Penguins Nation: Professional Sports as Economic Development (Again)

Chad Hermann and Mike Madison, local bloggers both, have teamed up to do an op-ed in today's Post-Gazette. It deals with public financing of the Penguin's new hockey arena. The piece is interesting because the two don't really agree about the issue. Madison has been a skeptic about the public money. Hermann supports the plan. So why did they join forces?

I think the intentions were admirable: They argue that, like it or not, the arena is coming. So let's make the most of it. Fine. Great. We're all in the same boat, etc. The piece is well written, funny, even. So it's a good read.

But apart from that, I think it has little to offer. The main argument is that we should work to turn the Penguins into a tourism draw. That is, we need to go beyond entertainment for hockey fans and make sure the team becomes a tool for economic development. The op-ed even includes a letter to Mario Lemieux.

First, a minor point: Hermann and Madison probably should have addressed the letter to someone else. The stadium deal does include $2 million for marketing. Only Mario is not contributing that money. Any guess who is? From the Post-Gazette's list of the deal's major components: "$10.5 million from the state, including $8.5 million toward construction and $2 million for marketing."

So maybe the letter ought to go to "Pennsylvania taxpayers." Because marketing is our job, apparently.

But more importantly, Hermann and Madison, both of whom I respect a lot, seem completely unaware that "economic impact" is almost ALWAYS a major selling point when it comes to stadium deals. Supporters constantly make these arguments about tourism and spending and hotel rooms. And people have studied these claims. And they almost never come true.

Check out this. And this. And this. Look, I am not pointing you to the usual suspects like the Cato Institute. Of course the Cato Institute blasts the idea of publicly financed stadiums. (OK. I'll give you Cato's take.) But focus on the three I linked to first. I am talking New York City. University professors. Brookings, for heaven's sake. Yes, Brookings. Here's what they had to say about stadiums as economic development. I know it's long. But read the PG op-ed. Then read this:

Proponents claim that sports facilities improve the local economy in four ways. First, building the facility creates construction jobs. Second, people who attend games or work for the team generate new spending in the community, expanding local employment. Third, a team attracts tourists and companies to the host city, further increasing local spending and jobs. Finally, all this new spending has a "multiplier effect" as increased local income causes still more new spending and job creation. ...

Unfortunately, these arguments contain bad economic reasoning that leads to overstatement of the benefits of stadiums. …

In our forthcoming Brookings book, Sports, Jobs, and Taxes, we and 15 collaborators examine the local economic development argument from all angles: case studies of the effect of specific facilities… . In every case, the conclusions are the same. A new sports facility has an extremely small (perhaps even negative) effect on overall economic activity and employment. No recent facility appears to have earned anything approaching a reasonable return on investment. No recent facility has been self-financing in terms of its impact on net tax revenues. Regardless of whether the unit of analysis is a local neighborhood, a city, or an entire metropolitan area, the economic benefits of sports facilities are de minimus.

.

It doesn't work. Not because people don't cooperate or because naysayers sabotage everything. Not because there is not enough marketing. It doesn't work because it's a bad model. And because the assumptions are wrong.

In the end, I think Madison and Hermann get it backwards. Entertainment for hockey fans is just about the ONLY reason to support this stadium deal. Because using a stadium to provide "economic impact" has been tried in a lot of places. And failed.

Again.

And again.

And again.

Comments

[Mike Madison]

Sam,

I can't speak for Chad, but I'll speculate that he'd agree with me: We're both perfectly aware of all of the studies of the economic impact of stadium construction. I haven't searched my archives, but at Pittsblog I've probably cited some of that research over the last year or more. Remember, between the two of us, I'm the funding skeptic and the non-hockey fan. So I hope that no one mistakes our thesis for a retread of the mindless "build it and lots of dollars will flow" kind of argument that's been accepted uncritically all over the country.

Things that you criticize that we did not argue: Stadiums promote local construction jobs. Stadiums promote other local employment. Stadiums promote local spending by area residents. Stadiums attract companies from out of town. Stadiums underlie multiplier effects of all of this. Is any of that likely to be true? Study after study shows: No. So in our piece, we didn't go there.

