Pro Sports Scores Big, But Economic Benefits Still In Review

(Editor’s update: Detroit City Council Feb. 6, 2014, approved the handover of 39 parcels of land to Olympia Development to build a new hockey stadium downtown, giving the project its final green light. This story was first published in Corp! magazine in December 2013.)

Sports tourism in metro Detroit can bring about $70 million a year in visitor spending. Those Tiger playoff games that glued many to TVs, sports bars, laptops and radios brought in $3.5 million in visitor spending per home game.

Great economic figures, right? But does economic impact filter down to positive economic benefit for a region? On the surface, the thousands of jobs relative to the sports industry, and the careers and families it supports look like a booming sector of the Michigan economy.

But when you dive deeper, you find many experts say the jury is still out. The question is one that will continue to be debated within the state for years to come.

If you’re going to be a major league city, you’ve got to have major league sports teams, said Bob Berg, who helped negotiate deals to keep the Red Wings in Detroit and bring the Lions back downtown during the Coleman Young administration. When it comes to the impact of professional sports you can’t just analyze dollars and cents.

Talking about sports
George Bernard Shaw once said ‘if you laid all economists end to end they would never reach a conclusion,’ Phillip A. Miller wrote in the introduction to his study of the economic impact of sports stadium construction in the Journal of Urban Affairs (2002).

There is much truth to this quip, but there are some issues on which most economists agree, Miller wrote. One of these issues is the economic impact of professional sports teams and sports facilities. Despite the claims of economic impact statements commissioned and funded by professional sports teams and other stadium proponents, the independent academic research on this subject has reached a consistent conclusion: the existence of a sports franchise in an SMSA [Metro Area] does not generate positive net benefits for the SMSA and could actually generate negative net benefits.

This is not a singular study or an outlier. In 2006, Robert Whaples, the chair of the Economics Department at Wake Forest University, surveyed 210 randomly selected Ph. D economists in the American Economic Association. Among other points of consensus, he found 85.2 percent of economists favor eliminating subsidies for professional sports teams. There are reams of peer-reviewed empirical academic studies supporting these conclusions.

This seems to run contrary to common knowledge and conventional wisdom. Dave Beachnau, executive director of the Detroit Sports commission, estimates that sports tourism can bring as much as $70 million dollars a year to Metro Detroit in visitor spending.

Michael O’Callaghan, executive vice president and COO of the Detroit Convention and Visitors Bureau, estimated each Tigers playoff game brought in $3.5 million in visitor spending this year. It also seems like bar, restaurant, parking, hotel and many other ancillary industries depend on professional sports.

Are these two diametrically opposing views reconcilable? Do sports teams have a positive economic impact on a city or metro area? How about Detroit? Are there other benefits to having sports teams in a city?

To put it simply, the economic impact and benefit of sports in southeast Michigan raises more questions than answers.

A story of balances and magnets
Stefan Szymanski Ph. D., a University of Michigan economist who has extensively studied sports economics and stadium building, explained sports stadiums can act as magnets to attract capital, but the economic impact is quite different from economic benefit.

If the city spent $10 million dollars handing out balloons, it would have a 10 million dollar economic impact, he said. But economic impact isn’t necessarily a good thing.

Impact is a measurement of how much money gets spent in a particular area. Benefit is much harder to define. Sports stadiums can attract ancillary development and capital to a certain area, he suggested, but that area could be rather limited, ranging only a few blocks surrounding stadiums.

But what about all the bartenders, waitresses parking attendants and other industries that depend on professional sports teams?

That money is just as likely to go to some other activity, he said, creating similar jobs elsewhere.

People will spend money on entertainment regardless, whether at the ballpark or on a movie, he proposed, and people who don’t have the option to spend money on sports would be spending money at restaurants, movie-plexes and other entertainment ventures.

Miller again: the evidence suggests that, at best the existence of sports stadiums in an SMSA causes consumers to redistribute purchases between alternate entertainment purposes or between different geographic areas…. At worst they can actually decrease earnings and employment.

[There is] not any evidence [professional sports has] a significant effect on economic benefit, Szymanski said. The consensus view is if there is any impact it is negligible.

We don’t talk about a supermarket as an economic benefit, he noted, adding, The reason we talk about this is because of subsidies.

The Ilitch empire expands
One of the most discussed projects is the new hockey stadium. Pending final approvals, a hockey stadium and entertainment center will be built in Detroit’s Midtown neighborhood, formerly the Cass Corridor. The proposed $650 million dollar project will encompass an 18,000 seat stadium and $200 million dollars in ancillary development that will potentially include retail, residential, office and hotel space. The stadium would run along Woodward from Sprat to Henry streets, and the entire entertainment district would cover a 45-block radius in midtown.

