EconBuff #44 with Cristian Sepulveda
Dr. Cristian Sepulveda talks with me about how sports teams impact their local economies. Dr. Sepulveda lays out why cities agree to fund stadiums to attract sports despite the consensus of the economic literature on the subject. .Dr. Sepulveda walks us through cost benefit analysis and how it applies to local development from sports teams and stadiums. Dr. Sepulveda introduces two key ideas in understanding “hidden costs” of sports teams to their local economies, leakages and substitution effects. Dr. Sepulveda addresses the role of player income and owner profits on their local economy, arguing that most of their income does not stay in the local economy. We discuss the multiplier effect, both how it effects the eventual impact of a team on its city, and what the empirical evidence suggests the multiplier effect is in practice. Dr. Sepulveda evaluates the impact of sports teams on job creation and destruction, as well as the type, and quality, of jobs in the local economy. Finally, Dr. Sepulveda discusses his estimates of the total effects of an “average” team on their local economy in each of the four major North American sport leagues.
Photo by Derek Story on Unsplash
Transcript
Stitzel: Hello and welcome to the EconBuff Podcast. I'm your host, Lee Stitzel. With me today is Dr. Cristian Sepulveda of Farmingdale State in New York. Cristian thanks for joining us.
Sepulveda: Thank you very much for inviting me.
Stitzel: So, our topic today is the economic impact of the average sports team on its local economy. Cristian is a public finance expert. So, he's coming on graciously to talk about some sports topics with me, your resident sports economist. So, what happened here is Cristian wrote an excellent paper that's in the working paper stage. And on this side, some of my some of my colleagues they forwarded the paper on to me. I was very impressed with the paper, Cristian. Excellent paper. So, I want to get that out there. It's one of those things that's nice is, you know, when you got work that stands on its own and --- you know, I've never met you before --- I saw this paper come along, [and I was] very impressed with the paper. And so, we, kind of, got this different approach, which you talk about a little bit in the paper, which is maybe how a sports economist like me would think about how do we look at the impact of sports teams, stadiums, and big events on their local economy. And then, maybe how a public finance expert like yourself might look at that. So, that's our broad topic today. And I want you to start us off with this question which is: why is it that cities fund stadiums if the economic literature seems to suggest that they're not a very good deal for the cities themselves?
Sepulveda: Well first, thank you so much for the kind introduction. There are so many reasons to fund stadiums. There are some obvious reasons like people like sports. Politicians bring teams to the city. For that reason, [they] become more popular. So, it's good news to bring a team to the city. It actually helps the city in many ways. It gives the city some more a better branding, maybe, a sense of self-esteem of the community, [and] a sense of community pride, and which are good things. And it is also believed that the team, the professional teams in this case---that's the main topic of my paper---are going to bring businesses. And actually, when you see all people in the stadium, you believe that they (all those people) are coming this is a very successful business. And that looks to people like a like a very good thing for the city as a whole, which is unfortunately not necessarily true. And it's not necessarily true, meaning that the presence of so many people in the stadium actually hurt other local businesses in ways that are not very easy to see. So, there are some kind of hidden costs in hosting a professional team. For instance, we talk a lot about the substitution effect in the literature, [and] is something that has been discussed for decades. So, it's nothing new in the economics literature. And the substitution effect is about creating this new business in the city, basically bringing a team that provides a new entertaining service. More people, a lot of people, go to a stadium [and] that is good. But people that go to the stadium are choosing not to go anymore to local restaurants, to look at movie theaters, to look at malls and other places inside the city. And that's what we call the substitution effect. So, the presence of a new team---the city actually takes away businesses from other local businesses. That is very well known. But the interesting thing here is that it is so difficult to observe.
Stitzel: Hmm mmm.
Sepulveda: And you're having, on one hand, that the stadium looks (it's) big [and] it's very easy to see. People attending the game is very easy to see [and] is actually very exciting for everybody. But the person that is not going to the local restaurant, that is instead in the stadium, that is not visible. You cannot see somebody not going to a restaurant. So, if people for some reason don't go to certain restaurants in the city, and somebody lose some waiter or waitress loses a job because of the reason, [then] you are not never going to see or never going to actually link that person losing that job with the team. So, the truth is that some of the costs of the presence of the team are hidden.
Stitzel: So, you're setting this up really well. But you actually, kind of, anticipated one of my eventual questions, right, which is: one of the ways that I approach this question of, you know, should we have a team? Should we, you know, fund a stadium? What should the local, right, what should the local government be doing in terms of this intervention into the economy? You know, as I usually kind of give that context---which we've only hinted at here, and I think is one of the things we'll build out a lot is, you, know when you start doing empirical research (which has the fundamental problem that you've talked about) and, sort of, these hidden costs which is a big topic for us today---the research that's been done in that area tends to, you know, sort of, show no or negative effect. Well, I'll ask your opinion on that here in a second.
Sepulveda: Hmm mmm.
Stitzel: But that doesn't necessarily mean we don't want to do that because of, you know, what I would call, like, an amenity effect, right? People want to live in big cities with sports teams and symphonies and large parks, which if you do an economic impact analysis, it's not going to look like a good deal. You know, but there's this utility. There’s this welfare that we're getting as a city. Is that something you touch on in the paper? Do you have anything that you would add to that particular part of the conversation?
Sepulveda: Yes, absolutely. Well, the approach I follow in the paper is of course a benefit approach. The idea is to with the cost benefit analysis in general is to try to identify all the benefits and all the costs associated with what in general cost analysis about public projects, right? So, I followed this approach, even though the stadiums themselves might not have different dimensions. You can see it as a public investment from the perspective of the local economy. But it's also a private business from the perspective of the team, right? So, I follow the cost benefit approach of the literature, but being careful about applying it to a private business. And the whole idea of the methodology is to identify all the benefits and all the costs of a funding or who funded a stadium or hosting a team in the city. And among the benefits, you have several different types of benefits. And among the costs, you have several different types of costs. And of course, we can talk about different categories of benefits and costs. The approach itself is about trying to identify all of them. And in that regard it's kind of superior to our approaches that focus on the monetary aspects for instance only. But there are some non-monetary aspects as well. And the literature has been doing a lot of stuff during [the last few] decades, actually to the extent that today it’s not really controversial in the economics literature. There are few papers dealing with this issue because everybody agrees that stadiums do not really contribute to the local economy so much. Actually, it really depends on the particular case. In some cities the contribution may be positive. In other cities might be negative. The consensus, I would say, that the evidence is that the contribution is, if it's positive, is very low. It's very small. But they (but it) can get [and] it can have (these things can have) a negative effect on the local economy. And the negative effect is potentially significant.
Stitzel: I always either, sort of, say a small negative to no effect when I get asked to, sort of, the broad question of how do team stadiums and large local events affect their economy? And I agree the consensus on this particular topic in this particular field is extremely strong. In fact, I'm hard-pressed to think of other things in economics that so many economists agree about.
Sepulveda: Consensus.
Stitzel: I mean, this is very---yeah, consensus is an excellent word. In fact, I don't know if I know anybody that works in this area as an academic that has a has a different opinion on that. Is that your sense of where the literature is at as well?
