Home Run or Wild Pitch?

Introduction Model 1: Employment Model 2: Taxable Sales Conclusions and Policy Implications

Home Run or Wild Pitch? Assessing the Economic Impact of Major League Baseball’s All-Star Game Robert Baade and Victor Matheson Kerry Tan

May 24, 2011

Economics 583: Economics of Sports

Home Run or Wild Pitch?


Background Information Economic Impact of the All-Star Game

Motivation

Major League Baseball (MLB) estimated an economic impact of $62 million from the 1999 All-Star Game on the Boston economy. MLB projected that the 2002 All-Star Game will generate an economic impact in excess of $70 million for the city of Milwaukee. Is it possible that a sporting event can have that much of a short-term impact?





Motivation MLB uses the promise of a future All-Star Game as an enticement for cities to build new baseball stadiums. "The National League has decided the All-Star Game should be played in new facilities, except in special circumstances." -Len Colemen, National League President

MLB believes that stadiums factor prominently into consumer decisions relating to leisure spending. MLB implies that public financial support for a new stadium is a good investment for a city. A single All-Star Game generates enough economic activity within the metropolitan area to compensate for a substantial portion of the cost of building a new stadium.





Purpose of the Paper

Baade and Matheson estimate the economic impact of All-Star Games from 1973 through 1997. Basic result: the economic impact of the All-Star Game on the host city could be negative and is much lower, on average, than the magnitude of the MLB estimate.





The All-Star Game

The All-Star Game began in 1933 as an event to showcase the most talented and most popular players in the league. MLB selects the host city several years in advance of the game. Allows potential visitors to plan for their attendance Allows the host city to make extensive preparations





The All-Star Game

The Super Bowl can only take place in a few select cities due to weather considerations. The All-Star Game takes place during a break in the middle of the baseball season. Nearly every city with a MLB team has hosted an All-Star Game.





The All-Star Game

The game has expanded to a 5-day event that includes a home-run hitting contest. The All-Star FanFest was set up as a type of baseball convention. sporting good vendors baseball memorabilia virtual reality games autograph sessions





Estimating the Economic Impact

Boston reported that about 110,000 people visited the FanFest and more than 225,000 attended some portion of the activities during the 5-day All-Star celebration. A reported 14,000 hotel rooms were used in Boston for the event. How did they calculate the economic impact of all these fans?





Estimating the Economic Impact The numbers quoted by MLB and city officials are generated using a standard expenditure approach to estimating the direct economic impact of the event. The numbers are derived by estimating the number of visitor days as a result of the game and multiplying that statistic by the average estimated per diem expenditures per visitor. The total economic impact is estimated by applying a multiplier. In order to get credible economic impact estimates, you need accurate estimates on direct expenditures.





Difficulty with Estimating the Economic Impact: Reallocation of Resources Spending in conjunction with the event would have occurred in the absence of it. Consideration would have to be given to the fact that spending on the event may well merely substitute for spending that would occur on something else in the local economy in the absence of the event. An event like the All-Star Game may simply yield a reallocation of leisure spending while leaving total spending unchanged.





Difficulty with Estimating the Economic Impact: Reallocation of Resources Spending at the All-Star Game is more likely to be categorized as export spending because it is thought to be undertaken by people from outside the community. 5% to 20% of fans at a regular season game are visitors from outside the local metropolitan area. The percentage of visitors at an event like an All-Star Game is thought to be much higher. So the question is how much of the spending was made by locals and how much was made by visitors?





Difficulty with Estimating the Economic Impact: Leakage

Leakages from the circular flow of spending can lead to biased predictions. If the host economy is at or very near full employment or if the work requires specialized skills, labor might have to be imported from outside the city. Indirect spending that constitutes the multiplier effect must be adjusted to reflect this leakage of income and subsequent spending.





Difficulty with Estimating the Economic Impact: Leakage Labor is not the only factor of production that might lead to leakages. Even if hotels experience higher than normal occupancy rates during the All-Star Game, then you have to worry about whether that revenue goes back into the local hotel or if it gets redistributed to the national chain. Are the profits being made staying within the community or going back to the nationally owned chain? Need to adjust the multiplier effect to take this into consideration.




Model Results

Model 1: Changes in Employment

The economic activity generated by the All-Star Game is likely to be small relative to the overall economy. Need to isolate the event’s impact. Baade and Matheson establish what employment would have been in the absence of the All-Star Game. Compare this estimate to actual employment levels to assess the contribution of the event.




Model Results

Method: Difference-in-Difference Approach

Create a statistic for a city in a particular year. Find "comparable" cities to the host city Compute the average employment growth for those cities Compute the employment growth for the host city Look at the difference between the growth rates

The key thing to do is to make sure you control for variables that affect all cities in similar ways.




Model Results

Method: Difference-in-Difference Approach Suppose that a particular city’s growth in employment is 10%. If cities in general are growing at 5%, then you can say that the city deviates from the norm by 5%.

Take a look at how much that the city deviation can be attributed to the All-Star Game. If the city experiences a growth in employment that is 5% above the average before and after the All-Star Game, then the All-Star Game has no effect on employment. If there is an increase or decrease in employment before and after the event, then the All-Star Game had an effect.




Model Results

Regression Model

Baade and Matheson run a regression model using percent change in employment in the MSA as the dependent variable. MSA stands for metropolitan statistical area The regression model is used to predict the growth path for employment. This predicted value is compared to the actual growth in employment.




Model Results

Regression Model




Model Results

More on MSAs

MSA is broader than city. The actual city of Los Angeles might not actually be that big. A lot of people live in the suburbs outside of the actual city limits. These residents still impact the city’s economy. Economists typically use data on MSA over city to get a more complete perspective.