The *only* point that we made was (and is) that *this* stadium offers some potential for hockey tourism, because *this team* has demonstrated *some* ability to benefit from that. Does the potential for hockey tourism justify the overall scale of the public contribution to the arena deal? Maybe; maybe not. At this point, though, so what? The academic debate is beside the point; it's OK, I guess, that our piece is a straw man for criticism of the arena deal, but we're not arguing the merits of the arena deal.

Do Chad and I support an "if you build it, they will come" approach -- and nothing more? I hope that it's clear that we don't; the Pens would have to buy into our idea, and buy into it aggressively, in order for there to be any hope of seeing meaningful revenue. Have other teams, other cities, and other stadiums done that? I can't say for sure, but my intuition says: no. In traditional terms, the deal may represent unsound economics (on that you and I may agree, and Chad might differ). But it offers the potential for something new.

Thanks for taking the time to comment on it,

Mike

[Jonathan Potts]

I'm all for making the best of a bad situation, and if we can't make the deal profitable for the region--which I'm skeptical of--than at least we can minimize our collective losses. It is in the Penguins' self-interest to sell as many tickets as possible, as well as much licensed merchandise. (I don't know whether that revenue is shared in the NHL.) So, Mike, your plan has potential to be adopted by the Pens if it can generate for the team revenues they would not otherwise get.

However, it makes no difference to them whether tickets are sold locally or not. They don't own any hotels that I know of. So if they can market the team locally and sell out on a consistent basis--that being the path of least resistance--than it seems to me that is what they will do. (Although perhaps there are revenue-generating opportunities I'm not thinking of in creating this "Penguins Nation.")

I haven't read the editorial yet. but it should be remembered that the very act of handing out large subsidies reduces the teams need to market itself, be efficient and find other revenue streams. A fraction of this money spent on modest marketing efforts likely would have paid off much better.

[Mike Madison]

JP -
You're certainly right that the plan requires suspending some cynicism about the motives of professional sports teams. In the "when life hands you lemons, make lemonade" department, however, I'm willing to give Mario the benefit of the doubt. (What choice do I have?) Remember, though, that my long-term, big picture interest here has relatively little to do with ice hockey, and everything to do with ways to grow the pie in Pittsburgh as a whole. The latter may turn out to be as much of a pipe dream as a Pirates playoff appearance this year. But I'm trying to turn out some ideas . . . .
Mike

[C. Briem]

Is return on investment the only criteria for public spending? Lots of (most?) public expenditures would fail that test.

[Jonathan Potts]

Well, I wouldn't be such a big advocate of public transportation if I believed every government-funded operation or facility had to operate in the black or provide a ROI.

But I suppose I think there is a huge difference between spending public money on a park, or schools, or transit, and spending public money on a facility that will solely benefit a for-profit, private enterprise. It's my belief that the intangibles provided by keeping the Penguins in town do not justify the public support the team has now received.

Frankly, given the other needs that this city, region and state have, I think it's an obscenity.

Chris asks:

"Is return on investment the only criteria for public spending? "

No. It's not. But I refer you back to the editorial:

"With a local team for local fans spending local money, the case for public funding just about collapses; that money could be better spent on all kinds of more pressing civic needs. But if this deal also saves the team for outsiders, for tourists and hockey fans from Toronto to Tokyo, then public funding of the arena could perhaps be justified."

It's not my criteria. It's just what I am reacting to.

[Sam M]

I also very much appreciate Mike's response. But I am still a bit taken aback. Tracking back through all the comments on various blogs at various times, I am struck by the idea that Mike was somehow surprised by the idea that the Pens could draw in fans from outside the region. That is, it seems like he was taken off guard by the Penguins-as-economic-development idea.

I just... How can that be? In my eyes, that's the primary argument that most people have been making all along. Go to the Post-Gazette's website and do a search for "Penguins" and "economic development." You get about 75 hits. Search for "Penguins" and "tourism" and you get about 160.

Yes, that's a cheap measure. But it's measure. And if it's too cheap, take a look at that casino fund that the governor is tapping for the arena. It's not called the "I love Hockey Fund" or the "Let's Save the Penguins for the Love of Sport Fund." It's called "Gaming Economic Development and Tourism Fund." That is, it exists to promote tourism and economic development. That's its primary reason for being. And it's the primary reason the arena is being built. Remember the meeting Ravenstahl missed to fly to NYC? That was not a hockey rally. It was an economic development meeting.

