Sign in / Join

A Response to bobby and Phil

My colleague Phil recently highlighted a comment by bobby, one of our many great readers. Bobby is concerned that we here at TSE tend to focus on employment, income, or tax collections as a measure of welfare associated with sports rather than the sum of producer and consumer surplus. Bobby's concern is well-founded, but let me take a moment to explain why we so often talk in terms of these other measures.

First, those of us who talk employment or income are generally responding directly to claims made by sports boosters rather than making estimates while starting with a blank slate. When faced with a claim like, "The Winter Olympics will generate 129,000 jobs for Vancouver in 2010," the natural response is to estimate economic models that will predict actual employment changes rather than changes in welfare. Similarly, when a reporter calls and asks about a $500 million predicted impact from the Super Bowl, it is good to have an apples to apple comparison to talk about.

Second, most of us critical of mega-events and stadiums are primarily concerned with the public funding involved. If we are talking about $300 million in public funding to build a new stadium. It is fair enough to argue that the benefits associated with the stadium include not only what people actually pay for the events taking place there but also any associated consumer surplus. However, if one measures benefits in that way, then one should also include the not only the $300 million direct subsidy as a cost but also the consumer surplus losses associated with the spending that consumers would have engaged in had their money not been taxed away to pay for the stadium. This is a much harder comparison, so typically the consumer surplus gains associated with the stadium are ignored along with the consumer surplus losses associated with the higher taxes.  As a first order approximation, we assume that these pieces will roughly cancel each other out.

Third, there are some very good economists, including Bruce Johnson and John Whitehead who use contingent valuation methodology to estimate not just what people actually do pay to attend sporting events but what they are willing to pay, capturing the consumer surplus aspect. These studies also tend to show that the public subsidies that stadiums receive typically exceed consumers' willingness to pay as measured by CVM.

Finally, most of us, like both Phil and Allen Sanderson, who is quoted in Phil's post, are quite quick to admit that there are benefits from sports franchises that aren't captured by things like employment and income data. In fact, I close almost every interview with a reporter with the line, "These events may make us happy, but they don't make us rich." Similarly, the NBA lock-out is likely to to make a bunch of fans unhappy, but it is unlikely to cost many jobs or reduced city GDPs by a measurable amount.

So, in conclusion, I am sympathetic to bobby's concerns, but there is a method to our madness, and I can assure you that we haven't all simply forgotten everything we learned in Principles of Microeconomics.