Tuesday, July 15, 2014

Terrible Journalism = Letting Sports Fans (or Teams) Make Economic Claims

A Cleveland politician said LeBron James' return would mean $500 million a year to the city.  And for some reason, Bloomberg printed it.

The scary thing is this number will be repeated enough that some gullible folks will believe it.  But if you want real economist opinions, I point you to The Sports Economist blog, which writes, "The Worst Economic Impact Estimate Ever?"
Even before getting into the more serious economic problems with the study, let’s look at the raw data itself. With a metropolitan area population of 2.1 million, a $500 million impact on the area would mean that every single man, woman and child the region will be engaging in an average of $240 in Caviliers related spending every year for the rest of James’ career. Possible, but unlikely.
...
The bigger problem with Fitzgerald’s claim is that it falls prey to one of the most serious fallacies in economic impact analysis: the failure to account for the substitution effect. Any money spent by local residents at Cavs games is money not spent elsewhere in the local economy. The extra 150,000 fans that will be going to watch LeBron next year are 150,000 less people going out to nightclubs, restaurants, and theaters. The higher ticket prices that fans will be paying leaves less disposable income to spend on Indians or Browns games, or movie tickets, or bowling, or free-style skydiving, or whatever it is that Clevelanders would do, and have been doing, without being able to watch LeBron win games. Similarly, every kid in Cleveland will be getting a LeBron jersey for Christmas or Hanukkah this winter but this doesn’t mean they will be getting more presents, just different presents. The jersey manufacturers’ gains are equally matched by losses for the makers of ugly sweaters.
If you needed more analysis, there's always Field of Schemes:
Last year the Cavs sold 710,000 tickets, and had 132,000 go unsold. Even if the team were, let’s say, to double ticket prices next year, each of those 132,000 new attendees would have to spend $3560 apiece on their visit to a game in order to generate $500 million in economic activity.
A little piece of Bloomberg's credibility died with the publishing of that piece.

4 comments:

  1. Professor JD Blair, phD, JD,July 17, 2014 at 7:08 PM

    Noah, a HUGE Thank YOU for publishing this HIGHLY flawed critique from the Sports Economist. Aptly it's titled Terrible Journalism. Ironically, It is the purveyors of the junk science spewed out by The Sports Economist and Field of Schemes who practice bad journalism. As do you, when you parrot their non-economic garbage.

    Their reports are not based on economics. They employ tricks and play on the imprecision in financial measurement to equate that to worthlessness. Pro sports teams can and do employ economists and finance professionals to reasonably predict the size of specific actions by the team

    One only need to read the Blog excerpts you copied above to see how they contort and ignore both the basic principles of economics, as well as reality and common sense. Pretty easy to see the serious manipulation and distortion that The Sports Economist Blog commits. They do this nearly ALL the time.

    First, the math is just wrong. And Intentionally so.

    "With a metropolitan area population of 2.1 million, a $500 million impact on the area would mean that every single man, woman and child the region will be engaging in an average of $240 in Caviliers related spending every year for the rest of James’ career."

    Multiple problems here:
    1. The population of 2.1 Million is the wrong number to use in the equation. Cavaliers-related spending is not limited artificially to a small area the Sports Economist selected. The people coming to games, buying team merchandise, and "viewing" TV/cable/internet/radio broadcasts, newspapers, fansites and analysis programming are not limited to the 2.1 Million people in the five county area the Sports Economist artificially cites to contort/distort the data.

    2. One of the problems with this intentional selection of the wrong denominator (bottom or 'Y' number in the fraction, $X dollars in spending divided by Y number of people) is that it begs the question, or assumes the Sports Economisits' contention (that people do NOT come from outside the home counties to attend games) is true, then uses that assumption to prove the assumption.

    In this specific case, Bloomberg's article quoted Ed FitzGerald, who is the County Executive of Cuyahoga County. The Bloomberg piece outlines some of the components of how the $500 million figure was estimated.

    Bloomberg reports this analysis (which, I admit, appears overly optimistic, but not by the hundreds of millions Field of Schemes pretends) because this type of analysis is used every single day by tens of thousands of business decision makers all over the world.

    You should be stunned by the use of "every single man, woman and child" statistic, which is intended to deceive. The number offered by FitzGerald means nothing of the sort. Take the City of Lutz, FL, population around 19,000 people. If Bill Gates moved there, and also one of the WalMart heirs, the per captia household wealth in Lutz would increase by more than $1 Million per person. But that does NOT mean that "every single man, woman and child" would have a net worth that grew by a mil.

    Further, the principle of substitution in economics disproves, rather than supports, the Sports Economist and Field of Schemes claims. There is no law or principle of economics that says any money not spent on the Cavs would be spent on something else in Cleveland. The Laws of Economics tell us exactly the opposite. This money could be spent ANYWHERE on ANYTHING.

    Imagine if the Cavs moved to Columbus. Cleveland residents wanting to attend games would go to Columbus and spend that money.

    In short, these fringe kooks you so often qoute are not practicing sound economics. They are destroying economics.

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  2. Imagine LeBron went from Cleveland to Miami. What happens to all that spending people now have available? Well, they spent it anyway. Restaurants around the arena did just fine after he left.

    You assume if people are buying more Cavs jerseys, they are buying just as many other clothes. Although I'd bet they aren't. And if they watch more Cavs games, you assume they're watching more TV (which I bet they're not) and spending just as much time/money at the movies, the golf course, etc. I'd bet not.

    While some economic impact is possible, sports spending is generally considered retail; and the cannibalization from other areas of retail negates much of the overall impact.

    Finally, the denial from Cuyahoga Co. that they ever claimed $500M should put to bed any contention that the number can be rationalized in any way, shape, or form.

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  3. "Terrible Journalism =" journalist getting into the he said she said with "pointing out" only what you think is right. Sounds like some Fox & MSNBC News type journalism...

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  4. Sorry, but this quote is absolutely nuts. NOAH says, "While some economic impact is possible, sports spending is generally considered retail; and the cannibalization from other areas of retail negates much of the overall impact."

    That claim is made by the anti-stadium kooks/fringe economists. But it has never been substantiated in a reasonable study peer reviewed by professionals outside the kook school of neo-economics.

    The day Lebron signed in Cleveland, my FB page blew up with Cavs fans from places as far away as Los Angeles and Seattle announcing they were planning two or three trips to Cleveland to watch games.

    The difference between studies like the ones which have estimated the economic impact of the Rays and the critics attacks of those studies is that the studies use rigorous methods and sound economics. The critics offer supposition and manipulation of economics. They have convinced Noah that the impact is negligible.

    There are TENS OF THOUSANDS of people who travel to the bay area specifically to attend Rays games. I know this in two ways: 1) I interact with thousands of them in a year, and 2) the various studies that have been conducted involve specific analysis of these out of town visitors drawn here by the Rays.

    The principle of substitution says that any dollar not spent on eggs may be spent on anything else. Any entertainment dollar not spent by tourists to come here can surely be spent in other regions. Every dollar spent by locals to attend Rays games can be spent outside this region. In fact, that is what the law of substitution tells us. It does not tell us what Noah claims. That all the money will be spent here. That is not economic theory. It is not fact. It is the opposite of reality.

    SOME of the money spent on the Rays would still be spent here if the Rays weren't here. But no one knows how much. And no studies nail that range.



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