Monday, January 25, 2010

Colts Playoffs Run Gives Local Economy A Lift? Well Maybe Not

The Indianapolis Business Journal today reports on the "kick" the Colts playoff success is giving the local economy:
The economic impact from the Indianapolis Colts hosting two playoff games is still being tabulated. But it's a moving target, because merchandise sales are just heating up.

The Colts’ shop at Lucas Oil Stadium sold out of thousands of AFC championship T-shirts and caps within hours of the end of the AFC Championship game against the New York Jets. Those shirts sold for $24 and caps for $30. Sales were so strong, the stadium shop stayed open until 11 p.m., about five hours after the game ended.

Indianapolis-based MainGate Inc., which manages the Colts’ retail stores and online sales initiative, said sales are even stronger than expected.

MainGate had personnel stay at the stadium pro shop overnight, and a new shipment of championship hats and shirts were received at 3 a.m., company officials said.

“People were just so excited, they were buying anything Colts,” MainGate CEO Dave Moroknek said. MainGate opened up the stadium shop at 6 a.m. this morning, and Moroknek said sales are strong again today. He expects by tomorrow to have a supply of 25 AFC championship items shipped to the Colts stores at the stadium, Circle Centre mall and Castleton and Greenwood malls.

Officials for MainGate, who took over retail operations for the Colts three years ago, after the team's appearance in the 2007 Super Bowl, expect sales of team items leading up to this year's Super Bowl to be more than 10 percent higher than they were in 2007.

“We have more retail outlets than the team did last time, and we feel we bring a certain know-how to the sales process,” Moroknek said. “And I think this shows that there’s an optimism that the economy is coming back. We expect a very, very strong two weeks of sales leading up to the Super Bowl.”

Downtown hotel operators have already seen the benefit of the team's run in the playoffs. According to the Indianapolis Convention & Visitors Association, every hotel room downtown was booked the last two Saturday nights. Most downtown hotels were also over 85 percent occupancy each of the last two Friday nights.

While the ICVA hasn’t done an economic impact study on Colts playoff games, several sports business experts pegged direct spending from the last two weekends combined at $50 million. That includes restaurants, retail and travel expenses in addition to hotel charges.

Those "business experts" are certainly not economists who would know better. The $50 million spending figure undoubtedly fails to subtract out local spending which most economists generally do not include in an analysis of the economic impact of professional sports. The reason why is that most people attending professional sports games are local. These are people who are just moving their discretionary spending from one venue to another. There is no net gain of discretionary spending for the metro area. In the case of Indianapolis, the Colts' success means money moved from the suburbs, where many Colts fans live, to downtown Indianapolis.

Sports economist Brad Humphreys, a professor the University of Illinois at Urbana-Champaign, scoffs at the ridiculous figures thrown out by supposed "business experts":
“The wonder is that anyone finds such figures credible,” Humphreys said. “Yet decade after decade, cities throughout the country have struggled to attract or keep professional sports teams, and the idea that a team brings with it large economic gains invariably arises. As it turns out, claims of large tangible economic benefits do not withstand scrutiny.”

That’s because such impact studies often are based on skewed data. For instance, when citing multipliers – the ripple effect that each dollar spent on professional supports is projected to have on the community’s wider economy – impact studies often overstate such contributions and fail to differentiate between net and gross spending. And, Humphreys added, such studies typically don’t consider what economists call the “substitution effect.”

“As sport- and stadium-related activities increase, other spending declines because people substitute spending on sports for other spending,” Humphreys said. “If the stadium simply displaces dollar-for-dollar spending that would have occurred otherwise, there are no net benefits generated.”
Then you have the "crowding out" effect - that many people avoid the downtown area on days of game, costing many some companies business. You also have the issue of "leakages," that many of the people who own the downtown businesses are not local and the profits they make leave the city.

While the "business experts" continue to throw out big numbers suggesting a wonderful return on the millions extracted from taxpayers in taxes, please keep in mind that that an Economics 101 student could easily shred the legitimacy of the claim.


Citizen Kane said...

Frankly, the way a lot of economics is taught, it is not surprising that most people have no clue. But if anyone would just apply common sense, they would easily understand these issues. However, most of them do not want to understand, they just want their Colts!

Downtown Indy said...

And of course their numbers come from an array of assumptions about exactly how many people are in town, and a guess at what 1 person spends multiplied by that. So it's one guess times another guess times another guess == some big wild ass guesstimate that gets repeated as the gospel truth.

Still, it all pales next to what Irsay is raking in.

guy77money said...

After the Colt's and the NFL's take it doesn't leave a whole lot of money left. The only plus is it generates more sale tax for downtown. Now I suspect with all that tax revenue the CIB won't go broke ;)

Cato said...

And that Economics undergraduate would quickly be told by the Indy power elite: "If you don't like it here, why dont you just leave?"

Jon said...

In today's Star (Let It Out) a reader complains that people need to stop complaining about "paying" for the Colts citing the amount of money and positive influence the team provides the city. Unfortunately the numbers provided and the sources that provide those numbers touting the economic benefits of professional sports team are often biased and usually specious.
I just can't wait to see the spin doctors explaining the cost for the 2012 Super Bowl and how those expenses are going to make Indy a better city.

Mann Law, P.C. said...

I tried booking a room through a contact at the Hyatt 2 weeks ago and was told that the hotel was already booked for cheerleading contest in town not the Colts. I also knew someone who worked at Spaghetti factory who said many wait staff were sent home on Colts game days because people did not want to come downtown and fight the traffic.