The Dallas Morning News is examining the gap between the estimated economic impact of the NBA All Star Game and the actual revenues reported by hotels, restaurants, and rental car agencies.  The story follows up on similar comparisons made by TV reporter Byron Harris, and in addition offers Michael Casinelli, the consultant behind the original report, an opportunity to stick a foot in his mouth.
Here’s what Casinelli has to say on the gap between his estimates and the reported figures:
“What I’m hearing [from critics] is you have to be absolutely 100 percent accurate on a future prediction when nothing is 100 percent accurate on a future prediction,” said Casinelli, who has an MBA but is not an economist.
Now, I don’t know what voices Casinelli may be hearing, but the critics here at TSE would never make such a statement, not in a million years! Â As economists we know all too well that predictions have forecast errors. Â But we have two problems with the forecast errors from economic impact studies of sports. Â First, Â they are predictably biased. Â Second, the size of the bias is not small. Â The size of the bias is an order of magnitude.
Co-blogger Vic Matheson of Holy Cross is a well known critic who is  responsible (in part) for these findings.  The story quotes Vic, who states that the models used in studies like Casinelli’s do “a pretty good job of counting up the economic activity that does occur … [but] a particularly poor job of counting up activity that doesn’t occur.”  I think that’s fair.  I should also add that Casinelli makes a valid point when he notes that the tally of actual spending at various locations around Dallas is incomplete (although I believe that filling in the missing locations is quite unlikely to make up the difference).
Casinelli’s response is one of skepticism towards “alarmist” academics, and a statement to the effect that “deferred spending eventually makes its way back into the local economy and doesn’t disappear.” Â Perhaps the imagined return of “deferred spending” can be measured, if it exists, but I doubt it even if it does. Â Regardless, a defense to criticism which rests on an effect which can’t verified is a classic ploy used by those with a weak argument. Â Name-calling as well. Â Sound the alarm!
I would be interested to know what the definition of deferred spending is. People face budget constraints. If I defer my spending on some form of entertainment today so I can attend the NBA All Star Game, I can’t decide to spend on that deferred entertainment later without reducing my spending on something else or reducing my savings. I can believe that there are people who will reduce savings to finance going to the ball game. On the other hand, American’s save so little as it is, there isn’t much savings to dip into to pay for the ball game. But of course, maybe they borrow against future income to be able to go. Probably with a credit card charging 19% interest.
Dennis,
I think he means displaced spending in the sense of time and not location, i.e. locals who are crowded out from restaurants on the weekend of the game, visitors who may delay a trip and not change the destination, etc.
Skip
Casinelli’s point is about deferred spending is well-taken, but people like me and Brad Humphreys and Dennis Coates (among many others) have looked at all sorts of time frames including full year periods which should have provided enough time post-event to account for this deferred spending and we still almost never find any significant impact.
These estimated economic impact reports must all be written at a seventh grade level so they know there are no politicians that will be able to understand them. They are probably never read past the first page stating their awesome conclusions. Page 86 could have a formula for changing lead into gold plus the location of Jimmy Hoffa’s grave and they would remain as big a secret as the explanation for the popularity of Two and a Half Men.
I could take a freshman high school class and have them prepare a report as good as what these consultants get paid millions to prepare. Assumption upon assumption with big numbers multiplied by more big numbers. Some nice Excel graphs and lots of small print footnotes. Be sure to include the economic impact of big events in years past (again with no verifiable proof) and make your numbers sound like conservative estimates.
In Missouri the state tourist board decided not to spend 1 million dollars this year on the Tour de Missouri bicycle race. A supporter on the radio claimed every dollar spent returned 37 dollars in economic activity. So the obvious question is why it needs any taxpayer support if it is such an economic miracle. These reports are the economic equivalent of perpetual motion machines and only the most gullible should believe them.
I wanted to send this video link to TSE but I couldn’t find a “contact us” link.
Have any of the bloggers at TSE heard about or watched this video?
http://internetscelebrities.com/youve-got-stadium-status/
Here’s their introduction:
“Our starting point for this movie was simply asking the question: why did the Yankees and the Mets get to build record-breakingly expensive stadiums in the SAME YEAR? Considering we were on the brink of a massive recession and now face massive budget shortfalls in New York state, it seemed problematic that so much public funding went into these buildings – with little assurance of any tangible public benefit.”
I will bet any amount of money that Casinelli’s original economic impact estimate did not contain any sort of margin of error, or other measure of the uncertainty associated with his forecast. Has anyone see his report?
Matt
Thanks for the link to the video. If you have a spare 20 min to spend well worth a look.