Sepulveda: Hmm mmm.
Stitzel: O.K. so let me ask you to do this. Can you give us a quick rundown of at least the different categories, if not the different components, of what you view as cost benefit analysis? Or actually maybe start us off with what's (what is) cost benefit analysis? What's the difference between that and what I've been saying, right, which is economic impact analysis?
Sepulveda: O.K. so as I mentioned before, I see the objective of cost benefit analysis as including every single possible source of benefits and costs. All of them. And to correctly identify them and to measure each of them in order to come up with a with a total measure of benefits and a total measure of costs. And after having that, it's very easy to see what the decision should be; because if the benefits are greater than the costs, it doesn’t make sense to subsidize or build a stadium or bring it into a city. If the costs are greater than the benefits, that means that it's not a good deal, and the city shouldn't try to do that. In general terms, cost benefit from that perspective is a more complete than economic impact analysis. Usually, economic impact analysis focuses mostly on monetary effects. So, more strictly economic effects of businesses or interventions in an economy. Cost benefit includes all the monetary effects that a certain intervention is going to have in the economy, plus a non-monetary effect, sometimes called intangible benefits or costs; because benefits and costs are intangible are things that---cannot basically (intangible means that cannot be touched) but in this in this context it also means that the monetary value---[are] very difficult to obtain. It doesn't have an obvious monetary value, because it's usually not part of a transaction, [and] not part of something that we can easily measure. For instance, community pride. Everybody feels about having a good team in the city is nice. And that niceness is positive for many people in the city, but how do you measure that. So, that is considered intangible. But it can be measured. It's possible to measure those kind of things. The studies that do so are subject to a lot of errors. It's not easy to do that, but we have some methodologies to do that. A contingent valuation is for instance a methodology that we use to measure intangible benefits and costs. And usually, the methodology is related within such for with what we are thinking in general terms, as for instance surveys. We can ask people how much you would be willing to pay for the team to be here? Or how much would you be willing to sacrifice for having this intangible thing in the city in general? It's difficult to do that. It's difficult to do it well. There are papers around asking people or trying to measure the value (the intangible value) of stadiums in cities. And those papers bring enough interesting information to the discussion. Those papers are not necessarily about applying the full cost benefit methodology, but they just address the problem of intangibles. But that information can be incorporated into the cost benefit analysis later on. So, in cost benefit in general, we include all monetary benefits and costs. When we talk about the city as a whole, we need to distinguish between the city the team itself, right? The city is going to have certain types of benefits and costs, and the team is going to have completely different types of benefits and costs, right? So, I try to make those difference very clear in the paper. I'm going to try to explain a little bit those differences here. For instance, think about in order to illustrate the difference in a clear way, think about people attending the stadium. From the perspective of the team, those people are going to buy the tickets are going to give the team money. That’s a benefit. But actually, that's a tangible benefit. That's right. From the perspective of the city in reality, that is not a benefit. That is a cost most of the time; because the money that people are paying to the team is money from their budget that they are not spending on other businesses in the city. So basically, the rest of the city---so if we exclude the team---the rest of the city is sacrificing business when the team arrives to the city. And there are estimates of how many people actually visit the city for games. Of course, that changes, and it's important to always remember when we do this kind of analysis, that the equation [and] every single aspect of the cost benefit analysis is going to change a lot from city to city from team to team. So, the conditions change a lot. But there are estimates that the number of visitors attending games vary between 5% and 15%. So, visitors are bringing money from other economies. And from the perspective of the city, that is good. Because visitors are not going to only give money to the team, they are going to give money to other businesses in the city. For instance, they might stay in hotels. They might end up eating in restaurants. But they are in average kind of between 10%-15% of the full attendance in the stadium. The rest of the people---so basically between 85%-90% more or less on average---are people coming from the local community to the stadium, and therefore spending their money in the stadium instead of in the rest of the local economy. So, your simple question about what is (what are) the benefits and costs that we should consider in the cost benefit analysis? In reality it depends a lot on what perspective are we using, like using the perspective of the local economy or the perspective of the team. O.K. Sorry, what perspective would you like me to keep using?
Stitzel: So, actually let me interject at this point a little bit, because I wanted to go back to the survey question. You know, I'm of the opinion that surveys are probably not as useful in general as---I'll just generically say---people, as you know, some researchers sometimes and the public believe. And so, I want to get your opinion. What do you think those contingent valuation studies and the surveys--- what kind of accuracy do you think those have? And can you, kind of, briefly walk the listeners through some reasons why we think that surveys, in that kind of situation, may not really be reflecting people, you know, how much they value the team or stadium that they're being surveyed about?
Sepulveda: Yeah. There are several issues. Unfortunately, I'm not an expert. I haven't (I have never) done an analysis myself, contingent evaluation analysis. But in general, surveys are difficult to trust, because the way you design the question might actually lead to certain type of answers. So, the accuracy of the answer might not be very good. The other thing is that the philosophy of the methodology is to try to get from the respondent the maximum amount of money that the person is willing to sacrifice for a certain benefit, for instance, for having a team in the city, or for business daily, or for building a park in the neighborhood, or don't matter. So, how much was the maximum amount of money that they would actually be willing to sacrifice. Because that's a measure of the benefit that the person is expecting to receive from this hypothetical good. The problem is that this is a hypothetical question. So, the person is very likely going to put herself in a situation that makes not so much sense at the at the moment. The person cannot really anticipate what is going to happen. And she's going to make computations in her mind that are not necessarily super accurate. You can ask people anything. You can ask them how much they will be willing to sacrifice to solve to save whales in the, I don’t know, Atlantic Ocean. I don't know, anything. And in the end, you can ask. People might be willing to sacrifice a lot of money for many different things. And in the end, you put all the money together, and these people don't have that much money. So, there are so many inaccuracies associated with the methodology. So, they provide kind of taste of the intangible benefits, but we cannot really believe so much in those methodologies. Of course, experts would know better than me how to fix these things or get to more reliable estimations. But even when they do that, in the case of the stadiums, we have another issue that I try to discuss in the paper, that to be honest, I haven't seen a discussion about that in our literature. So, to the best of my knowledge, the discussion is not really there yet or before. And is that, when we usually talk about intangible benefits of a public goods, we are not taking into account how those benefits of the community are related with the private benefits that an institution like a team can obtain. For instance, the city may have certain, kind of, the city (the community in the city) may enjoy the presence of a team. And we can conduct contingent valuation style in order to measure that. But I wonder---and I don't know the answer to this---what is the proportion of those intangible benefits that the team is able to monetize by charging more for jerseys, by charging more for tickets, by getting a good deal with the government, and not paying taxes and stuff like that? So, the teams are and the professional leagues in the U.S. are businesses, and they try to make profits. And the more profits they make the better. So, it is actually possible that the teams and the professional elites are doing a very good job monetizing these intangible benefits; that for a public project, the intangible benefits mean something very clear, because nobody is monetizing those benefits. If you build a park, nobody is monetizing the benefits of the park. But in the case of the stadium, that is completely different the stadium is the teams are continuously trying to monetize benefits. So, I wonder how much of these intangible benefits are actually being monetized by the teams. Maybe all of them. Maybe more than they create. So, the question is there. And I don't know information to fully answer that question.