So... What are the odds that will pan out? What are the odds that hockey will draw in enough people from Toronto to make it turn a profit for the city?

Practically nil.

We can talk about opportunities and making it as good as we can make it. Or as least bad as we can make it. But the fact of the matter is, sports as redevelopment stinks. Bad.

Really, really bad.

The argument in this case seems to be that there is something special about this team. But I just can't see it. Especially a hockey team. As Mike himself has noted, I think, the NHL is pretty much bottom of the barrel when it comes to TV ratings. And TV is where the money is. I suspect we would have been better off building an arena for professional lumberjacking competitions. They show them on ESPN2 all the time. Not many people watch. But I suspect we could have built the venue for less than $290 million.

But fine. There is something special about the team. People from other cities love, love the Pens. But take a look at the long, long, long, long, long, long list of stadiums that have failed to deliver in terms of redevelopment. Weren't some of those teams special, too?

Again, I guess we could fall back on, "It's getting built, so let's make the best of it."

But, well, I think I will ponder that for a few days and make a separate post about it. But I am leaning in this direction: What Pittsburgh needs is more naysayers. More complainers. More people who dig in and won't budge.

For 60 years we have been building one white elephant after another, and one after another, the people against it lose, then say, well, might as well be a team player.

Well, screw the team.

Seriously. Is there still time for me to run for mayor? I think that will be my campaign slogan.

"Screw the team. And build your own damn crap."

OK. I will have to work on the marketing. But I'll mull it over and post said musings in a few days.

[C. Briem]

I will rephrase my question. I know Sam disagrees with this as a premise, but just for the sake of argument can we briefly stipulate that everyone agrees with the argument that sports team as economic development is bunk. That would beg the question of why this keeps happening. The Kansas City version is far more extreme a case than ours right? They built a pricey arena with no known use. It begs the question of why regions consistently choose to go out of their way to attract and retain sports teams. What could that reason be? again assuming just for the moment that people really do not buy into the economic development argument, right or wrong.

maybe to shape that question a bit more. Clearly the political support is on the side of this phenomenon of public support for teams/venues or else it would not happen repeatedly. I know people talk about how people voted against the Regional Renaissance Initiative, but that is a misused analogy. Clearly the politicians all felt there was far more downside to losing the team than not. It can't be because of a few rabid fans whose numbers don't begin to justify that fear. I think Sam keeps trying to argue the point of view that the public is misinformed and if properly taught the costs and benefits there would choose some other outcome. I honestly can't believe that. People are making a choice and it is an unanswered question as to why.

Probably is worth noting the exception that proves the rule. At least one major city refuses to do anyting to 'buy' a team and that is LA's refusal to pony up any money for a football stadium which the NFL has made a prerequesite for putting a team into the region. but again, it is the exception that truly proves a rule.

[Sam M]

Chris,

It's hard enough to be a rational economic actor in your private finances. And exponentially more difficult in the political realm. A lot of people have spent a lot of time trying to explain such things. One of my favorite is a French fellow named Fred. Bastiat. He wrote about "that which is seen and that which is unseen." Obviously, when Mike and Chad want to talk about the economic benefits of hockey, it's pretty easy. Wait until game night, then go looking for a drunk guy in a Mapleleafs jersey who says "eh?" at the end of his sentences. It's a walking, talking argument for inter-city tourism. That is, it's economic development.

People like me have to counter with non-Canadians who aren't drunk going to non-events that aren't happening at non-existent venues. It's not nearly as compelling. For whatever reason, anecdotal evidence is a powerful thing.

Then there is the whole "Public Choice" explanation. The benefits of a new arena are concentrated in a small group of people who want it really, really bad. And advocate for it accordingly. The costs are distributed across everyone. So no one opposes it as stridently. So we get an arena.

I know, this is all elementary. But it's how I explain it.

What I think the real danger here is that, as always, the debate is already shutting down. People who opposed the arena are expected to fall into line and get along to get along. To stop "whining." To make the best of the situation.

