The Sports Economist

According to a statement by Aloisio Mercadante, Brazilian president Dilma Rousseff’s chief of staff, “We lost the trophy, but Brazil won the World Cup. He said that according to figures released this week by Brazil’s federal government, the World Cup was a triumph for the country’s transportation and tourism industries.

As reported by CNN, “according to government figures, 1 million foreign tourists visited Brazil during the month-long event, far exceeding its pre-Cup projection of 600,000 visitors coming to the country from abroad. About 3 million Brazilians traveled around the country during the event, just short of the expected 3.1 million.”

If this is true, this would be unprecedented increase in tourism due to a mega-event. Brazil only welcomed 342,000 foreign visitors in total in June of 2012, so an increase up to 1,000,000 would be huge if the data holds up. By comparison, South Africa experienced about a 200,000 increase in international visitors during the 2010 World Cup, Germany experienced an increase of 700,000 overnight stays in 2006, and no effects on tourism could be identified for France in 2008. For the Summer Olympics in Beijing and London, overall travel to Beijing and the UK actually fell during the month of the games compared to the previous year.

While Brazil has been quick to announce their good news, the country has been much less forthcoming with the actual source data. Annual tourism data for Brazil is only available in a form that allows decent comparisons to past periods up to 2012. At this time the World Cup data is only available in limited press releases. Based on the limited data released by the Brazilian government, the event looks like a huge success. Time (and data) will tell whether these initial positive findings hold up.

UPDATE:  Maybe the title should be changed to “worst reporting about economic impact ever”. Bloomberg reported yesterday that Ed FitzGerald, the Cuyahoga County Executive, said that LeBron’s return would boost the Cleveland economy by $500 million. FitzGerald appears to have said nothing of the sort. According to the Cleveland Plain Dealer, with LeBron on the team, FitzGerald’s office stated that the total economic impact of the Cavs on the region might reach as high as $500 million, but James returning is most likely to increase the total economic impact on the region by only around $50 million. I would say that is still high due to the issues I detail in the original article below, but a $50 million claim doesn’t even come close to “worst ever” status.

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Bloomberg reported yesterday that Ed Fitzgerald, Cuyahoga County Executive and Ohio gubernatorial candidate, announced that LeBron James’ return to Cleveland will provide an economic boost of $500 million to the local economy.  I would guess that the true number will  be roughly 95-98% less than Mr. FitzGerald’s claim Bloomberg’s absurd reporting, so I am going to go ahead and call this the worst economic impact estimate ever. (UPDATE:  Again, Mr. FitzGerald actually claimed a much lower marginal impact which, while probably high, isn’t all-time worst material.)

Even before getting into the more serious economic problems with the study, let’s look at the raw data itself. With a metropolitan area population of 2.1 million, a $500 million impact on the area would mean that every single man, woman and child the region will be engaging in an average of $240 in Caviliers related spending every year for the rest of James’ career. Possible, but unlikely.

More specifically, in 2009-10, LeBron’s last year in Cleveland, the Cavs sold 20,562 tickets per game at an average price of $55.95 for a total regular season gate sales of $47.2 million. Last season, attendance was down to 17,329 and ticket prices were only $43.31 for a total gate of $30.6 million. LeBron’s return will certainly bring team gate revenues back to at least $50 million, but an increase in $20 million still leaves $480 million of Fitzgerald’s claim Bloomberg’s reporting yet to be explained. John Carroll University professor LeRoy Brooks claims that ticket prices are much higher than face value when James is in town based on ticket resale data, but resale data is not a random sample of ticket prices and only represents a small fraction of tickets purchased. Just because one guy scalps a courtside seat for $3,000 doesn’t mean that the typical ticket buyer is paying prices like this.

In fact, the Cavs’ entire team revenue including all sources was only $159 million in James’ last year and $145 million last year. Even the Knicks, the highest earners in the league, generated only $287 million last year. And James’ Miami Heat only generated $188 million in revenue last year. Unless LeBron James can somehow generate 2 1/2 times as much revenue in Cleveland as he did in Miami, we will have to look for other places to find that $500 million.

Bars and restaurants near the arena should benefit, but attendance will only be up about 20% next year. And even if people are willing to pay a lot more to see the Cavs if James is playing, they aren’t willing to pay a lot more to eat before the game. So what about hotels? Well, don’t count on lots of out of town visitors coming in to watch LeBron since tickets will be impossible to get. I am not aware of any data that suggests teams with big stars have more non-local fans at games than any other teams.