Stitzel: Yeah. I don't know if anybody knows what that number is. But just thinking about that as an idea, you know, saying the team is literally in the business of capitalizing on the kind of things that it's creating---yeah, that's a good way to think about it. You know, and one of the things I always think of the value of sports teams is, you know, is, sort of, that community identity, and, you know, what the literature calls city image, right, and how people are standing around at the water cooler talking about that kind of thing. And it's hard to imagine that they can really monetize all of that. And yet, there would also be a high proportion of anybody that is engaged in any of that kind of conversation is probably consuming something, right? You know, so in the case of, like, a basketball team or something, right, there, they're paying for the cable service, and the teams getting their fees from their contract with the cable company. And people that are talking about the game at work probably also own, you know, jerseys or memorabilia or hats or so on and so forth---which one way or another comes back to the team and definitely the leagues involved there as well. Yes. I hadn't really. I don't know that I know of any anything in the literature that's talking [about]---I'm kind of guessing there is and I'm just not thinking of it---but that's a really fascinating idea, because I think this is the way that an economist would think that your average consumer is probably not thinking about, right? The team is literally---they make it their business to monetize all of those kind of things.
Sepulveda: Yeah and there are even studies that show, like, or propose the idea that when the team's threat to leave the jurisdiction, or basically shops around the country, what a city is basically willing to provide them with a bigger subsidy. That this way to get additional revenue is one indirect way to monetize those public benefits that they are creating.
Stitzel: Yes.
Sepulveda: But I don't fully agree with that because the teams are also getting benefits from the cities where they are going; and they are monetizing, for instance, the existence of the stadium. Most of the stadiums in the U.S are being built or maintained by the cities. So many times, this, of course, the teams should be paying a rent in those cases, but sometimes there aren’t very good deals for the team. So, there are many ways in which the teams are getting benefits from the city. And the teams have strategies to monetize many sources of revenue, but the city doesn't have an equal power governing power is in the size of the teams. It's not really in the size of the side of the public sector. So, sometimes---and I believe this is part of the consensus too---is that teams shop around cities looking for which cities are willing to give them more money in the end. And that's a way to monetize their own benefits. But the idea, or the consensus among economies, is that cities are giving the teams too much is because the contribution that the team is going to end up giving to the city it's not as much in the end as the contribution that the city is explicitly going to end up giving to the team---either, in the form of valuable stadiums, or in the form of good deals, in terms of rent or very important government bonds for financing the construction of the sales, and sometimes, say, tax breaks. The city doesn't charge taxes to some teams. And I live in New York. So, the property taxes are a big issue. And I think about the property taxes on a stadium---those are in the order of millions per month. And sometimes the tax break is that they don't pay property taxes.
Stitzel: Yeah. So, which is why you talk about tax increment financing, right?
Sepulveda: Sorry?
Stitzel: In the paper this is why you mentioned stuff like tax increment financing?
Sepulveda: Hmm mmm. Yeah.
Stitzel: Because this is the kind of deal that they get?
Sepulveda: Exactly. Exactly. So.
Stitzel: So, let's talk about that just a little bit, right? So, one of the things that I try to highlight if I'm in a, you know, situation where I'm teaching sports economics, right, is if you've got a movie theater, right, they will open or not open. And sometimes they will get, you know, from The Economic Development Corporation or from the city tax breaks or something, you know, you will get some kind of, you know, corporate welfare stuff is not limited to teams.
Sepulveda: Hmm mm.
Stitzel: But as sort of a whole, right, whether a movie theater can make money or not is probably the driving force. And you can have multiple movie theaters, and in even mid-sized cities, you know, I live here in Amarillo, Texas we have three movie theaters. Three movie theaters, right? And we have a relatively new one and it opened. And it's like, cities are not competing for movie theater the way that they're competing for a team. And the reason for that is there’s a limited number of teams. And then that creates a situation where you're bidding for the teams, right?
Sepulveda: Hmm mmm.
Stitzel: And so, on one hand there's this kind of good element to that which is cities that should benefit more, right? We would think, like, and you talk about this, so I want to hear. You know, I don't know if this is the time to talk about it, but at some point [I want to] hear your opinion on this, right? But larger cities in theory would benefit more from having a sports team, so they should be willing to pay more for a sports team. But then, you also have those kind of things that economists that work on this kind of stuff talk about with bidding, right, which is it's not just who would benefit from it more. And they should be willing to pay more. It's also this problem of it also predates on who misevaluates and who is willing to pay the most. Because of that, I think that’s kind of the concern. And when you get…
Sepulveda: Hmm mmm.
Stitzel:…this situation where you're bidding for teams because there’s only so many teams to go around.
Sepulveda: Yeah. I fully agree with that. And it’s part of what I was mentioning before about the hidden costs. It’s difficult to estimate the net benefits of the presence of a team is difficult. There are many things that are not obvious.
Stitzel: Yes. I want to talk about that, right, because your paper is focused here on this idea of the average team. And I really want to get into it why you’re doing that, but it's built on what you said before which is it's very different in different markets, right? We've got the Los Angeles Lakers in one of the biggest cities in the nation. And then we've got Milwaukee Bucks and Oklahoma City Thunder and two of the smaller markets as far as professional teams go. Can you, kind of, talk to us about how you think about the different components of your cost benefit analysis depending on, sort of, which situation you’re looking for, and then, sort of, how that relates to this idea of the average team?
Sepulveda: O.K. yes. Yeah. But so, first a clarification regarding what you were saying before that I fully agree with. They're even in many cities (most cities) there is a---I don't know if they are called exactly the same---but the investment development agencies that they basically deal with companies that are interested in investing in the city, because the cities benefit from investment, and they want to create jobs. They want to create more economic activity. And this is basically the institutionalization of the shopping around of the businesses, right? All companies try to do that whenever they reach a certain size. They go to different cities trying to get a good deal because they are going to contribute to the economy. So, this this was not invented by the professional teams. It is part of a bigger discussion about whether companies in general should be able to do that. In the U.S. they can do that. All companies, not only sports teams. So, in economics we---and regarding statements in particular we---kind of have this consensus that maybe cities are giving too much to the teams, but for different reasons that we are discussing right now. With respect to our issue, I would say: well first my analysis is about averages, right? So, I am not trying to say that my conclusions are applicable to every single case. There are cases where it is going to make sense to have a to host a team in the city, and in our cases it makes less sense. And I think you kind of mentioned this in your question, and I fully agree with that. I believe it makes more sense to host a team when the city is already big, for different reasons. It is because the city already has an infrastructure, a level of economic activity that can accommodate better this new business. And another very important reason is when the city is big, the economy is big, it can offer better alternatives for the team, better options to keep their money inside the economy, to spend the money they receive inside the economy. Because one of the problems with hosting a professional team is what we call a leakage. The teams can leak money away from the economy. And how does this work? Basically, you have, first I mentioned before, the substitution effect. Basically, you bring people to a stadium that people bring their money. Many of them---remember, kind of, 85%-90% the people---in attendance of the stadium is from the local economy in average. And they spend money that are not spending in their businesses, right? So, you are basically taking money away from the local economy into the stadium, money for the teams. And the team is gonna end up giving that money to very few people, because you have this huge salaries of players, the coaches, and the owner. That is not called a salary, but the owner is going to receive a lot of money. So, depending on what sport you're going to have a certain number of players. But in the end, you're gonna usually have less than 50 people receiving many millions of dollars. So, the question of where those 50 people, or less than that, where they are going to end up spending those many million dollars is going to matter a lot, because they are taking money away from the rest of the economy. If they put the money back in the rest of the economy next, [then] good. That is, the rest of the economy is not gonna end up losing a lot of money. The problem is that usually the owners and the players don't necessarily live in the area of the stadium. Sometimes the players live there only during the season, and they leave their families back home in a different state, in a completely different place. So, what usually happens is that initially the team takes money away from the local economy, and the spending of few people can be back in the local economy or somewhere else. If the city is big, it might offer nice alternatives to players to live there [and] to bring their families. Maybe even the owner is going to live there or have a house there. But if it's a very small city, I don't see many of these high-income people living there and spending the money there. I see the leakages being very big. And so, the net leakage, basically the amount of money that they take away from the local economy, and in the living the jurisdiction is going to be a lot.