Preliminary approval for the public funds was granted six days after Detroit’s bankruptcy filing, the largest municipal bankruptcy in history. About $285 million for the project will come from public funds, approved by the Michigan Strategic fund and paid for by state-issued bonds, backed by public and private revenue, including property taxes. Another $365.5 million will be privately funded. Gov. Snyder has been vocal in his support.

The Downtown Development authority will own the facility, and Olympia Development, the Ilitch family’s development branch, will operate the facility under a 35-year lease. The Ilitch family own the Detroit Red Wings, the Detroit Tigers and the Little Caesars Pizza chain.

The Red Wings have played in their current home, Joe Louis Arena, since 1979, where they have won four Stanley Cup victories while owned by the Ilitch family. They also have earned Detroit the nickname Hockeytown, a phrase trademarked by the team.

The Developers say the new facility will create approximately 8,300 jobs and generate $1.8 billion dollars in economic activity for Michigan. They, along with Gov. Snyder, also hope the development will spur increased growth in downtown and midtown and act as a turnaround agent for Detroit.

What will its impact be? Time will tell. Repeated attempts to contact Olympia Development and Ilitch holdings were unsuccessful, and the Downtown Detroit Partnership declined comment for this story. Robert Rossback, a spokesman for the Detroit Economic Growth Corporation, which staffs the DDA, wrote in an email that neither they nor the Ilitch family were commenting on stadium development, writing, At the appropriate time, it will all be discussed in public forums. But that time is not right now.

Turnaround agents
Detroit already has two sports facilities that were funded with a combination of public and private money. They are Comerica Park and Ford Field, the home of the Detroit Tigers, owned by the Ilitch family, and the Detroit Lions, owned by the Ford family, respectively.

Both Comerica Park, built in 1997, and Ford Field, built in 1999, were widely hailed, in the media and by politicians, as turnaround agents for the city.

Speaking to Gambling Magazine in April 2000, former Detroit mayor Dennis Archer stated Comerica Park will help restore the excitement of urban living that has been missing far too long from downtown Detroit.

Detroit Mayor-elect Mike Duggan, speaking to the Detroit Free Press April 11, 2000, then the deputy executive for Wayne County, said, Twenty years from now when people come back downtown, they will look back at this day as a turning point in Detroit’s comeback.

It’s been 13 years since that statement and 16 since Comerica Park has been built. In light of the city’s bankruptcy, it’s difficult to argue those stadiums created the turnaround that was hoped for.

[Subsidies are] robbing millions of Peters to pay Paul, said Michael D. LaFaive director at the Mackinac Center for Public Policy, a non-profit, nonpartisan research and educational group that supports free markets.

The Mackinac Center opposed government support of Comerica Park and Ford Field. He called subsidies for professional sports crony capitalism, and was unhappy about the new Red Wings stadium deal (Archer and Duggan quotes courtesy of the Mackinac Center).

It’s the same tiresome rap I’ve heard for 20 years, he said. Robbing Peter to pay Paul doesn’t create jobs, it shifts them around.

John Bebow, president and CEO of the Center for Michigan, a nonprofit think tank based in Ann Arbor, wrote in an email the subject of sports economics is a little outside of our wheelhouse. Phil Power, founder and chairman at the center explained the policies and issues the center studies are all based on community conversations (of which he said they’ve engaged more than 20,000 people), and they focus on the issues that matter most to the public. The public has not raised the issue, he said.

This suggests two possibilities: this issue is not on the public radar or there are greater concerns, or the average citizen feels the benefits of hometown sports teams outweigh any negatives that may be associated.

Where’s the money?
Although stadiums and sports teams contribute tax revenues to the city, much of the money brought in is captured by players and owners. According to Forbes Magazine, which ranks sports team values, the Detroit Tigers are 13th in Major League Baseball for overall value and had the highest 2012 local television ratings in the MLB (all values are from in March 2013, before the start of the latest season). They reported the Tigers draw $238 million in revenue, have $98 million in gate receipts, and have player expenses of $143 million, more than revenue coming in for ticket sales. Forbes also reports the operating income for the Tigers is in the negative.

Storm Kirschenbaum, sports agent and president and CEO of Metis Sports Management LLC, based in Birmingham, explained the old rule of thumb was that ticket sales paid the salaries of athletes, but the balance has changed with players demanding higher salaries, as they are the draw to games. He also said those players live in Metro Detroit and contribute to the local economy.

For example, pitching ace Justin Verlander signed a deal this year with the Tigers for $180 million over seven years. Prince Fielder, slugger and first baseman, had a Tigers salary of $23 Million in 2013.

