Today FieldOfSchemes pointed out a recent study of the economic impact of NBA arenas on cities. I read through the recently publicized Geoffery Propheter study of basketball arenas and correlations with the economy of the cities they’re built in. If you’re at a really nice library system this link will take you to the full text, which is pretty clear and reads better than any summaries I’ve seen. It’s also worth noting that there is an error in the conclusions section related to which periods are being referred to which I’ve eliminated from the quotes (and supplemented with the “new franchise” numbers reported in the paper).
The Propheter study “Are Basketball Areanas Catalysts of Economic Development?” worked to expand and improve upon some earlier studies of economic impacts (Baade and Coates are common enough). Propheter desired to account for arena locations being downtown or in rural areas, account for NBA only or NBA+NHL usage, and separate the NBA arena factors from the MLB stadia that dominated earlier studies. Propheter develops models to examine three main questions :
- is there an economic impact from basketball arenas with these rural/NHL factors added in, from 1979-2009 ?
- does the arrival of a new basketball arena or franchise, from 1995-2009, have broad economic impact if the city has no other professional sports teams AKA “novelty effect” ?
- is there an economic impact from basketball arenas during specific timeframes that may differ depending on the overall national economy at differing times (1988-1994, 1995-2000, and 2001-2009) ?
FYI – Seattle, Tacoma, and Bellevue are joined as a Metropolitan Statistical Area (MSA)
1 – Propheter’s model agrees with earlier studies which found a 0.7% decrease in the local economy from 1979-2009 built arenas, but the impact is not statistically significant
After controlling for subregional economic strength, I found that arenas built in basketball-only cities during 1995–2009 … had positive impacts on real MSA per capita income. More precisely, the addition of an arena [or entirely new franchise] increased per capita income by about $600 and [$1,471], respectively. In multisport cities during the same period, no statistical conclusion could be drawn about arenas’ impacts.
Basketball-only cities benefit pretty well, particularly with a new franchise. The novelty factor is big enough at $600 for the arena or $1,471 if it’s a new franchise to the area. The Hornets and then the Sonics/Thunder were a huge draw compared to OKC tractor pulls at the Ford Center. In cities with other established professional sports there is no statistical correlation with per capita income. The “novelty effect” does not apply to cities with established NFL and MLB franchises.
After controlling for differences in SMA economic strength, an arena [built in 1995-2000] leads to an increase of 4.8% in real per capita income, or $1,438 as estimated at the mean.
After controlling for economic strength, the impact of an arena [built in 2001-2009] is negative and is significant at the 96% level; each facility is associated with a real per capita income decline of $2,430. … Contrary to previous research, then, newer and more expensive facilities with greater amenities do not boost regional economic development. Unfortunately, there are not enough observations to test if the newest facilities’ negative impact varies across single-sport and multiple-sport cities.
The financing of arenas has changed over time. The period from 1988-1994 (Chicago Bulls domination?) showed no effect in local economies. From 1995-2000 the arenas correlate to a positive boost to the local economies of around $1,438 per capita. The latest financing models and costs for arenas built during 2001-2009 correlate with a decline in per capita income of $2,430. As there aren’t enough data points to make conclusions about multi-sport cities we can surmise that (based on the findings of question 2) the $2,430 loss would be an aggregate of more than $2,430 lost in multi-sport cities (like Seattle) and less than $2,430 lost in cities where pro sports has a novelty factor.
In general, my findings support the conclusion that context is important for understanding the economic impact of sports facilities. However, the context that is important is not facility-dependent but rather city dependent. The pre-existing economic strength and sports infrastructure are key predictors of the success of basketball arenas. Basketball arenas are not primary catalysts of economic development but are instead economic complements. The present research is generally consistent with the notion that professional sports are not the cause of development so much as they are the effect.
So, newer basketball arenas are an unsure investment in a local economy. If a place has no other professional teams (and Propheter used MLB, NFL, NBA, and NHL as the criteria for professional teams… sorry MLS) then this paper suggests citizens might see a positive economic benefit. Of course Seattle has both the Seahawks and Mariners and Sounders already well established in the SoDo area so “novelty” is lost. The past decade of arena deals has indicated a negative economic impact of $2,430 per capita.