Stitzel: So if you're Los Angeles, New York, Chicago, [or] maybe even somewhere like Dallas or Miami or something, [then] that might be desirable for an extremely wealthy person to live. [So] you're thinking the leakages are probably lower. Let's talk about this this. Sort of occurs to me---so forgive me for putting you on the spot a little bit---you know, but there's some sense in which O.K. let's take Los Angeles. The players that play in Los Angeles will almost certainly live in Los Angeles. This is, you know, maybe the quintessential place to be a wealthy person for various reasons. You know, fame being principle among them, and where you can probably leverage your fame from playing sports into, you know, other things, into, you know, movie and music and just whatever that kind of…
Sepulveda: Popularity stuff.
Stitzel: Yes, exactly. The popularity. That's right. And so, the leakages in that case might be low, but then those people, like, they're not living in the median income housing area of Los Angeles, right? They're living in Hollywood or whatever. And of course, and not all, right? One of the things we want to think about it in an economy is, you know, the economy more or less doesn't know what the political borders of a city are, you know. So, it occurs to me in some sense they're taking that money back to wealthy parts of Los Angeles. But then, they’re still probably economic impacts throughout, right? Because then they’re going to restaurants, and people that are not wealthy people are working at their restaurants and benefiting in that situation. And it's probably true that that's not happening in some of these smaller markets. And yet, how many of the cities that are hosting professional sports teams in the United States are not going to be the kind of city that somebody wants to live in. You know, my intuition is---I don't know, maybe even---a half is too high of a number. What's your thought on that?
Sepulveda: Well, I didn't grow up in the U.S., so I don't have a very big knowledge about the demographics in this different cities. And for the purpose of this paper, I checked what cities are hosting state teams and therefore have stadiums for professional sports. And counties also of course. So, I took a sample. That doesn't mean much in the end because the limits of the city doesn't mean that that people stop living there, right? I mean, so but, the numbers I got is that the surroundings of the stadium---are the average number of people surrounding the stadium in the jurisdiction---that is shown in the stadium is approximately 1.2 million people, considering the cities and counties that own the stadiums, professional stadiums in the U.S. Again, it is going to be much more if you consider the bigger area, right, that is around the stadium. And that---that's, kind of, the average size of the jurisdiction, which is important to actually determine how big the final effect positive or negative is going to be in that jurisdiction for. Because if you consider the average income in the United States, today is, like, I don't know, $65,000. In a population of 1.2 million people, [then] we’re talking about approximately $75 billion dollars in the area. So, that would be, kind of, the size of the economy. And a stadium, the revenue that the team makes from attendance, just attendance, the team has many sources of revenue, right? And the average team. And actually, the attendance was the most important source of revenue decades ago. But today, broadcasting rights are much more important in general in professional sports. But the sources of the money they get from attendance alone is somewhere between $50-$100 million maybe. You compare that with the $75 billion dollars, [then] that's a very tiny percentage.
Stitzel: Yeah. I really appreciate that just giving a scale for the kind of effect a team can even, like, possibly have, let alone substitution effects, let alone leakages, let alone crowd out. All these kind of problems that that we're about to get into just a sense of, like, a sports team. And this is how I actually---like, the first thing I say in sports economics, right, is sports has an outsized share, sort of, the public consciousness. It’s actually a relatively small part of the economy as a whole or even in their local economy. So, yeah. I'm glad you mentioned that. Can we circle to the average team kind of idea? And, sort of, how do you get to that? And how do you think about that, given what we've discussed now, right, is, you know, maybe, you know, we've got maybe 50-ish cities that host one of the four major professional American sports. You know, obviously Los Angeles, Chicago, New York, have a disproportionate share of those, right? But, you know, look at your---look at the rest of the top ten MSAs in Dallas, Boston, [and] Miami. Like they're all---Seattle, they're all---going to have multiple teams.
Sepulveda: Exactly.
Stitzel: And then, you've got, kind of, or, you know, I should mention Houston as well. And who, you know, who knows what else I'm forgetting? And then you do have a few---Indianapolis, Milwaukee, [and] Denver, you know. And then, sort of, a ray there. So, how do you think about the average team in the U.S. in that context?
Sepulveda: You mean in terms of the final effect or?
Stitzel: So, I'm more asking about the motivation, right? So, you can---this is one of the reasons I found your paper interesting, right, is because we don't. Really, the sports literature that studies economic impacts of stadiums---it does a lot of that research studying particular cities and particular franchises. I mean there are some papers that try to do, you know, a bigger study including, you know, sort of, all the teams and stuff. And that runs into the kind of problems. Well so, let briefly plug my own research, right? So, I sort of view my research as part of the second wave of this kind of stuff, which begins to get into micro data, exactly for the reasons that you’re talking about, right? So, if you read my paper it starts out talking about, like, there's all this great sports research. But at the end of the day, if you're studying at a city or a county level, the effect of a sports team is so small. It's such a small proportional local economy that you cannot tease out effects, right? And so, O.K., we need to bring micro level data to bear on this subject. And there’s such a great literature on that, right? So, my research is on sales, different people, and you talk about this extensively in the paper, right? Different people study job creation, firm creation, firm destruction, taxes, [and] all these kind of things that people study using micro data. And so, as a consequence of that, you can't really study an average team. Like, you're studying a specific local team. So, I’m interested, kind of, in your motivation for such a great idea in a paper, which is to say: O.K., let's step back right now that we've done all this micro work. Let's step back and then take a look at the average team. And like, what does that look like for the economy, for the cost benefit analysis, [and] maybe even for the team itself.
