L.A. Isn't Getting Football, and That's OK

(Farmers Field/Wikipedia)

Since losing both of its professional football teams to smaller markets in 1994, Los Angeles has always seemed to pop up as a rumored relocation destination for smaller-market NFL franchises.

Last September, when L.A.'s City Council unanimously approved an agreement with Anschutz Entertainment Group to build Farmers Field stadium, writers, analysts, and fans alike thought it would only be a matter of time before any one of a number of teams filed to move to the area. Professional football would finally return to the City of Angels after almost 20 years, and at no cost to taxpayers: AEG announced that it intended to privately finance the construction of the project.

However, Los Angeles' football fans had to put their dreams on hold. No team filed for relocation by the February 15th deadline, keeping the Farmers Field project in limbo. To make matters worse, a recent report revealed that the proposal may be "essentially dead" to the NFL, meaning the dream of football in L.A. might be crumbling.

It's disheartening news for both L.A.'s football fans and City Councilwoman Jan Perry, who said that she hoped the project could "close the gap and financial deficit." For a city facing a $216 million shortfall - with similar shortfalls projected for the future - it could use all the financial help it can get. But while losing out on Farmers Field seems like a stroke of bad fortune, it may actually turn out to be a blessing in disguise.

As Villanova University Professor Rick Eckstein wrote in his book-length analysis of the issue, Public Dollars, Private Stadiums: The Battle over Building Sports Stadiums, a significant amount research has been done about the economic impact of stadiums, and very little of it has been positive. Temple University Professor Mike Leeds, quoted in a Daily Beast article, put it even more directly, saying that new stadiums have "essentially zero impact on a city's finances."

Conventional wisdom would suggest that the Farmers Field proposal would create a strong economic boost for a city grappling with debt. Such a large infrastructure project could provide sufficient economic growth and job creation to close, or at least limit, L.A.'s budget shortfall. However, Eckstein says that the conventional wisdom doesn't match the evidence.

"Historically, the economic impact [of sports stadiums] has been overestimated," Eckstein said in an interview. "The impact on a city's finances isn't far from zero."

In his book, Eckstein writes that it's not surprising that athletic stadiums provide such a minimal boost to local economies, given what a small percentage of the local economy they actually make up. Professional sports generally account for about only .2 percent of a city's total employment, and their local economic impact is roughly the same as a large supermarket.

The Farmers Field website offers rather lofty projections, anticipating that the project will create between 20,000 and 30,000 "temporary and permanent living wage and union jobs," and inject $378 million in direct expenditures into the city's economy, along with $1.9 billion in "output and support into the community."

University of Alberta Professor Brad Humphreys said bluntly, "the methodology that underlies those estimates has been discredited by very well-known economic research."

While the Farmers Field projections relate to the broader Los Angeles economy, the effects of building a new stadium could be vastly different for individual workers. Humphreys and fellow economist Dennis Coates wrote in a 2004 Cato Institute report that the presence of a professional sports team could potentially lead to decreases in income: while employees of hotels and lodging facilities were negligibly better off, with a yearly wage increase of $10, employees in dining establishments saw an average wage loss of $162 per year.

Not only that, but stadiums have a negative effect on local retail and service sector employment, leading to an average net loss of 1,924 jobs. In an email, Coates wrote that there is no way to test for a precise cause for the job loss. But his best guess is that the stadium's presence caused the jobs to be crowded out.

Any city jobs lost as a result of the stadium being built would be tough to stomach, given that only a small percentage of the jobs created at the stadium would be permanent, year-round ones.

"Look at the year-round workers for a sports team, and it's usually less than 100," Eckstein said. "That's the people who actually run the team. Many workers are usually seasonal."

There are several reasons Humphreys and Coates are so down on new ballparks when stadium boosters like the ones behind Farmers Field offer such rosy projections. The most revealing such reason in Humpheys and Coates' book is that those who commission the impact studies use them to push their agendas by simply overstating the economic multipliers.

For example, the impact studies won't differentiate between gross and net spending, ignoring that stadium spending substitutes for other local spending: fans may dig deep into their wallets for stadium tickets, paraphernalia, food and drinks, but if that money was otherwise going to be spent on local restaurants or shops, the consumers would just be substituting one purchase for another.

Humphreys and Coates also reference the "leakages and multipliers" effect-established in a paper by economists John Siegfried and Andrew Zimbalist-which is that stadium spending offers a weaker economic multiplier than non-stadium entertainment spending, meaning that the gains in stadium spending won't offset lost earnings for local community businesses. Siegfried and Zimablist attribute this effect to four factors, or "leakages": 1) a majority of team revenue goes to the owners and players, and given their (generally) lavish incomes, their earnings will be subjected to the highest marginal tax rate; 2) the incomes of athletes and owners are much higher than those of local business owners, and higher incomes translate to higher savings rates; 3) players and owners often don't live in the areas in which the stadium is located, and they typically incur substantial travel expenses and own multiple homes; and 4) stadium food concessions are more expensive than those in local establishments, and most, if not all, of the difference is collected by concessionaire companies, which are often located in other areas.

The number of construction jobs supported by the construction of a new stadium is often touted as a clear benefit to projects like the one planned for Farmers Field. Teams and cities rattle off job figures in the thousands, or even tens of thousands. However, Humphreys pointed out that many or most of these construction workers would already have had jobs, meaning their jobs shouldn't necessarily be considered "newly created." A 2001 study by University of Missouri economist Phillip Miller concluded that St. Louis's construction of two multi-purpose stadiums produced no actual net construction job growth. The construction of the stadiums simply displaced workers who would have otherwise taken on other projects.

Unlike many new sports arenas, Farmers Field is supposed to be privately financed, and thus not subject to the criticisms that often dog publicly-financed stadiums underwritten by taxpayers. Nevertheless, Humphreys and Eckstein are doubtful that the stadium will stay privately financed. They expect some kind of subsidy to sneak into the project, whether through sewage, roads, utilities or some other means. "It's part-and-parcel in the shell game of these facilities," Humphreys said.

Even though a city may be spared considerable expenses from a privately-financed stadium, Eckstein doesn't see private-financing becoming a trend in professional sports, meaning taxpayers will probably have to get used to tax hikes supporting public subsidies for stadiums.

"Despite evidence to the contrary, there's A) a deep-seated belief that these stadium mega-projects create an economic boost; and B) there's something magical about having a sports team in your city," he said.

Los Angeles has some serious fiscal challenges ahead of it. Antonio Villaraigosa, who will be replaced by Mayor-elect Eric Garcetti, has proposed rather drastic spending cuts to get the budget balanced. The Farmers Field proposal may strike city leaders as an inexpensive way to give the city's economy a shot in the arm, but the evidence says otherwise. While city officials formulate a strategy for L.A.'s future, residents should hope that a new athletic stadium isn't part of the plan.

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