So that's what people will do. And the arena will never quite deliver on its economic development promises. But we'll all be on the same team. And we will all be looking for solutions. One of which will be an hotel. Or a road. Or a parking garage. Or a convention center. Or a convention center hotel. Or ripping down residential areas for retail. Or ripping down the retail for residential.

Whatever the case, all we'll need is that one last push. Just to get over that hump. Just so Pittsburgh can be that "major league city."

I guess you could boil that down to some argument about the non-economic benefits of such projects. I would note that despite 70 years of them, we are still shitting our pants about the supposed "major-leagueness" of this city.

I might also point out that,despite what I have been hearing from other people, one of the primary arguments for these projects is always economic development. The hockey arena, sorry I mean the multi-purpose arena, is not different.

You and I had a brief discucsion about this with regard to the Steel Museum. Yeah, you can make the case that it's a good idea whether it makes money or not. But that's not the argument that politicians are making. They are making the case, as always, in terms of dollars and sense. In terms of jobs.

Same with the arenas.

If no one cares about that stuff, why is it always front and center, rhetorically speaking?

So yeah, I guess "misinformation" is part of the problem. But it's hardly the whole problem. It's a systemic problem. And it goes beyond hockey. The "bridge to nowwhere" in Alaska did not get funded because Amrican citizens thought it was a grand idea. It got funded because the system is fundamentally skewed to pay for such things despite the fact that everyone knows they stink.

So, do you fundamentally un-skew the system? (Good luck.) Or do you get what's yours?

I think it's pretty clear what happened in this case.

[Mike Madison]

No, actually, I wasn't surprised at the Penguins-as-economic-development idea. I've been paying enough attention to arena politics to know that this deal, like every publicly-funded stadium proposal, was being sold as an economic development plan. (I searched the PG archives for "penguins & tourism" and found a lot of links to stuff that didn't talk about the concept that Chad and were writing about.) I've lived through a team-plus-stadium deal that was far worse than this one. That would be the Oakland/Alameda County Coliseum deal to bring the Raiders back from LA. So it wasn't hard to see that the economic development projections here were nothing but funny money.

But I agree with Chris that while the deal might have been sold as economic development, the public didn't buy it as economic development. Personally, I think that they bought it (and bought similar deals in other cities) because they get associative benefits from being part of the region that surrounds the team. Re-read what Chad and I wrote. We're *not* justifying the deal on the basis of alleged "major league" identity. It's connections, not status. We're *not* saying that hockey tourism will make the deal pay. We *are* saying that this region and this team have some distinct characteristics that make the hockey tourism game worth playing. Will that make the arena numbers make sense? Doubtful. Can hockey tourism be part of a broader diaspora theme? Absolutely; both the team and the community (politicians, blogosphere, media) can, if they choose, make that a bigger deal. In public choice terms, make a broader population aware of their personal stakes in the costs and benefits of public funding.

For me, absolutely none of this stuff -- economic development in a grand sense, arenas and stadiums and sports teams in a small sense -- is about being "major league." It's about energizing the economy, and no magic wand or single stroke will do that. Lots of little things need to be pursued, and they have to be understood as connected. Connectedness isn't necessarily enough, but being connected is required. I have no interest in going along to get along, and if anyone interprets the PG piece in that vein, then they have seriously misunderstood its point. I blog in the (probably vain) hope that I can help teach people to think and speak in "connectedness is good" terms rather than "this will make you money" terms. The arena piece is part of that project.

[John Morris]

Sam,

You have hit the nail on the head finally.

" One of my favorite is a French fellow named Fred. Bastiat. He wrote about "that which is seen and that which is unseen." Obviously, when Mike and Chad want to talk about the economic benefits of hockey, it's pretty easy. Wait until game night, then go looking for a drunk guy in a Mapleleafs jersey who says "eh?" at the end of his sentences. It's a walking, talking argument for inter-city tourism. That is, it's economic development.

People like me have to counter with non-Canadians who aren't drunk going to non-events that aren't happening at non-existent venues. It's not nearly as compelling. For whatever reason, anecdotal evidence is a powerful thing.

Then there is the whole "Public Choice" explanation. The benefits of a new arena are concentrated in a small group of people who want it really, really bad. And advocate for it accordingly. The costs are distributed across everyone. So no one opposes it as stridently. So we get an arena."