Sepulveda: Right. So, my video, and thank you for that question actually. Because the truth is that the paper cannot be directly applied to a decision-making process, because it's just talking about averages. But I found that when people think about this topic, the literature is very rich. But it's so rich that people don't know where to go. There are many studies. And actually, whenever you make a decision about one particular team going to certain city---and the city makes a decision on where to host a team---you need a study that focuses on that particular city, that particular team, [and] the population in the area. You need that. You cannot replace that with my article. Impossible. However, if a person that doesn't know the topic goes to the literature is going to find so much information that is not going to know where to start. And I believe that the literature hasn’t done a very good job yet putting all the information together. So, my point was to talk about the averages in order to give a sense, a flavor, of the relative importance of different topics in the analysis, and talk about the average U.S. But per se, the average has some interesting consequences. In order to say that in averages, the economic impact of a professional teams in the U.S. is very small. It's very small. And if some things go wrong, [it] can get very negative. For instance, what I was talking before about the leakages. If you don't manage the to have a situation where the money received by players, coaches, and owners remain in the city, the might lose a lot of money through the stadium. So, my idea was to give, a probably, an easy-to-understand structure of the cost benefit analysis of this particular investment, an idea of the relative importance of the different aspects that play a role for people to make an easier exercise later on, on the particular situations where they are going to have end up making decisions. So, even small cities might end up hosting a stadium and getting a bigger good deal if they managed to make the stadium part of a bigger development initiative, O.K.? But the stadium alone---that's part of the message that I try to convey in this paper, and I believe that the literature had been trying to convey before, [is that] the stadium alone---is not going to create economic activity in a small city just because it's there.
Stitzel: So, let's talk about that a little bit, right? So, a stadium as a centerpiece---of, like, a downtown redevelopment, kind of, project is---has become a really common thing, right? So, you know, Oklahoma City and Bricktown is a really good example of this. And then we've seen, like, Sacramento has a big project. I think that's called the Republic Center, right? Or maybe the name has changed by now. I don't know, right? And so, you've got these kind of projects. And then, you've got this sort of weird, like, bastardization of that, where you've got these areas like Texas Live in Arlington. And then, I forget the name of the one there in Philadelphia where it's, like, it's not really a downtown. It's kind of off on its own. But then, they try to build up a set of restaurants in particular, but, you know, kind of entertainment things that, I guess, if you squint you could call them compliments with the sports team themselves, you know. But then, how much of that is even really going into the local economy, because it's not really, like, widespread? So, I definitely agree with the sentiment, right, the idea that O.K. if you make this one of the centerpieces for a total downtown redevelopment project, it makes a lot more sense. You know, we've got that here in Amarillo, where we have a minor league team that's, sort of, the centerpiece of a pretty big redevelopment. And there's new hotels. And they've built up restaurants and, you know, banks have new buildings down there. And, like, our university has a location that they've expanded into down there, and just some different things like that that have kind of been a been a drive to redevelop that. Talk about that a little bit, sort of; because you're saying like this, maybe like, has this good idea. How does those leakages, those ideas that you're talking about, in terms of so much of that revenue going to people that are not even in the area. How do those two things comport if at all?
Sepulveda: Well, first of all, the development initiatives. If the redevelopment initiative is about building a big island around the stadium, with more businesses that belong to the team, [then] that is going to be [what] we can consider that [as] a bigger stadium that is going to be competing with the local economy and taking even more revenue, right? So, the idea is if the local economy is going to win with the stadium and the presence of the team, [then] the team and the stadium should be integrated into the local economy. And we should and they should use it as a maybe as a branding to gain---in terms of the branding the city, [and] branding downtown to attract---more people. The integration is the key, but the integration with the rest of the local economy.
Stitzel: Right.
Sepulveda: So, cities that already have a strong local economy are in better position to gain from building a stadium in the surrounding area. But the but cities that don’t have that might be vulnerable to this situation in which the stadium become a bigger island, or the investment becomes not just a statement, but a bigger island that is competing with the weak local economy and leaking even more resources. In the end, it really matters when, it really matters for decision makers in the city, and it matters for voters. But try to understand the perspective that they have. Successful businesses should be encouraged. I mean, it's nice when a business is successful. The businesses are creating jobs. That's good. But from the perspective of a voter that is voting for a tax reduction in order to subsidize a team, it should matter how the presence of the team is going to impact other businesses in the area as well; because the impact can be very negative, because the money that the teams take away from those businesses may end up in a different city in the end. And this is, again, part of the hidden costs. Somebody may end up losing a job in a restaurant without anybody ever knowing that it was because the team arrived in the city the year before.
Stitzel: Yeah.
Sepulveda: O.K. that is kind of invisible, but that can happen because of these leakages. And the other thing that I would say is very important, but I haven't seen anybody calling attention about this is who pays the study, for the cost benefit analysis of hosting a team. Who makes the study and who pays for it? If you think about it, we cannot find a party in this transaction that is interested in making a complete objective cost benefit analysis that is going to be useful for the voters. Because the thing is going to be interested in monetizing all the money can basically. So, if it takes an analysis, it's going to be an analysis that is usually going to show that the impact in the local economy is going to be fantastic, even though it's not going to be fantastic. Because sometimes they're gonna say: hey, look this this team is making $100 million revenue in attendance. That’s a fantastic business, but they are not telling the story that that money is going to end up going away, because the players, coaches, and owners are going to spend the money somewhere else. They don't tell that story. So, if the team pays for an analysis, [it] might not be very objective.
Stitzel: Well, neither the city either, right? Because actually, as you started out this discussion, right, you brought up that very important point which is it's good for local politicians to be the people that bring teams in, right? Because you’re doing something for the economy. You're bringing things that people like. Even if you're somebody that's, like, against that kind of thing, you can't deny that. At least they're trying to do something, right? So, there's this way that the political outcomes fit with the team’s incentives as well. So, yeah. There's nobody. There's, well, it's not nobody. It's that the people that are opposed to this kind of thing, they're not organized, and they’re not centralized in a way to have a strong voice against this kind of thing. And if they want to be organized, they have to go out of their way to organize. And then of course, maybe you have more, even more interesting things to say about this than I would. But my observation is, and then the people that are for it are also the ones that get to design the ballot initiatives to fund these kind of things, when those are necessary. And so, they’ve got some really powerful, sort of, tricks if you will---where I've seen firsthand where they'll design, O.K. we, you know, we---[to] up property taxes. Or we have this bond that we're funding or whatever, and certain people will be exempt, right? We'll exempt homeowners that are 65 and over. Those people will 100% vote for getting the new stadium then. And then people you're, sort of, rigging is maybe too strong of a word. You’re, right, you're starting off on a bias towards passing the thing already, right? So, yeah. I agree with that completely. And anytime we see, and I know there are a lot of papers, right, where that is a motivation for the research, right? So, like, in my own work, usually I’ll start papers out, you know, talking about how there's all these “impact studies” that are/that seem to show, like, these really big effects of teams. And they have many problems. And actually, want to use that as a segue to jump into things. But yeah. I'm not aware of, like, a particular paper that makes the whole point of the paper into discussing that. I know there are some other, like, some other commentary. The names of the authors are not coming to me at the moment, or they talk about this as a kind of a problem. So, you have a quick comment about that?
Sepulveda: Yeah. And well, the politicians are not going to be objective. People that oppose might not have the organization or the money to conduct that study, because benefit analysis is always about what is going to happen in the future. So, it must be about that particular project. And it’s going to cost $10,000-$20,000-$30,000-$50,000. To be honest, I don't know. And that is usually not done because there is nobody actually paying for that. And the parties that are paying for studies are going to prefer the economic impact analysis that works with multiplayers that basically assume that the benefits are going to be positive.