Of course, these are really just small issues. The bigger problem with FitzGerald’s claim is that it falls prey to one of the most serious fallacies in economic impact analysis:  the failure to account for the substitution effect. Any money spent by local residents at Cavs games is money not spent elsewhere in the local economy. The extra 150,000 fans that will be going to watch LeBron next year are 150,000 less people going out to nightclubs, restaurants, and theaters. The higher ticket prices that fans will be paying leaves less disposable income to spend on Indians or Browns games, or movie tickets, or bowling, or free-style skydiving, or whatever it is that Clevelanders would do, and have been doing, without being able to watch LeBron win games. Similarly, every kid in Cleveland will be getting a LeBron jersey for Christmas or Hanukkah this winter but this doesn’t mean they will be getting more presents, just different presents. The jersey manufacturers’ gains are equally matched by losses for the makers of ugly sweaters.

It is a great time to be a sports fan in Cleveland, and there is no doubt that LeBron will make many Clevelanders happy. He is just unlikely to make many of them, other than Cav’s owner Dan Gilbert, rich. And FitzGerald Bloomberg reporter Mark Niquette does a great disservice to the community that he governs writes for by inaccurately throwing around reporting numbers that have absolutely no basis in reality.

I think I am still comfortable calling this the worst economic impact estimate ever, but  Now that this is no longer the worst economic impact report ever, I am inviting any of my colleagues to nominate other candidates for this ignominy.

This week’s WSJ Magazine has an entertaining story by Jason Gay on “Neymar da Silva Santos Júnior, the 22-year-old prince of Brazilian soccer.” He’ll be bigger than Beckham if Brazil win the forthcoming World Cup (current odds: 3-1).

Gay’s story is full of good lines. My favorite is on the scale of the stage for Neymar and company: “The last World Cup final, in 2010 between Spain and the Netherlands, was watched by an estimated 700 million people, which makes the Super Bowl seem like open-mike night at a coffee shop.” On Neymar’s fame, Gay relays Roger Bennett’s observation that Neymar’s jaw-dropping skill set made him into “‘a footballer for the YouTube age’ … Bennett believes that his worldwide reputation grew principally through short video clips, perfect for dissemination on social media.” That’s an interesting point. Here’s a startling fact: Nike signed Neymar at the age of 15 (he’s now 22). They were on to him early.

One thing you won’t find much of in Gay’s story is a discussion of Neymar’s stats, but these are easily found at ESPNFC. This year he’s been scoring at a rate of one goal every two games, with two assists every five, all while undergoing the transition into an established Barcelona team. His strike rate for Brazil has been a degree or two higher. Gay’s story paints a picture of an athlete who won’t shrink from the spotlight of the World Cup. He’s clearly capable of the spectacular, so I expect we’ll see a “Nike moment” or two in the next month of games.

Minneapolis was awarded the 2018 Super Bowl today beating out competing bids from Indianapolis and New Orleans. The conventional wisdom seems to be that this is a surprising move on the part of the NFL and that Minneapolis was “the supposed underdog city with the frigid temperatures in the winter.” The New Orleans Times-Picayune called it “a stunning upset” likening it to Joe Namath’s Jets back in Super Bowl III.

At least one economist, however, nailed Minneapolis‘ selection. Choosing Minneapolis as the odds-on favorite really wasn’t that hard when one looks at the history of the game. First of all, despite New Orleans’ claim that Minneapolis is “a relative neophyte in the big-event hosting game,” the Twin Cities are hardly amateurs at hosting big events. Minneapolis hosted the Super Bowl back in 1992. In fact, I ate lunch right next John Madden at Minneapolis’ finest Chinese restaurant, the Village Wok, while in grad school in the city at the time. MLB is sending the All-Star Game to Target Field this July, and the city has hosted the World Series and the NCAA Final Four on multiple occasions. St. Paul hosted the 2004 Republican National Convention, a much bigger organizational and security undertaking than a simple football game. And let’s also just remember that experience isn’t everything. New Orleans, despite hosting more Super Bowls than any other city, couldn’t even manage to keep the lights on during their last attempt at hosting.

