Inside the Sports Subsidy Industrial Complex

Phony numbers, huge conflicts of interest, and bad journalism.

Photo credit: Bridget Samuels

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On May 16, voters in Tempe, Arizona, will cast ballots on whether to not to deliver a new, publicly-funded arena to the long lamented Arizona Coyotes, a sad-sack National Hockey League franchise. The Coyotes have had a tortured existence ever since the team relocated to Arizona from Winnipeg in 1996. They’ve gone through several owners, a takeover by the league itself, and many fruitless efforts to have a new arena paid for by taxpayers.

This has been such an ongoing saga that you can read a feature article I wrote about the Coyotes asking for a stadium subsidy that is literally more than a decade old. The team is also constantly the source of relocation rumors. The latest has it going to Atlanta, Georgia (because that city has such a stellar record with NHL teams, having hosted and lost two already).

The Coyotes wound up asking Tempe for money this time because, in 2015, lawmakers in Glendale, the team’s previous Arizona home, finally said thanks but no thanks to spending any more money after years of footing its bills. The Coyotes currently play in a college hockey arena while they wait on the Tempe vote, which would provide them with about $500 million in tax breaks and another $250 million or so in diverted taxes that would be plowed back into a new entertainment district that will supposedly be built around the arena.

In an attempt to swing the ballot referendum their way, the team and its boosters are wielding economic impact studies to claim that that the Coyotes new arena and connected district will bring in far more money than the dollars that will be shipped out in tax breaks.

This is an incredibly common practice during sports subsidy battles: Trot out an official study that makes it seem like no one can lose when the public pays for a sports arena.

However, the dirty secret is that those studies are nearly always ridiculous, put together by consulting firms with huge conflicts of interest that fly all over the country adding fluffy economic impact numbers to potential stadium projects that have no basis in reality.

The good news is that, this time, in Arizona, other experts are calling out the nonsense, providing an in-real-time example of how the stadium scam operates.

The official line trotted out by the Coyotes is that the new arena and entertainment district will generate more than $154 million in new revenue for the city over the next several decades. That number comes from a report by Conventions, Sports, and Leisure International, known as CSL, a firm that consistently provides economic impact analyses with giant whopping errors in them, as Neil DeMause detailed here. The city of Tempe itself also commissioned a study that showed broadly similar numbers.

However, an independent study from the Grand Canyon Institute, an Arizona think tank, shows those figures to be bunk. “The study paid for by the city and the study the developer’s consultant provided which show net gains for the city rely on highly speculative, fairly arbitrary numbers to evaluate the entire project, rather than focusing on new spending drawn to Tempe as a consequence of events at the arena and music venue,” the study’s authors wrote.

The Grand Canyon Institute made the very good point that there are already major arenas in Phoenix and Glendale, Arizona, so the idea that a third arena will cause a significant economic impact is highly questionable, because there are only so many big events to go around. Even if the new arena ends up pulling in new events, they’ll likely be cannibalized from those other nearby venues, leaving the greater area and the state no better off.

Also, spending at the new arena will largely displace entertainment spending that already occurs in Tempe, because its not like people there currently just sit at home all the time waiting for a hockey game or a concert in a potential new arena; they go to the movies, go out to eat, do a host of other things. So the arena’s gain will be the movie theater or the restauranteur’s loss, leaving the wider community no better off, but simply shuffling around existing dollars. Failing to adequately account for this “substitution effect” as its known, is a staple of nonsense economic impact analyses.

“This result is consistent with a myriad of other economic studies which have found that professional sport team stadium or arena subsidies have low pay-off rates,” the Grand Canyon Institute study said.

Indeed, there’s a wide consensus among those who have looked into it that stadium subsidies don’t pay off for the public on any economic metric that’s meaningful to a community. As three economists who surveyed 130 studies on stadium subsidies over three decades found in a paper released last year, “welfare improvements from hosting teams tend to fall well short of covering public outlays.”

But that’s not the end of it. The CSL study specifically says that Tempe can expect a large influx in hotel revenue due to people coming and staying in the new entertainment district. But economist Frank Stephenson looked at those numbers and, again, said they were wildly optimistic, and that the expected revenue increase would be so small as to be utterly insignificant in an economy as large as a metro area.

“Having done several similar analyses, it’s not surprising that economic impact reports rely on unrealistically large assumptions. It’s pretty much par for the course,” Stephenson told The Center Square.

And that’s the crux of it: Stadium boosters always trot out these outlandish economic impact studies to justify taxpayer investments that never pay off. And in the case of CSL, there’s a huge conflict of interest at play.

CSL is actually part of a venture owned by the owners of the Dallas Cowboys and New York Yankees, Legends Hospitality, which acquired CSL in 2011. Obviously, owners of two iconic sports franchises have a very distinct interest in promoting new and bigger stadium subsidies across the country, as those deals drive up the value of franchises for all owners and set new, higher precedents for when owners come asking for their own subsidy packages. Legends itself also handles concessions and merchandising at stadiums, so the construction of newer, larger, fancier facilities requiring new contracts is also in its interest.

It’s like a sports subsidy industrial complex: Franchise owners using their other business ventures to cook the books in favor of bigger deals that ultimately boost their own fortunes, but don’t serve the public at all.

Despite this, and its long record of blunders, CSL — and the host of other consulting firms just like it — gets treated as a disinterested party in the press that simply provides dispassionate analysis on stadiums. This is reflective of a broader problem in local journalism, in which economic impact numbers that are clearly nonsense get repeated as if they are gospel. For example, recent claims that the NFL Draft would generate $100 million for the Kansas City metro area — which is laughably, patently absurd, and originated from a public tourism agency with every interest in making it seem like the events it hosts provide huge bounties for the public — were posted by press outlet after press outlet totally uncritically.

It’s very easy to blame local journalists for lazily repeating nonsense fed to them by corporate interests, but that they do so also reflects the fact that local news has been gutted, forcing skeleton staffs to crank out as much content as they can in less time and with fewer resources — so parroting a press release, particularly one that is ostensibly providing good news for the local area, becomes very tempting. That reality is one of the reasons saving local news from Big Tech and private equity looters is so important.

But back to the Coyotes and Tempe. In this case, it’s nice to see at least some pushback to the consultant economic impact nonsense, even if the glaring conflicts of interest involved aren’t part of the storyline. Come the May 16 election, we’ll know just how much voters bought what the Coyotes and their boosters were selling.

Though I don’t have anywhere near as large of a microphone, I’ll say this: Tempe voters can rest assured that rejecting the Coyotes will have no effect on the city’s bottom line. After all, Glendale is doing just fine without them.

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ANTI-MONOPOLY SUMMIT: One last reminder that you can come join me, my colleagues, and an amazing lineup of speakers at the Anti-Monopoly Summit 2023 on May 4, in Washington, D.C. You can check out the full agenda and register here. I’ll be leading a breakout session featuring Pennsylvania State Senator Katie Muth that you definitely don’t want to miss.

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— Pat Garofalo