From super meltdowns to new arenas, sports’ effect on the economy is uncertain

After the ball clattered off Brandon Bostick’s helmet two weeks ago during the most notorious onside kick in Green Bay Packers history, a frisson of dread tore through the heart of Packers Nation.

Instead of sealing their NFC Championship victory with a few Eddie Lacy runs and a kneel-down or two, the Packers put the finishing touches on one of the most improbable playoff meltdowns in decades.

The ripple effect (call it the Butterfly Effect or the Bostick Effect, but don’t underestimate its power in these parts) has surely, to paraphrase Steve Jobs, put a dent in our little corner of the universe. But could it end up having a significant economic impact?

“Increased entertainment spending on game day is just entertainment dollars that would have been spent somewhere else in the area, at some other time, if the game did not take place.” — Sports economist Brad R. Humphreys

With the Milwaukee Bucks lobbying for state aid for a new arena — and the governor recently putting forth a plan to accommodate the team — the question of what, if any, economic benefits sports franchises bring to an area is rearing its head again.

Convention and visitors bureaus — and sports franchises themselves — love to tout such reputed effects, while skeptics from across the political spectrum are just as eager to downplay them.

For their part, the Packers estimate that the Green Bay area enjoys a significant economic impact ($13.5 million) as a result of each home game, so the team’s loss earlier this season at Buffalo — which likely prevented the NFC Championship from being played at Lambeau Field — may have hurt the state’s economy more than the Sleepwalk in Seattle.

Still, one has to wonder: with local sports fans’ appetite for all things football largely squelched (i.e., with all those nachos going unmunched and all that local craft beer going unquaffed), does the Packers’ NFC Championship pratfall represent a missed economic opportunity for our state, however slight?

Believe it or not, there are peer-reviewed academic studies that seek to answer this question — though they, rather unhelpfully, come to different conclusions.

In a 2002 paper published in the Journal of Sports Economics, economists Dennis Coates and Brad R. Humphreys examined the economic impact on cities that were home to Super Bowl-winning teams.

In the abstract of the paper, titled “The Economic Impact of Postseason Play in Professional Sports,” the authors concluded that “in the city that is home to the winning team from the Super Bowl, real per capita personal income is found to be higher by about $140, perhaps reflecting a link between winning the Super Bowl and the productivity of workers in cities.”

So maybe — just maybe — the elevated spirits and bonhomie that accompany a Super Bowl victory have some impact on employees’ engagement with their work, ESPN.com and Profootballtalk.com notwithstanding.

Then again, a later study that attempted to replicate these findings came to a different conclusion. In his paper “Contrary Evidence on the Economic Effect of the Super Bowl on the Victorious City,” economist Victor Matheson concluded, “Although winning the Super Bowl is associated with an increase in income of $50 to $60 per capita, these results are less than half those found in previous studies and are not statistically significant ….”

In fact, even Humphreys, one of the authors of the study that did find a link between per capita income and Super Bowl success, has sought to dismiss the effect of playoff games on the economy in general.

In a post on his blog The Sports Economist, Humphreys noted that the overall economic impacts of the vast majority of playoff games on an area are negligible. In fact, he noted that the claims made by convention and visitors bureaus and chambers of commerce about such impacts are typically exaggerated.

While Humphreys acknowledges that there certainly appears to be increased economic activity associated with playoff games, he says it’s misleading at best.

“Increased entertainment spending on game day is just entertainment dollars that would have been spent somewhere else in the area, at some other time, if the game did not take place,” wrote Humphreys. “Claiming that a playoff game generates positive economic impact is similar to claiming that weekends generate positive economic impact. Imagine the headline in the business section: Bar, Restaurant Sales Surge on Friday and Saturday Night!”

What Humphreys is writing about here is the “substitution effect,” a phenomenon that’s well familiar to sports economists. The argument goes that any economic activity generated by sporting events is simply activity that isn’t generated elsewhere (i.e., Packers fans will now spend more of their disposable income on dinner with friends or movie rentals and forgo that visit to the local sports bar and that brand-new Morgan Burnett jersey).

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The substitution effect also comes into play in the current debate over whether the state should pony up for the Milwaukee Bucks’ proposed new arena. Most economists (85%, according to Harvard economist Greg Mankiw) agree that local and state governments should stop subsidizing professional sports franchises.

So where does that leave Wisconsin sports fans?

Well, whether you spend your entertainment dollars on Super Bowl snacks or on a movie, some popcorn, and a box of Kleenex this weekend, you can rest reasonably assured that the Packers’ reversal of fortune is unlikely to have any serious or lasting effect on our state’s economy.

What effect it has on your psyche, however, is up to you.

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