Stitzel: So, let’s talk about that. That's exactly where I wanted to go, right? So, you’ve, right, you're a true well-trained economist through and through. So, leakage, substitution effect, [and] all these things. And those are the way this question should be framed. But that's not how somebody that's trying to sell a city using their study, they're going to be focused on multiplier effects. So, talk to me about two things. 1) Just kind of what is a multiplier effect, and how do the people that do these kind of---I don't be too harsh without (but, you know) it---motivated impact studies use multiplier effects inappropriately. And then, talk to me about how you picked your numbers out. And maybe, kind of, give us a little rundown on that net effect and multiplier net effect that you have in your paper.
Sepulveda: O.K. so, the multiplier effect has been a controversial topic in economics in general. There are microeconomic multipliers. And that concept from micro actually translates into the notion of multiplier effect that we are discussing right now. The idea is that new money entering in into an economy---new money. So, the economy has a certain economic activity, but new money [is] coming from outside. Let's say $100 spend from outside that will not be spent before. So, this is new. That's crucial. Think about $100 that are spent in a restaurant that will not be spent before. This new $100 are $100 that the owner of the restaurant was not going to receive from the local economy. This is new coming from outside.
Stitzel: Yeah.
Sepulveda: So, the owner of the restaurant is going to have $100 more than before. And he’s gonna use that additional money to pay for more food, to prepare more food, to increase the salaries of [employees], maybe hire more [employees], [increase] hours of employees, and to reinvest in the business. So, this was new money that was coming from outside. You don't need to think about $100. You can think about $1 million dollars in the local economy, right? So, this is new money that they didn't have before that is spent on something in the local economy. It is money that people receive and end up in the hands of owners, employees, [and] people selling stuff. So, it ends up being income for somebody else. And that person, that people with this additional income is gonna spend, additional spending that was not there before. So, this new money triggers a chain reaction that leads to more income of people that have more money to spend. They spend more. Some of that spending stays, again, in the local economy. The local economy, again, receives an increase in income, and therefore, another round of more spending, etc. And that's the multiplier effect--- basically the idea of some new amount of money in the local economy that tends to be more spending, more income, more spending, [and] more income. And everything can happen inside one year. Within one year, you can have different cycles. So, the new amount of money multiplies Itself by a factor, right? So, there are many companies that study these economic processes around the country. And they invest a lot of money in computing multiplier effects in different cities. And they have done a beautiful job, I mean, collecting information about the production processes of different cities in the country. And they have a big database of multipliers that are used in economic impact analysis. The multipliers themselves are, I believe, are not a problem because there are statistical programs that can lead to well-computed multiplier effects. But the use of the multipliers can be, in my opinion, sometimes irresponsible. Because, say, I believe that assuming a certain multiplier effect is reasonable, because new money is translated into new income. You’re spending new income. You're spending within a year that is, that can happen. But then, we need to be very careful about what exactly are we multiplying and by how much. And the truth is that is not because the team is making money in the stadium. That new money that the team is receiving is multiplying to a local economy. That is not true, because the team is gonna pay people that are going to take the money away from the local economy. And that is not something that you can do with the use, just the use of multipliers in a study. That---you need to consider other stuff.
Stitzel: And the substitution effect happens before the multiplier takes effect.
Sepulveda: Exactly. Exactly. Exactly. So, before the money stays in the local economy to be multiplied. Before that, it goes away.
Stitzel: Right.
Sepulveda: So.
Stitzel: So, let's talk about that, right? So, a lot of multiplier effects that these kind of motivated studies will choose our numbers, you know, like four or five or ten.
Sepulveda: Hmm mmm.
Stitzel: What number do you use in your study and why?
Sepulveda: I use two. But to be honest, I use it because I couldn't find a better number. I received some comments from other sports economists in conferences where I presented a paper that maybe that could be a little bit too high. Maybe a multiplier of 1.5 would be appropriate. And I'm open to discuss that. The truth is that I don't really have supporting evidence to choose any one of them. And in different economies, the multiplier is going to change a lot. And because of---and what you said is very important---[the fact that] the money is going to leak before the multiplier effect, so I in my paper, I want to stress all their stuff. So, the multiplier plays a role in the sense that is part of the analysis that we should make in any local economy. But it is the final part. There are many other components of the analysis that are going to be more relevant that don't require yet the use of multipliers.
Stitzel: So, one of the things that these motivated studies will do is say: oh look, the team has, you know, $500 million dollars in revenue, and so just multiply by five. There's our number, which as you correctly said, right, not all the money that's coming, not all the team's revenue should be multiplied at all. And then, all these other types of hidden costs come in upstream of the multiplier.
Sepulveda: Hmm mmm.
Stitzel: One of the things that's interesting, right? This is one of my reactions actually as well, was that O.K. I'd say multiplier of two is kind of high actually. And there's that, I wish I could remember the number. Brad Mills, a very excellent sports economist, he had a---was it a paper or some work that he had done where he's estimating the---multiplier for minor league baseball, right? So, they get in the (not minor league baseball) spring training baseball. And so, you know, what the effect on these local economies----when these major league teams were down, you know, sort of, located in these two different areas, you know, one in Phoenix and one in Florida, and what the effect on the local economies were, and it---was an extraordinarily small number. Don't quote me on this, but I actually think it was less than one. And so, I'm a well-known hater of macroeconomic level multiplier estimates. And so, I devote extended time to this when I teach macroeconomics. But I'll digress from that and, sort of, leave that off. I thought your use of the multiplier is sort of the relative importance that you placed in the paper was very appropriate. So, I thought that was really good. But let me turn to this just a little bit.
Sepulveda: Sorry.
Stitzel: Go ahead.
Sepulveda: Sorry. If it's lower than one, I believe it is…
Stitzel: Yeah.
Sepulveda:…because what is he multiplying, right, it depends on what you multiply. If it's lower than one, what I guess, I can guess that the leakages are already accounted for somehow. But in my case, I kind of assumed that the multiplier should be greater than one, because I'm talking only about the money that is staying in the city. O.K.?
Stitzel: Yeah, maybe I don't recall. I don't recall the details there. Maybe that’s true. Now, this is true, right? So, you can take and say: O.K.. here the numbers, right? So, after leakages, and then let's calculate what that multiplier effect is, right? And so, we'll see some processes in the literature where people basically begin to discount the multiplier by the leakage. So, I see what you're saying, and I hope that's clear to the listener. But I also want to make the point that the---on theoretical grounds there's ways that a---multiplier could actually be less than one. And the reason for that would be when you have an intervention situation, and the money is not moving from people's hands into different (into other people's) hands as a form of new income, based on what their un-intervention, [then] that set of preferred choices would be, that could actually, I think, lower it below one. O.K. Maybe that's a theoretical argument. Maybe you don't like that argument. And if you want to push back…
Sepulveda: No. No. No.
Stitzel:…I'd like to hear it.
Sepulveda: Perfectly fine with that.