More importantly, however, is the fact that the NFL wants to reward cities that build new stadiums, especially those that shower their franchises with lots of taxpayer subsidies. The NFL constantly dangles the carrot of a Super Bowl in front of otherwise reluctant taxpayers in order to receive public handouts. Put  in $498 million, like the citizens of Minnesota did, and the NFL will send the Super Bowl and its supposed $498 million in economic impact  your way. It’s almost like getting a stadium for free. Of course, the bribe only works if the NFL is actually seen coming through with the big game.

Indeed the NFL has come through. Of the 16 Super Bowls hosted between 2001 and 2016, over half were held at newly constructed stadiums hosting Super Bowls for the first time including games in Tampa, Glendale, AZ, Detroit, Indy, New York/New Jersey, Jacksonville, Santa Clara, CA, Arlington, TX, and Houston. And now add Minneapolis to list.

Minneapolis will be a great host, but if you are planning on going to the game in 2018, I recommend you bring a really good coat and that you keep warm with some hot and sour soup at the Village Wok.

While the Philadelphia 76ers got all of the press this year with their record-tying 26-game losing streak, the Milwaukee Bucks quietly ended up blowing out the competition for worst team in the NBA finishing 15-67, fully 4 games worse than the hapless 76ers.

So what kind of reward does owner Herb Kohl get for guiding his team to NBA ignominy? Try $550 million, the price tag announced today as Kohl sold the team to New York investment firm executives Marc Lasry and Wesley Edens.

In other news, it was widely reported last week that in the latest government data on college athletic programs, the University of Alabama athletic department generated more revenue than every NHL team and 26 of 30 NBA teams.

So, here is an interesting thought experiment:  if the University of Alabama football team, which finished with only 4 fewer wins than the Bucks despite playing 68 fewer games, were a regular sports franchise, what would it sell for?

Of the $143 million in revenues generated by the athletic department, the football team is directly responsible for $88.7 million. The Bucks just sold for 5.05 times their annual revenue. Using this multiplier would put a value of roughly $450 million on the Crimson Tide football team. Revenue to market value numbers for other teams in the the NBA and NFL run between 3.2 and 5.2.

Of course, Alabama has another thing going for it as well. While Kohl had to pay his players about $54 million this season to generate those 15 wins and their corresponding $109 million in revenue, the Crimson Tide only incurred $2.2 million in player payroll expenses. In total, the school spent only $41.6 million on football, generating a profit of $47.1 million. On average, NBA and NFL teams at valued at 26.6 times their annual profits in the Forbes rankings. Using this multiplier, the Alabama football team would go for $1.253 billion, making it the 13th most valuable franchise in the US. By contrast, the endowment of the entire University of Alabama system in 2013 was $1.055 billion.

(Thanks to Josh Congdon-Hohman for the idea.)

A recent high school playoff basketball game has kindled a shot clock debate in Minnesota.  Shakopee and Hopkins, both part of the Minneapolis-St. Paul metropolitan area, were playing a semifinal game last week.  The game went to quadruple overtime and Hopkins won the game with a last-second prayer shot by Amir Coffey, a 60-foot heave that got nothing but net.  Here are the details.  Here is a decent video of the shot.

Here in Minnesota, high school basketball does not use a shot clock.  So part of the Hopkins strategy was to get the ball and stall to give it the final shot.  One of the reasons for having a shot clock is to keep teams from stalling and, thereby, to increase the fan interest in the sport.

One of the reasons why high schools up here don’t use the shot clock is because of the expense.  Here is some information from Reg Chapman at WCCO.

Newer baskets with shot clocks can cost upwards of $5,000, and that’s a lot for smaller boosters.

“There’s a cost of putting it in, there’s a cost of having an operator and there’s a lot of little rules that go along with that,” Merkle said. “The operator has to know what they’re doing. It brings in a whole other level of officials.”

It makes no sense to install a sh0t clock if the marginal revenue from doing so won’t cover the marginal cost.  Chapman notes that some of the bigger Minnesota high schools have installed shot clocks at their courts and have used them on an experimental basis.   But the smaller schools in lower divisions find the cost too prohibitive.  These , schools sometimes don’t even have enough players to fill the rosters(as Chapman notes) let alone buy expensive equipment.

Like it has done with so many other things, perhaps technology will improve enough to where the marginal cost of installing and operating  a shot clock will stop being cost prohibitive.  Until then in Minnesota at least, one can get a feeling for what basketball was like before the shot clock by going to a high school basketball game.