Public choice theory pretty much explains Pittsburgh politics and the stadium deals perfectly. I think in a lot of other places, enough othger actors with enough power to complain appear to balance stuff out. I think that's what happened with the west side stadium deals in NY.

One you start really looking at politicians as self interested actors with a short term need for votes-- all of this stuff makes sense. Big projects- funded with long term bonds and other people's money are just to good for people to pass up. All the things that might have happened with that money, energy and space will not be seen.

[John Morris]

Let's look at the general lack of interest that Pittsburgh seems to have always shown at marketing itself and building any links to the wider world. I think public choice theory helps explain that too.

The current major player's in town, do not have a big self interest in bringing in a lot of new people who might undermine their current power base. They would rather rule in hell than serve in heaven.

[C. Briem]

Maybe you take some things too literally? I give the public credit to see most euphmemisms for what they are and you clearly do not. That being said I do think public choice theory has a lot to offer to explain what is happening.. but I disagree the limited description you suggest of how public choice is impacting the issue here. The median voter is clearly not someone who cares much about hockey in and of itself to explain the outcome. Yet the median voter seems pretty happy with the outcome.

How about this as a defense of the public at large. If you accept the idea that the people are the losers in all of this then it would follow that they generally fail to see the costs of such projects. There should be some consistency in the public's reaction to such 'schemes'. Yet, even after pushing through much larger publicly funded projects such as 2 stadia and convention center, Tom Murphy would be re-elected in 2001.. and to the degree he almost lost it probably wasnt because of the stadia funding. yet 4 years later, it was the public flogging that 5th and forbes caused that prevented him from running more than anything else.(at least that is my take, JP may have some more expert comments) So the public shows some discernment in what projects it holds politicians accountable for and which ones it does not. Is the public fickle or does it have some other decision criteria?

[Sam M]

Chris,

Sure, people keep voting for these people. It has been going on since the 1940s. So does that mean they like what they have gotten? Depends what you mean by "they." Because just about half the voters in Pittsburgh over that past 60 years have also voted...

... with their feet.

I am foolish. But I am not foolish enough to think that those people all moved away because they disapprove of public support for redevelopment projects. But we all have to take the good with the bad. We can talk about all the ancillary non-economic benefits of Gateway Center and Point State park and the arenas and the convention center and all the new condos.

But let's also take the ancillary costs into account. These costs, I think, include a tremendous amount of power (political and economic)in the hands of a few people, the conglomeration of clout (political and economic) into a few institutions, an impression (and a reality) of political horse trading, a culture of handouts to big political players, etc.

I know that you know all this. And probably agree with at least some of it. So why bring it up?

Again, the whole seen versus unseen thing. We get to see "civic pride" at the Steeler parade. We get to enjoy gathering around the water cooler at the office to talk about Sid the Kid. Etc. Etc. Etc. But when something like the arena deal comes up? Well, that's just how it is. It's how things get done. And it ain't gonna change. So how about that Sid the Kid? Might as well enjoy him, right? Why whine about it? Especially inveterately.

Sure. Right. I see no reason not to enjoy him. Or any of those ancillary benefits. We're paying for them.

But the fact of the matter is, collectively, we cannot afford them. Any one or two or three of them, sure. But take them all into account, then add in the broader collapse of the industry that supported this city for so long, and then the broader problems that all American cities have faced...

And all of a sudden you are in Act 47.

Again, I am not an UTTER fool. Even if F.A. Hayek and Milton Friedman had run Pittsburgh for the past 60 years, and even if the Cato Institute had replaced the Allegheny Conference long ago, there would still be serious, serious challenges.

But this arean deal is more than an arena deal. It is a continuation of a leadership culture that has failed. On many levels.

And it is not going away.

So OK. Sure. Let's market the Penguins. How might that happen? I submit that if we open a long, serious dialogue about it, the funding for that marketing will not come out of Mario's pocket. He would be stupid to offer it. Because he know we (taxpayers) will, sooner or later.

[John Morris]

"But let's also take the ancillary costs into account. These costs, I think, include a tremendous amount of power (political and economic)in the hands of a few people, the conglomeration of clout (political and economic) into a few institutions, an impression (and a reality) of political horse trading, a culture of handouts to big political players, etc."