Stitzel: Oh O.K. So, what I don't want the listeners to take away from is, you know, Lee said the multiplier's got to be less than one. I’m not saying that. But yes, you make a good point, right? We see some processes where people will sort of estimate multipliers and then try to discount the multiplier by what the, you know, leakages are. And then, you can get to some different numbers. And you're not doing that in your paper. Yes, this is a good one. But what I wanted to turn to is actually related to the multiplier, which is, right, you use the multiplier correctly, which is to say multipliers work symmetrically both directions, right? So, if you have losses, they actually magnify losses as well. Can you talk about that really briefly?
Sepulveda: Well, yeah. Well, if the local economy is receiving more money, of course the multiplier is gonna effect. If it's gonna multiply the additional money, it's going to have a positive effect. But if the local economy is losing money, the multiplier effect is going to worsen that effect. So, it matters what the sign of the net effect on the local economy is going to be. But in the end, the net effects that I am obtaining are relatively negative, but not so relevant in the big scheme of things compared to the total economy. So, in that sense the multiplier is not really worsening so much the negative problem, right? Now, I want to make an extension anyway that is true that adding up all benefits and all costs without considering intangibles, because in that (in those) measures, I'm not considering the intangible benefits for instance. But I'm not considering the subsidies that the cities are given to the teams also. So, you have one positive and one negative terminal considering, right? So…
Stitzel: So, walk us. Go ahead. Go ahead.
Sepulveda: One thing that I wanted to add is that even though I'm reaching a point where the net effect is negative, but not so big compared to the size of the economy. I want to point out something that is a I believe very important; but again, something that is not being stressed enough in the literature is that I am adding up all benefits. But in adding up all costs, I'm coming up with a very small negative effect. And it's too small. But in the meanwhile, there has been a lot of distribution in the local economy. So, we cannot lose sight of the distributional effect that are going to happen in the economy, because benefits and costs can be measured in terms of money. But the money is---whenever there is a benefit, somebody is getting the benefit. Whenever there a cost, somebody is getting the cost. And the groups of people are different. So, the benefits are concentrated in some group of people, because the costs are concentrated in another one. So, there are distributional effects that are usually overlooked here. So, the fact that the benefit, the net effect, is relatively negative, but relatively small in average, of course doesn't talk about all possible cases. And we need to move forward a little bit more in order to analyze what groups are losing [and] what groups are gaining. In terms of what group is losing, it's kind of obvious that a lot of the money received by teams, and all the money actually sacrificed by the rest of the local economy, is gonna end up in the hands of few people with very big salaries. And as a consequence, and from the side of the local economy that is losing revenue, the kind of people that are going to lose in the end because of that revenue loss, are going to be usually lower income people. And if you make a---I don't have the numbers in my mind right now---but if you compare one player with a salary of $5 million dollars with a people in the local economy losing jobs that are paid $50,000 dollars, well you're talking about a 100, right, 100 people's salary being lost to gain the salary of one player, right? So, the consequences in terms of job destruction can be significant. So, if we are not very careful about the net effects on the local economy, and actually about a protecting certain vulnerable groups in the local economy, we can have very significant distributional effects, even though in the end the stadium of the team is not having a significant impact in terms of net money.
Stitzel: Well, that's just that's just one player at the average salary, right? So, a lot of professional sports teams have what, between $100 and $200 million payroll every year for just players. So, can you, kind of---right, you mentioned there you've got these numbers and, you know, they're negative but they're kind of small, [so] can you---walk us through what you find? So, what's the economic impact of attendance for the average team in U.S.? Like, what's your sort of final number there? And I don't know how much you want to comment about that. But just, we've kind of talked about these different ideas. And I think it'd be useful for you to, kind of, walk us through some of those numbers, just to give people an idea of scale of what you find in terms of attendance and leakage from players’ incomes and leakage from owners’ incomes. Can you talk about that a little bit?
Sepulveda: O.K. I'm gonna try. Because well, we have (I have) numbers for different leagues. So, I'm gonna try to give averages. First consideration that is important [that] we have been talking about [is] leakages; because most of the money received by the teams [is] received by few people that are going to spend the money away from the local economy. However, most of the money that the team receives is not local, O.K.? The attendance money is mostly local. 85%-90% is local. That is local money coming from the rest of the local economy. That is local. And that goes from $60-$100 million dollars in---and I’m considering in this paper actually---2018 numbers, O.K.? So, these are not the last numbers of the last years. To be honest, I'm not [and] I haven't updated the numbers. So, I'm gonna be talking about 2018 numbers. So, between $50-$100 million dollars is money from attendance coming from mostly from local, the local economy. And that is the money that we care most about. Because if the team is receiving money from the rest of the country, and taking that money away from the local economy, [then] that is not really changing anything in the local economy, right? So, in that respect I kind of disagree a little bit with the rest of the literature. They talk about money going away as leakage. I don’t see that that matters so much, because if the money is in at the beginning not coming from the local economy, [then it] is not really leaking. So, we need to talk about leakage of money coming from attendance mostly, O.K.? That's where the leakage should come from. That is the money that is taken from the local economy and moved away from the local economy. Remember that other income, other revenue, by teams is much more than attendance, right? So, you have the salaries of players that are going to be mostly spend outside the local economy for different reasons. For the taxes they pay, the taxes are federal or going to a little bit to the state. The families many times live outside the---I mean separated from the players when they are playing. Less than 30% percent of---there are studies, but very few studies that analyze how many---players are actually living close to the stadium. And the numbers are relatively small. So, it's less than 30%. The owners are not living there either, right? Sorry, I had something moved in my copy, O.K. So again, the money that they are receiving, and they are spending away, it's not an a precise indication of how much money the local economy is losing, O.K.? But a players, for instance, are receiving between $100 million and $200 million in the NFL. They receive a more money than, you know, leaks. Remember that the NFL has the biggest TV contract in the country in professional sport is huge. And they share that revenue. All teams receive exactly the same amount of revenue from those TV deals. Now, those TV deals are about $10 billion dollars a year. Do you divide that by 32 teams you get---more than $300, I know something much more than---$300 million dollars per year per team, O.K.? So, in the NFL, in particular, while they have attendance of $70 million dollars in 2018, that year they were receiving close to $300 million dollars just for TV, right? And we cannot really say that that money is being leaked. Only the $70 million from attendance are gonna end up leaving, right? So, the money that the players are gonna end up spending outside the jurisdiction is gonna end up being somewhere between $100 million and $200 million. The money that the owners are gonna end up spending outside the jurisdiction is going to be somewhere between $40 and $100 million. So, they are going to spend a lot of money outside the jurisdiction. But it's confusing, again because part of that money didn't come from inside. What matters from the perspective, what matters more, or is more clear from the local approach, is that how much money they are going to keep in the local economy. And that is really not much. For different resources that I was mentioning before [like] taxes [and] family living somewhere else, the fact that they are not playing all the year there, players are going to end up----estimates of how much money the players are going to end up---spending in the local economy are around 12% percent of their salaries. The owners might (may) end up spending even less than that, because I guess most of the owners are not really living close to the stadium anyway. So, the amount of money that they actually live in the local jurisdiction is a very small proportion of the total amount of money they receive. So, the danger is that from the money they took away from the local economy---that I told you is, kind of, in between $50-$100 million in terms of attendance money---the truth is that most of the money might be concentrated in a few hands, and they are going to spend very little inside the local economy. That's the big picture. And at the end of the day, they’re gonna end up spending very little, and the final effect that I'm computing for the economic effect in the local economy. So again, excluding the subsidies that the cities might be given to the teams on the intangible benefits. I’m excluding those. It is a $-10 million dollars in the case of NFL teams. And the maximum is a $-56 million dollars in the case of baseball teams. Again, these that are negative are in the millions. This represents a very tiny proportion of the size of the local economy. In the case of the NFL, the numbers are relatively low. The reason is that they have they received less money from attendance, because they play fewer games, even though they charge more money per ticket. They have bigger stadiums, [but] they end up receiving less money for (from) attendance because they play only eight games in the regular season. And in the case of the baseball league, they end up having a worse negative impact on the local economy after considering even a multiplier effects of $56 million dollars, basically because they play so many more games. So, they replace all their local businesses, many more other local businesses, because they play so many games in a regular season. They play 81 games. So, basically 10 times more games than the NFL, at least at the moment where I prepared the paper.
