Noll and Zimbalist, Sports, Jobs and Taxes
Noll, Roger G., and Andrew Zimbalist, eds. 1997. Sports, Jobs, and Taxes: The Economic Impact of Sports Teams and Stadiums: Brookings Inst.
Why are economic benefits overestimated?
1. CONFUSE NEW SPENDING WITH SPENDING THAT IS DIVERTED FROM OTHER LOCAL ACTIVITIES (E.G., PEOPLE GO TO THE BALLPARK RATHER THAN THE CINEMA)
2. attribute all spending from out of town visitors to the team regardless of the motive for the visit.
3. overstate the multiplier (which is often rather low, such as 1.2)
4. they apply to inflated multiplier to gross spending, rather than local value added. (why is gross spending wrong? because you can't all of the local spending as local benefits, given leakage)
5. they omit the negative effects from taxation used to finance construction and operating costs. (such as discouraging other firms to locate in the city)
6. then, when it comes to cost benefit analysis, more mistakes: ignore opportunity costs (both of the land and the capital). THIS is where the counterfactual is critical: don't compare stadium to no stadium alone, but to an alternative use of the capital and land.
Example:
| |EXAGGERATED (GROSS) ESTIMATE |ACTUAL (NET) BENEFIT |
|IF 30,000 COME TO A YANKEES GAME, 10% OUT OF TOWN | | |
|(ASSUME 50% OF OUT OF TOWNERS CAME TO SEE THE YANKS: 1500 | | |
|PEOPLE) | | |
|EACH FAN SPENDS $10 ON FOOD (40% LOCAL VALUE ADDED) |300,000 |$4 * 1500 = $6,000 |
|EACH OUT OF TOWN FAN SPENDS $20 ON GAS (25% IS LOCAL VALUE|60,000 |$5 * 1500 = 7500 |
|ADDED) | | |
|200 VISITORS SPEND THE NIGHT ($100 EACH; 50% LOCAL |20,000 |$50 * 100 = 5000 |
|CONTENT, AND HALF IN TOWN TO SEE THE YANKEES) | | |
|SUBTOTAL |380,000 |18,500 |
|MULTIPLIER |2 |1.2 |
|TOTAL |760,000 |22,200 |
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