I for one am willing to guess that this is one major reason people move away and moreover why a lot of people who see this would never consider moving here. I don't know if it's a huge number of people, but my guess is that a lot of them are the potential employers that Pittsburgh is alegedly trying to attract.

[Sam M]

Again, I appreciate Mike's thoughtful commentary. But I go back to the op-ed that prompted this thread:

"The bottom line is the bottom line: Can it generate revenue for the region?"

Well, no. I suspect it can't.

Can we use it as part of a larger plan to energize "the diaspora?" I guess so. Why not? But honestly, I supect that if we were going to spend $300 million on that, we'd have been better off chartering planes from Silicon Valley to Pittsburgh on Steelers weekends.

Honestly. If you are going to use sports to energize the diapora, forget the Penguins. Forget Mellon Arena. Or whatever it's called. And go Steelers. I would prefer not to use any sports in this fashion. But if you are going to pick one and spend hundreds of millions of dollars on it... And if you really want bang for your buck...

Sorry, Chad. But the truth is the truth.

Bradshaw is still a better investment than Crosby.

Crosby was not but a twinkle in his father's eye when the diaspora began dispersing.

Quick... How many Penguins bars are there in Baltimore? I don't know of one of a single one. But I knew of at least five Steelers bars.

For the record, the Penguins were four years removed from their last Stanley Cup when I moved to Baltimore. The Steelers were 16 years removed from their last Lombardi trophy.

Maybe it's corny and stupid and nostalgic and romantic. But given the market for hockey versus the market for football, I think that marketing a 30-year-old football team is still a better bet than marketing a 19-year-old hockey star.

And again, let's be clear. I think that markteting either one is ridiculous. At least in terms of public investment. If the Rooneys want to sell a little Bradshaw, fine by me. And if Ron Burkle wants to market a little Sid the Kid, great. He has a plane. He ought to fly in the people himself. I'm already paying for his stadium. He ought to figure out how to get people there on his own.

[John Morris]

"The bottom line is the bottom line: Can it generate revenue for the region?"

The important thing to remember with stadiums is that while they may in fact be something that attracts people to the region-- they have a direct impact in terms of trafic,parking,land use and tax cost hurts the place they are in when they are not being used. This impact relates closely to the size of the venue in relation to transportation options and how many times the venue is used.

Looking at it that way, one can see that the Penguin's arena has a much better shot of having a positive or at least neutral effect on the city. They play a lot more games; the smaller venue has less of a parking/traffic impact and there is a greater multiuse potential. add to that a fanatical fan base that is international and you could imagine some potential there.

The issue for me is that I don't believe for a moment that the city will do the kind of groundwork to make this pay. Is there a great comprehensive map of pittsburgh with links to all the cultural, food,shopping and entertainment attractions in the city on the visit Pittsburgh website? Is there a comprehensive printed guide? From what I hear, if you ask at hotel they will send you to the Ross Park Mall.The city already has a number of huge events like the Carnegie international and world famous Museums that it has failed to make full use of.

[Sam M]

Another thing to remember in terms of "generating" revenue:

How much do you want to bet that when Justin Timberlake plays the new arena in 2009, people who supported this plan will talk about that concert in terms of wealth and jobs "created."

Thing is, Justin Timberlake already plays here. We have an arena for that kind of stuff. And as far as I can tell, we (meaning the SEA or some other such agency) gets the revenue from such events. (Can anyone confirm this?)

But we are tearing that arena down, building a new one next to it, and giving the Timberlake windfall to Ron Burkle. So, actually, when Timberlake plays in 2009, we should talk about that in terms of revenue LOST.

I bet we won't. Anyone giving odds?

The Civic Arena might not have lasted forever. But it can clearly still host big events. And probably could for a long time to come if we upgraded it rather than tore it down. I am not sure that idea makes a whole lot of sense. But it seems to make more sense than the Burkle Option.

[John Morris]

When one talks about Hienz Field, the issue is one of trying to calculate how big the loss is. All of these deals smell like the typical selfish babyboomer thing. Short term unionised job gains and pork paid for by bond issues which push the costs of into the future- to anyone dumb enough to have stuck around.Apres moi le deluge.