Stitzel: There's kind of an interesting element there that I had never really thought about before I saw this paper, which is, you know, the players are probably, right, they’re especially if they're playing for smaller market teams, they're probably not living in that smaller market. They're probably living in a bigger market. And so, you know, we do the calculation on this for Los Angeles or New York, but then they have a disproportionate share of the players being there. That non-leakage, where money is coming from a broadcast company going into team payroll, and being paid out to owners and players, and then those players are living in bigger cities, right? Los Angeles might, like, you know, they might lose their $56 million for having the team there and then crowding out. And I'm sorry, yeah well, some crowd out, but substitution effect happening there. But then, if the leakage is from player salary, in the sense that their leakage is, right, which is your point is they're not really leakages if the money never was in the economy to begin with. It's actually going to Los Angeles, right? So, now other players from other teams are living in Los Angeles. And so, that money that's coming from the big broadcast deals into payroll going to players is then being spent on, you know, houses and restaurants and things in bigger cities in Los Angeles. So, it's almost like the whole deal, like the whole league, the whole sports, the whole professionalization of sport might really benefit Los Angeles and New York, even if you calculate the effect of their individual teams might be small negatives. I'd never thought about that before. Yeah, that's a good idea. O.K.
Sepulveda: At least another factor, that even in those big cities might play against the city, is that this is so much money they are making. And they know that they are not going to be playing until the 60s, right? They are going to be playing for a few more years. That income is not really so safe. So, they're gonna save it.
Stitzel: Hmm mmm. Yeah.
Sepulveda: So, usually savings go to investments that are not necessarily in the city. Even in the case of Los Angeles, even in the case of New York, they might invest a lot of money in properties for instance. Of course, that can be considered an investment. But, if you think about capital investment, those kind of thing, that's usually money that doesn't stay in the city anyway, right?
Stitzel: Right.
Sepulveda: So, that’s another factor that contributes to money going a way that is going to go away even in the big cities.
Stitzel: That's a good point. O.K., so we’re way over an hour now. You've been very generous with your time. So, I do want to bring this in for a landing. And I think a good place to do that is to talk about the economic impact on jobs. So, we've talked a lot about leakages. You’ve actually mentioned, sort of, jobs in passing. But, I think, that's, sort of, the other thing that we think of as a big economic development factor is---O.K. we're going to bring in a team, and they'll build up a bunch of jobs. Can you talk to us a little bit about job creation and job destruction to bring this podcast in for a landing?
Sepulveda: O.K., yes of course. In terms of job creation, that's usually a topic that teams try to promote the team, or the arriving of the team to a new city, by saying that it’s going to create a lot of jobs. But the jobs that teams is going to create is usually are not so many. That's the truth. It's true that they are going to have some permanent or full job full-time job positions. But they are usually, at least in the details that I have checked, they were talking about something between 100-130 full-time jobs. They are not necessarily high paid jobs. Can be, kind of, average occupational payment jobs in the US. So, in the neighborhood of 100-130 maybe 150. So, that's about full-time jobs. And the only one job creation category that they talk a lot about is the part-time jobs that are jobs associated with maintaining the stadium, for instance, maintaining the stadium after a game. These are many jobs. These are like 1,000 jobs per game or could be 1,500 jobs per game. But the truth is, that in terms of full-time equivalent jobs, that's the measure that we use, because the number 1,000 or 1,500 is a little bit misleading. That sounds like a lot, but it's only for four hours or only for eight hours maximum. If we translate that in the equivalent full-time job of a person making an income during a full year, those many jobs translate into very few. For instance, even after considering the very significant number of games that the baseball games are (baseball teams are) playing during regular season----if we assume that they hire 1,000 people after each game (or during a game) in order to prepare the stadium and clean it up, that is going to end up assuming that each of them is being hired for four hours--- [it] is going to end up in 330 jobs per year, so which is not so much. No, sorry. Sorry. I'm making a mistake. It's actually equal to 160 jobs per year. And added to the other number, the full-time jobs are going to be in total the total number of jobs is going to be 330, which is very little. And think about what I said before, which player making $5 million a year. How many people could be paid with $5 million at an average salary in the country? In order to make the math simple, if we consider a salary of $50,000 per year, you can basically hire 100 people with one player, or the income of one player being $5 million. So, we are putting the money of 100 people, the salary, the source of income of a household, in the hands, the 50 people, in the hands of one that is very likely going to spend most of that money outside the local economy. So, considering all the players---and all the gains and losses in terms of jobs, in the end, in terms of the number of jobs created or destroyed, I find that kind of obvious that---the number of jobs that are going to be destroyed, that are usually associated with lower levels of income, is much higher than the number of jobs that is going to be created, which is associated with higher levels of income. So, the net results change in accordance to what we are including, after including absolutely everything. So, after being a little bit optimistic---with respect to how much money the players are going to spend on the local economy, and the owners are going to spend on the local economy, and even people (other full-time or part-time people) receiving are going to spend in the local economy---I see that in average (in the base only), the number of jobs being destroyed is going to be around 1,000 per year if we consider an average salary. And that's the maximum basically associated with the big number of games the baseball teams are playing. So, that translates into basically deviating more money from our local businesses to the baseball teams, and destroying in the net more jobs, 1,000 approximately. And the NFL, in average---after again, being optimistic with how much the players are spending, the owners and other workers in the team (are hired by the team) are spending---the NFL is going to end up destroying in the net around 200 jobs per year. So, the effects are negative, and that highlights what I was telling you before about the importance of the distributive effects. There is some distribution going on. And usually, some people with lower levels of income are going to be (can be expected) to suffer the losses of income and equivalent losses of jobs.
Stitzel: My guest today has been Cristian Sepulveda. Cristian, thanks for joining us on the EconBuff.
Sepulveda: Thank you so much for having me.
Stitzel: You’re listening to this episode of the EconBuff. You can find all previous episodes on YouTube at EconBuff Podcast. You can check out our website at www.econbuffpodcast.wixite.com. That's w-i-x-s-i-t.com. You can contact us at econbuffpodcast@yahoo.com.
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