Nobody Won the Economic World Series
The Kansas City Royals are world champions, after defeating the New York Mets in Game 5 of the World Series in 12 innings Sunday night. But some might have you believe that there's reason for residents of both cities to celebrate, at least from a financial standpoint.
Yes, it's the old claim that big sporting events have big economic impacts on their host cities -- repeated and cited by people as though it's accepted fact. Study after study by sports economists continue to debunk these claims, yet every year we're inundated with ambitious estimates designed to make us go "wow" and justify the subsidies and tax exemptions given to teams for the stadiums that might ultimately host these events.
This year's ambitious estimates for the World Series take into account the vastly different cities in question. Jeff Pinkerton, a senior researcher at the Mid-America Regional Council, estimated that each Royals home game would result in a $6 million boost in economic activity in Kansas City. The New York City Economic Development Corporation touted that each Mets home game would generate $11.6 million.
We are supposed to accept our civic investment in sports as prudent, not political, but this narrative belies the reality. It's not so much that the numbers themselves are necessarily inaccurate; they're just largely meaningless. The World Series undoubtedly generates revenue, between ticket sales and tourism. But there's a world of space between dollars spent on people attending these games and stimulating "growth in the local economy" in the form of jobs and expanded city coffers.
First of all, $6 million or $11.6 million might sound like great successes, but put into context of the cities' overall economies, the impact "is essentially statistical noise," in the words of sports economist David Berri. In 2014, Kansas City had a gross domestic product of $121.6 billion (including Kansas City, Kansas), while the New York metro area had a GDP of nearly $1.6 trillion. The total economic impact of the two Royals home games ($12 million) is 0.0099 percent of the city's GDP. The total economic impact of the three Mets home games ($34.8 million) is 0.0021 percent of the area's GDP.
And that assumes those impact estimates are accurate, which is dubious at best. "The Economic Impact of Postseason Play in Professional Sports," a 2002 study by sports economists Dennis Coates and Brad R. Humphreys, is one of the widest-ranging such studies, examining the economic effect of playoff games in cities from 1969 to 1997. "Postseason appearances are not associated with any change in the level of real per capita income," the authors write. There is a slight gain in per capita personal income of $140 in the Super Bowl-winning city, which Coates and Humphreys explain could be due to increased productivity of victorious fans. But this isn't an effect of actually hosting the Super Bowl, and the authors stress that no similarly stimulating effect on productivity results from the World Series.
What about increased tourist dollars? New York accounted for an influx of 30,000 out-of-towners in its analysis. But as Humphreys wrote in an e-mail, "These reports simply overstate the actual economic benefits." The key here is displacement, both of people and of dollars. "Those 30,000 visitors to NYC are crowding out 30,000 other visitors," Humphreys wrote.
Furthermore, as Coates notes, a perpetual tourist destination like New York doesn't actually need the World Series to boost those figures: "It is hard to imagine that the visitors to NY who are there ONLY because of the Mets' games constitute any meaningful proportion of the total visitors NY gets." On the other hand, a lower-profile city like Kansas City might experience some increase in tourism solely due to the Royals, but that "is still likely to be imperceptible" according to Coates.
Then there's the displacement of dollars. Economic impact estimates and articles like this one account for increased spending on things like ticket sales, merchandise, hotels, restaurants, bars, etc. But they're based on the assumption that those dollars wouldn't have been spent elsewhere. Money spent on one form of entertainment -- in this case, a World Series game -- is money that would have been spent on another, and is now being diverted to sports. Non-baseball-related businesses often report a loss in revenue when the World Series is in town. I know individual bar owners and servers who would tell you that they relish the boom in their business when the local team is in the championship, and that's certainly great for them, but it has no bearing on the city's broader financial picture. Coates summed it up nicely: "Because of the playoff and WS games, people buy KC Royals clothing and go to bars. Apparently people in KC go naked and do not eat or drink if the Royals are not in the playoffs."
Finally, there's also the issue of the greater cost to the city of actually hosting these events -- let alone winning. Heightened police presence, increased mass transit, street closures, cleanup after celebrations -- all covered by public resources. Teams often take on the cost of throwing the victory parade itself, but the city is still on the hook for security and cleanup. There are also indirect costs from the students and workers who play hooky to attend these parades. San Francisco's local ABC affiliate reported last year that the 3,500 absent students cost the city's school district $140,000 in state funding.
None of this is to say that fans shouldn't feel civic pride when their team wins a title, or that the lack of economic impact of making it to the World Series means it's not worthwhile. But don't believe that in addition to boosting your city's morale, it also boosts your city's economy. That's the sort of thinking that results in things like the 2006 countywide sales tax and state tax credit that contributed $225 million to renovating the Royals' Kauffman Stadium. Let's wait for them to put down the trophy to decide, not as fans but as taxpayers, if it was worth it.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
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