Model Results

Data

Baade and Matheson examined the economic impact of 23 All-Star Games between 1973 and 1997. The All-Star Games of 1982 and 1991 were excluded from the analysis. They were held in Canadian cities (Montreal and Toronto). No data were available.




Model Results

The Effect of the All Star Game on Cleveland

Cleveland hosted the All-Star Game in 1981 and 1997. The results show that, generally speaking, employment in Cleveland has grown more slowly than in 57 comparable cities. Surprisingly, employment in Cleveland grew more slowly than expected in 1981 and 1997.




Model Results

The Effect of the All Star Game on Cleveland




Model Results

The Effect of the All Star Game on Cleveland The key statistic to Baade and Matheson’s model is the difference between the actual and predicted growth in jobs for the city hosting the All-Star Game. According to the Economic Report of the President in 1997, the U.S. economy produced roughly one job for every $60,000 in economic activity. MLB predicted that the economic impact for the Cleveland All-Star Game was $60 million. The All-Star Game should produce roughly 1,000 new jobs in Cleveland due to the All-Star Game. Baade and Matheson computed that 783 jobs were created.




Model Results

General Results




Model Results

General Results

On average, the model predicted an increase in employment in host cities by 2.11% during All-Star Game years while the observed gains in employment averaged just 1.73% Baade and Matheson reject the idea that the All-Star Game contributed to a net gain of at least 1,000 jobs. The authors conclude that the net impact of $60 million is likely to be very generous.




Model Results

Changes in Taxable Sales

Another thing to look at is taxable sales. If the All-Star Game significantly increases economic activity in the host city, then the host city’s taxable sales as a percentage of taxable sales in the rest of the state should increase. By comparing the city/rest-of-state ratio in an All-Star Game time period to other time periods, an increase in taxable sales can be inferred.




Model Results

Changes in Taxable Sales

Baade and Matheson calculate the ratio of a host city’s taxable sales to the taxable sales of the rest of the state in which the city resides. The key thing to do is isolate which factors are common to the economy as a whole and which factors are specific to the city being studied.




Model Results

Things to Be Careful About

Lagged growth rates If the economy of a city is growing at a faster rate than the state’s economy, then the taxable sales ratio will grow over time.

Seasonal variation Taxable sales in warm weather, vacation destination cities tend to increase as compared to other cities during the winter.




Model Results

Regression Model




Model Results

Effect of the All-Star Game on Taxable Sales There are three possible explanations for the effect of the All-Star Game on taxable sales: 1 No effect: the congestion caused by the All-Star Game displaces local residents and other tourists who would otherwise visit the city The All-Star Game visitors supplant rather than supplement tourism in the host cities. 2

Decrease taxable sales: More local residents or regular visitors attempt to avoid the congestion than there are visitors to the All-Star Game

3

Increase taxable sales: The All-Star Game stimulates an increase in tourism that supplements the normal level of tourism to the host city. Economics 583: Economics of Sports



Model Results

Data

County-by-county quarterly taxable sales data form California Examine three separate games in three different cities: 1992 All-Star Game: San Diego (San Diego County) 1989 All-Star Game: Anaheim (Orange County) 1987 All-Star Game: Oakland (Alameda County)




Model Results

Why California??? California is home to several MLB teams This data set can be used to examine the economic impact of several All-Star Games in the recent past.

Sales tax data are readily available from 1986 to 2000 This is a longer time period than what’s available form other states.

California provides quarterly tax data in addition to annual data. Quarterly data is more useful in this setting in order to more accurately pinpoint the impact of the All-Star Game. Annual data would obscure the impact of the All-Star Game with other events.




Model Results

General Results In each of the three cities, the All-Star Game emerged as having a negative (but statistically insignificant) impact on taxable sales in the county in which the All-Star Game was held. On average, the presence of the All-Star Game correlated to a 0.048% drop in the percentage of California’s taxable sales accounted for by the host city. Taxable sales dropped between $28.5 million to $29 million in Oakland. Taxable sales dropped between $22.5 million to $38.2 million in Anaheim. Taxable sales dropped between $21.5 million to $29.9 million in San Diego. Economics 583: Economics of Sports



Model Results

General Results




Model Results

Implications of Model 2

Taxable sales dropped for all three host cities. One can argue that spending by All-Star visitors simply crowds out other spending that would have taken place in the absence of the game. What’s the bottom line? At best, the All-Star Games lead to little or no net economic benefit to the host city. At worst, hosting the All-Star Game may lead to lower economic activity than a city would normally expect during the summer.




Model Results

MLB’s Rebuttal

MLB would likely argue that other economic factors caused the drop in taxable sales. The drop would have been worse if not for the presence of the All-Star Game.

Economic activity has increased but is simply not reflected in taxable sales. Hotel rooms are subject to a special hotel tax, which is not included in sales tax. Perhaps a better measure would be to look at how revenue from the hotel tax changed before and after the All-Star Game.




Conclusions MLB has used the promise of hosting an All-Star Game as an incentive for cities to construct new stadiums at considerable public expense. Recent MLB studies have estimated that All-Star Games increase economic activity by about $60 million in host cities. Regression analysis reveals that All-Star Game cities had employment growth below that which would have been expected. An examination of taxable sales data from California reveals that taxable sales in host cities have on average fallen nearly $30 million below what would have been normally expected. Economics 583: Economics of Sports



Policy Implications

Cities would be wise to view the All-Star Game economic impact estimates by the MLB with caution. MLB economic impact estimates overstate the actual economic effect. Instead of being an economic "home run," hosting the All-Star Game is an economic "wild pitch."

