I’ll admit right out of the box that I was excited, as only a sports economist can be, when I read the headline to this post which is the headline to this St. Louis Post-Dispatch article written by Matthew Hathaway (link via Chad Venable). Matthew gets right to the chase: spending on Cardinal games is not necessarily an inflow of money into an economy. At least a portion of it would have been spent elsewhere in the city.
A long Cardinals run of postseason baseball is good for business, right? The local chamber of commerce predicts it will pump millions of dollars into the economy.
This year, the playoffs certainly seem good for anyone peddling a shirt, hat, costume or whatever else with a squirrel on it.
For some other businesses, though, watching the Cardinals get bounced from the playoffs wouldn’t be a tragedy.
Take the STL Cinemas chain. Harman Moseley, the owner, says attendance at his four theaters drops by about half on postseason game nights. He gets it — he, too, plans to spend the next three nights at home to watch the games on TV. That trend, though, isn’t hot for movie ticket sales.
“It’s killing us,” Moseley said. “As a St. Louisan and a Cardinals fan, I’m excited and I want them to win. But as a businessman, the sooner they lose the better.”
That’s not to say all the spending is essentially “rearranged”.
Patrick Rishe, a sports economist at Webster University, said St. Louis probably will get a bigger economic boost than other cities with playoff teams.
“The Cardinals are unique in that they attract more of their fans from outside the region,” Rishe said, noting the team’s strong following throughout much of the Midwest and South.
Rishe expects about 5 percent of Cardinals fans attending this week’s games to come from outside the region. He expects a similar percentage of fans at the stadium to be out-of-towners cheering on the Brewers.
But there will be leakages too. In Major League Baseball, a portion of ticket revenues from the playoffs go into a pool from which playoff participants are paid. Focusing only on the NLCS, 60% of the revenues from the first 4 games are put into the players’ pool with 40% going to the team hosting each game. Should the series go past 4 games, 100% of the ticket revenues goes to the host team (the details are here in Article X of the current MLB CBA)*. Since most of the Cardinal and Brewer players do not make St. Louis their permanent home, some portion of their paycheck is essentially going to leave St. Louis, and a portion of the owners’ keep will leak out as well in a similar manner. Also, a share of the hosting team’s receipts will get dispersed to other teams in the MLB revenue sharing system. We can make similar claims to at least some extent about visitor spending at hotels, bars, restaurants, etc. So some money flows into the economy and flows right back out. The question is “what’s the net inflow?”
Allen Sanderson gets the parting shot.
Still, even with many businesses finding creative ways to make money, Allen Sanderson, a sports economist at the University of Chicago, is among those who argue that economic impact studies tend to dramatically overstate the importance of big sports events.
He won’t argue, however, about how fun playoff baseball can be.
“To the extent that you’re primarily recycling money from the locals, there’s really no economic impact,” Sanderson said. “But that’s OK … It’s a party, not an investment.”
Agreed. The end result is not that jobs and spending are somehow created and the economy is somehow more vibrant. The end result is that the games are fun to watch and to play in. That’s the important economic impact.
*Players do not get a share of the gate after game 4 so as not to provide a perverse incentive to extend a series for the extra pay day.
i find it mildly distressing that almost all of the discussion about economic impacts of sporting events is about rectangles with rarely if ever a discussion of triangles. i was always trained that welfare was measured by consumer and producer surplus, not expenditures, but then what do i know?
and, to make matters worse, i was always taught that if bundle B was chosen when bundle A was available that it could be concluded that A was better than B. i guess i’ll have to go back and study some more, someday.
i guess the idea that people are happier with a baseball game than a movie doesn’t mean much anymore, and its downright silly to suggest that a baseball game makes a place better off because people could have gone to a movie instead.
i think i’ll go drink a beer, eat a hot dog, and polish it off with some apple pie, now that i realize how silly i was to believe in revealed preference, consumer surplus, and consumer choice. oh well.
“It’s a party, not an investment.” bobby, I think the point of the post isn’t that the people of St. Louis get nothing out of the playoffs. It is essentially saying, “There might be a triangle, but don’t expect a bigger rectangle.”
This! And that was my point at the end, but you put it much better than I did.
The question is whether St Louis receives a net economic benefit from extra postseason baseball games, because the result will be used to justify public subsidy of sporting events. I certainly like playoff baseball more than a movie, but I am not requested to provide a perpetual $30M/year subsidy to the theater. If stadiums cannot be funded by private industry in an economic manner (argued by many owners), then the public has to get into the stadium construction/operation business and incurs a large *negative* producer surplus that is absorbed by the taxpayer.
To restate in S/D terms, the market quantity of stadia supplied at the revenue of 81 home games + playoffs is zero, or the revenue required to supply 1 stadium is far larger than actually delivered by the market. Enter government, which supplies 1 stadium and receives in return much less than the cost (negative surplus). The team owner gets a nice surplus (shared with players), and the fan receives a surplus in that his entertainment dollar provides him greater happiness spent on baseball instead of a movie. Furthermore, the economically viable theater now must complete with a subsidized industry, certainly lowering its producer surplus.
Finally, the taxpayers not interested in sports reveal that they would prefer to keep their money for their own entertainment, but find instead that they have “chosen” to supply a product for which they have no preference/benefit (which means -100% producer surplus for them).
My questions are:
A) Is owner surplus + fan surplus >= taxpayer deficit + competing business deficit? Very likely no, this is a net harm to the economy because scarce resources are allocated contrary to the intersection of supply and demand.
B) Even if surplus > deficit (doubtful, provably wrong in specific cases), does it makes sense to throw “a party” with public money that clearly benefits one small group at the expense of everyone else? Only a tiny fraction of player salary or owner profit is going to be spent locally, so even the notion of “recycling”
“recycling” does not make sense in a local context.