Major League Steal: The Economic Folly of Public Subsidies for a New Red Sox Stadium
2000-03-01
Executive Summary
The Red Sox are
proposing to construct a 44,130 seat stadium on 15 acres of land adjacent to the
present Fenway Park. The Owners of the Red Sox are poised to seek a minimum of
$250 million in state and local taxpayer subsidies for the $600 million plus project.
In an attempt to justify
their request for state and local taxpayer support for the project, business
groups allied with the Red Sox have argued that there will be substantial economic
benefits associated with the project. To this end, the Greater Boston Chamber
of Commerce and the Greater Boston Visitors and Convention Bureau released a
study in June of last year, written by Chicago consultant C.H. Johnson, claiming
that the construction of a new stadium would create 1,032 new permanent jobs
in Greater Boston.
The conclusions reached
by the C.H. Johnson report cannot be supported by any objective economic analysis.
Its projections are based on unrealistically optimistic assumptions, highly
selective use of data, and the failure to fully consider the experience of other
similar projects. Moreover, the findings of the study are inconsistent with
numerous economic analyses that demonstrate that sports stadiums almost universally
fail to generate statistically significant economic benefits or increased employment.
This report shows that the Johnson study cannot reliably be used to project
economic benefits.
Technical Shortcomings
The Johnson study
recognizes that economic benefits flow only from increases in spending by out-of-state
patrons and calculates the benefits according to this framework:
The following flaws contained
in the Johnson study demonstrate that each element in the calculation is overstated.
The result is largely inflated claims of economic and employment benefits.
Future Annual Attendance
Figures Are Inflated: the study accepts without serious evaluation the estimates
of attendance provided by the Red Sox, compares today’s attendance to a
year soon after the stadium opens (a "honeymoon" year), overstates
likely future capacity utilization and does not factor in access issues or the
effect of replacing a unique historic facility. Further, base year (1999)
attendance was understated by 11%, exaggerating the prediction of attendance
increases.
The Anticipated Percentage
of Fans From Out-of-State Is Inflated: the study accepts, again without
serious evaluation, estimates from the Red Sox and fails to adjust for the loss
of heritage tourism, the fact that many out-of-stater patrons attend games while
in town for other reasons, and the fact that most of the additional seats in
the proposed new stadium are premium seats which will be purchased by in-state
residents.
Average Spending by Out-of-State
Fans Is Overstated: the study fails to adjust for the fact that most spending
increases will be from in-state premium seat patrons, the fact that some out-of-state
patrons are the guests of in-state residents, makes an unfounded assumption
of new stadium induced spending, inflates hotel spending, and fails to account
for the out-of-state value added to goods and services sold.
The Indirect and Induced
Spending Multiplier Is Too Large: the study applies an effective multiplier
of 1.76 when economists estimate the appropriate multiplier to be 1.18.
Employment Figures Are
Calculated Using an Inapplicable Model: job creation is calculated using
a model which fails in circumstances of current economic conditions.
The study also fails
to account for the following significant factors:
- The Social Cost of
Taxes Needed to Fund the Stadium Project;
- Job Losses Brought
On by Disruption of Local Businesses; and
- The Effect On The
Local Economy of Diverting Government Spending from Other Programs.
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