Thursday, October 13, 2011

Does the NBA Lockout Hurt the Portland Economy?

Recently, The Oregonian ran an article about the potential economic damage to the area economy if the NBA season were delayed or cancelled.  Since they have already cancelled the first part of the season it is worth thinking carefully about how big an impact it will have.

From Joe Freeman's article in The Oregonian:

"The value of the Blazers team to this community is measured in the millions," said Drew Mahalic, CEO of the Oregon Sports Authority. "Their absence will, quite frankly, be devastating to the Portland regional community in that it impacts so many different businesses when they play."

A lot of the revenue generated from Blazers games -- gate receipts, parking dollars, food and concession funds -- pads the wallet of billionaire owner Paul Allen and helps pay for the multimillion-dollar operation of running the team.

But Blazers home games also funnel money throughout the community. TriMet ridership increases on game nights. Business booms at local restaurants and bars. Hotels house visiting NBA teams.

Also, to help host a Blazers game, the Rose Garden contracts with up to four vendors, including Ovations Food Services, which oversees the food and beverage operations for the Rose Quarter and employs 900 people every game night.

The specific examples are all relevant but let's think through the overall claim that the impact will be huge. The key to thinking about this is to do a little off-the-cuff aggregate demand (AD) analysis - will the absence of the Blazers be a big hit to the area economy's AD?  It is here that we have to think about where AD comes from: the total income in the economy which is, of course, governed by the value of the total output. Yes the Blazers do produce something of real economic value - a game's worth of entertainment has value just as a hamburger does or some other tangible consumption good - but is it really a significant part of the local economy?

The evidence suggests that it is not. Here is a nice synopsis from Neil deMause at Slate:

...Robert Baade, Robert Baumann, and Victor Matheson tried a different tack. That trio of economists zeroed in on the state of Florida, looking at how sales tax receipts changed during every MLB, NFL, NBA, and NHL labor stoppage since 1982. Baade, a Lake Forest College professor who's spent the better part of three decades studying the impact of pro sports teams, explains that they picked Florida because it reports sales tax data on a monthly basis. "You're really looking for a needle in a haystack," he says of trying to divine economic effects on a whole city from a single sports team's absence. "But if you're looking at something like tax revenues, you're reducing the size of the haystack."

The new study delivered the same results as [an] earlier one: When leagues shut down, sales tax receipts keep chugging along. In Miami, the disappearance of the Heat during the 1998-99 NBA lockout showed an extremely weak 0.00987 correlation with sales tax figures; the 2004-05 lockout of the Florida Panthers has an even slighter effect, at 0.00739. And almost as often, the direction of the signs ran the opposite way: The 1994-95 NHL lockout had a negative correlation of 0.00353 with sales taxes—if anything, people in Miami appeared to be spending more as a result of the Panthers being on the shelf.

"If professional sports have a positive impact on a region’s economy, then one should expect a consistent pattern of increasing taxable sales following franchise expansions and the construction of new stadiums and a pattern of decreasing taxable sales ratios during periods of labor disruptions," the three economists reasoned. Instead, "no statistically significant effect on taxable sales is found from the sudden absence of professional sports due to strikes and lockouts."

Why is there such a negligible effect? The key is to imagine what people do in the absence of a Blazers game - do they stuff their money in their mattresses or do they find other things to spend their money on?  And, if they don't spend on the Blazers - where a not insignificant portion of their money goes out of the local economy (into the coffers of Vulcan and the paychecks of visiting team players and coaches, etc.) - do they spend it on things that represent fewer of these leakages (like local restaurants, for example)? The research suggests that to a large degree people shift their spending to other things and that to the extent that they don't the counter-leakage effect compensates.

Now, of course, there are specific businesses that are pretty dependent on the Blazers, sports bars and restaurants within a short walk of the Rose Garden, that will take a significant hit, but the overall effect to the Portland metro economy is likely to be minimal.

Still, the whole thing sucks and I want the Blazers back!  And, while we are on the Blazers, am I missing something or has there not been a peep about Greg Oden?  I'd like to know how his rehab is going.  If the season started on time, would he have been ready to go?

1 comment:

BJCefola said...

One caveat to the aggregate demand story- the Trailblazers fan base is not homogenous. If Washington residents stay in Washington then Oregon would still see a net loss (and Washington would see a net gain).