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The NBA Lockout, And The Hidden Economics Of The Home Team

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The NBA lockout is on the brink of sabotaging regular season games, and as we approach the doomsday scenario, many are worried about the economic impact an extended lockout could have on local economies. Here's why.

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As we get closer and closer to the NBA lockout threatening the NBA's regular season, many writers have taken time to bemoan the economic impact that a work stoppage in the NBA might have on the surrounding economies in various NBA cities.

Namely, thousands of arena employees will be out of work, and business that have long existed as satellites to NBA arenas and teams will suffer. The impact seems obvious. But as Slate tells us Thursday in a characteristically lecturing tone, "None of it ever happens."

Ordinarily, we would just ignore this, but since the report's received traction elsewhere, and mostly because it's so condescending, it sort of begs a response, even if that response means putting on pants, acting like an adult, and talking about economics. So prepare to nerd out, you guys.

Here's Slate's Neil deMause:

Idle turnstiles and shuttered souvenir stands are obvious indicators of lost economic activity, and an easy visual symbol of the impact of the sports world’s regular strikes and lockouts. The problem with these stories is that there’s no evidence to support any of their claims. The lost city revenues, the devastation for local businesses—none of it ever happens.

[...]

The economists looked at per-capita income data from metropolitan areas that were home to striking (or locked out) sports teams. They found that even when ticket sales stopped, average income in a city didn't change. At all. "Work stoppages in baseball and football have never had significant impacts on local economies," they wrote. As icing on the cake, they looked at NBA cities that had lost their teams and found the same thing: bupkis. "The departure of a franchise in any sport, particularly in basketball, has never significantly lowered real per capita personal income in a metropolitan area," Humphreys and Coates wrote.

There are three problems with Slate's rendering of the situation.

1. To hear the author tell it, any claim of economic hardship, in any city, is at best misleading, and at worst, an outright lie. That's an incredibly lazy generalization considering the vast differences you see from market to market in the NBA. The economic impact in Charlotte won't necessarily be the same as the economic impact in, say, Washington D.C.

2. The entire discussion does a disservice to the thousands of citizens whose livelihoods absolutely do depend on the NBA. Arena workers, barkeepers in and around NBA arenas, ticket scalpers, catering services that provide arena food, etc--to say nothing of team employees that will be laid off in the event of a long work stoppage, or the 114 NBA employees laid off this summer. These people aren't just talking points.

3. Finally, even if the argument's meant for a macro context--and not a tacit response to the legions of writers citing lost jobs as a tragedy of the lockout--it's still fairly insulting. Gimme a second here.

While the piece insinuates that other writers over-simplify things in looking at the impact of a lockout and/or the presence of a sports franchise, the author's guilty of the same transgression.

The magic of consumer spending is that it begets even more consumer spending: Buy a can of tuna from your local grocery store, and the store owner uses a share of the cash to pay his workers, who in turn spend it on more groceries, and so on. The cycle continues until somebody sinks the money into a bank account or spends it on something in another state or country, at which point it "leaks" out of the local economy.

At a sporting event, however, the cycle is cut short. That’s because a disproportionate share of sports revenues goes to a handful of people—the team owner and the players typically soak up the majority of every dollar spent at a game. When a local grocery store owner goes out to dinner, he ends up putting money in the pockets of busboys who’ll later visit his store to buy vegetables and milk. When LeBron James cashes one of his paychecks, by contrast, it’s unlikely that he spends it all at the local Walgreens. Rather, your outlay on Heat season tickets will end up doing as much to boost the Bahamas as it does the economy in South Florida.

A sports franchise isn't meant to be a linchpin of an economy--nobody's arguing that losing the Sonics crushed Seattle's economy. And yes, it's true that if Rick Ross and Birdman aren't paying $100,000 for season tickets to Heat games, we can rest assured, they'll invest their money elsewhere.

But if it's not an economic linchpin, a successful sports franchise is still a catalyst for growth that simply doesn't happen in its absence. How else do you think cities justify public funding for arenas?

When you discuss the economics of a sports franchise and its place in a city's economy, you have to consider the opportunities a winning team creates. I'm not a professional economist or anything, but when a sports team that's been funded to create economic opportunity suddenly disappears, the loss of economic opportunity seems like a pretty big deal.

Maybe you're not losing anything without a sports team, but you're not gaining anything, either. So, when you're talking about the loss of the opportunity to capitalize on a successful team, you're talking about losses that will never be calculated. But those are still losses.

All of which makes Slate's cute LeBron James analogy look all the more ridiculous. "When LeBron James cashes one of his paychecks," deMause writes, "it’s unlikely that he spends it all at the local Walgreens." HA! No way LeBron shops at Walgreens.

On the other hand... Since LeBron James arrived in Miami, he's turned the Heat into what area real estate developers have called "a $1 billion stimulus package". As one accountant explains: 

According to Tony Argiz, CEO of Morrison, Brown, Argiz & Farra, the state's largest Florida-based accounting firm, "The Miami Heat are poised to become a $600 million to $1 billion dollar economic stimulus package for the local Miami economy over the next five years."

Argiz further explained, "If you do the math, and look at how a single Super Bowl week event generates a reported $250 million dollar economic boost to the local economy, it is easy to get to a $1 billion number if the Miami Heat has subsequent multi-year playoff runs over the next five years. And remember, each playoff run is an extended 50 days of NBA action in this town beyond the regular season of play."

Now, if you lose the Miami Heat for a year, you won't see Miami's economy crumble. It's probably true of other cities, too. But aside from the plight of arena workers, barkeepers, and team employees... If economies lose all that opportunity for growth, isn't that a pretty important loss?