just now regaining it’s financial feet, and getting better ratings by Moodys, this is a good way to lose both fiscal discipline and good financial ratings. Sports are not a good long term investment, nor should tax payers pay for the building of privately run, and managed enterprises.

Twitter: @nadinbrzezinski

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Categories: All Star Game, Budgets, City Hall Politics

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  1. The Chargers, What Next? | Reporting San Diego
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