The housing market is great in Birmingham [Michigan] because of athletes, he said. He also noted, Owners make money selling teams.

The Tigers were purchased by Mike Ilitch in 1992 for $82 million and have a current valuation of $643 million including $155 million for the stadium.

Extra income
During the recent Tigers playoff run, The Detroit News reported that many downtown bars and restaurants would be seeing up to a 25 percent sales bump over a non-playoff week.

Josh Guitar, general manager of the Detroit Beer Company, a two level brewery, bar and restaurant in the sight line of Comerica Park said close to half of his business comes from sports.

Every Tigers game we fill up, he said. He was also careful to note, however, the Detroit Beer company would be functional and fine without sports.

We’d be a sustainable business with and without events, he said.

Amy Abbott, general manager and director of business and marketing at the Motor City Brewing Works, a brewery in Midtown that sells Detroit made beer on a small scale at Comerica Park, also appreciates the extra income from sporting events. She said there has, definitely been a noticeable impact with the Tigers, Lions and Red Wings, and suggested they brought new and distinct customers into Detroit from the suburbs.

[Sports fans] have been a positive impact on our business, she said. It brings a new clientele into the brewery and into the city.

George Boukas, owner of the Temple bar, at the corner of Temple and Cass Avenue and within the footprint of the new entertainment district planned with the proposed stadium, expressed worry over the changes and gentrification to the neighborhood that a new stadium would bring. He explained little of his business comes from sports fans, and was fearful that a new sports stadium would push his regulars, and his bar, out of the neighborhood.

The [Cass] Corridor has historically been the most diverse community in the city, he said. You have to love the city, but you have to love the communities within the city as well.

But he added: If I really wanted to be rich, I wouldn’t have bought a bar in downtown Detroit 25 years ago.

Alternative sources of impact
Prof. Donald Holecek, director of the Michigan State University Travel, Tourism, and Recreation Resource Center, who has studied casinos extensively including those in Detroit, said there may be an anecdotal connection between sports and casino economics, because they both fall in the entertainment sector. He called casinos one of the only bright spots in development in Detroit.

He explained Detroit’s casinos were privately financed, and pay a higher tax rate to the city. The three casinos combined have paid nearly a billion dollars in taxes to the city since opening. He cautioned, though, the casinos have not brought the ancillary development that was hoped, mostly because there is no casino district. That would encourage foot traffic between the facilities.

He suggested the casinos could work with the new and existing sports venues to create that traffic, encourage staying in the city for longer periods of time, with overnight stays being the key in having a significant impact on the community.

If there’s nothing for people to spend their money on beyond sports venues, he said, [tourists] will be in and out.

He also suggested casinos could be used year-round, and the stadiums could be better utilized if they could bring in more events outside of the regular season.

Beachnau from Detroit Sports said the city’s professional sports teams, who play in the stadiums and are the reason for their existence, bring tourism dollars to Michigan and the metro area from outside the area and state. Anything from a little league baseball tournament to the ice dancing shows to college basketball’s Final Four use the cities stadiums and bring visitors from outside the metro area.

Without the facilities there is no sports tourism, he said.

He said sports tourism was an $8 billion dollar a year industry nationally, and estimated sports tourism in Metro Detroit ranges from $10 to $70 million dollars a year in visitor spending, with about $9 million dollars in visitor spending for 2012. He is excited about the possibility of a new stadium downtown.

It opens up opportunities for different events, he said.

Detroit Pistons President and CEO Dennis Mannion suggested sports teams and facilities had other equally important but harder to quantify benefits to a community.

He said the Palace of Auburn Hills, where the Pistons play, has become a hub for massive business development opportunities, and compared the venue to the once a year Mackinac Policy conference every night.

Business is happening right in front of your face, Mannion said.

Everyone’s dipping their toe into the relationship business, Mannion said, and noted the Pistons are at the head of the curve. These venues must create lifestyle opportunities… I think it will become common practice.

Another factor that teams can lend to a community is their branding power. Because of their social cache, teams can lend their brand to a charity or use it to drive business to a local retailer. For example, a team can lend its brand to a local charity, a breast cancer marathon for example, and receive not only good publicity for the sports team, but increased traffic to the charity.

Teams may also rent their assets to local businesses to drive traffic to that business. Mannion said this was becoming increasingly quantifiable because technology, especially social media, is beginning to be able to measure this.

That leaves one more question: Do the Pistons have any intention of moving downtown?

We have a long term relationship with the surrounding community, Mannion said, and we’re pretty excited about this building [The Palace]. But we never close the door.