10 September 2009

Cutting through the B.S.

The Merc's Tracy Seipel has a new article featuring quotes from economists questioning some of the projections in the San Jose Economic Impact Report. Here's one of the better takeaways from the article:

But experts who study the economics of ballparks reviewed the numbers for the Mercury News and raised plenty of concerns. Chief among them: The cost for the city land the ballpark would be built upon is significant, they said. With three more parcels to buy, acquiring the land for the stadium over the years could amount to at least $42 million, according to a Mercury News analysis.

"You can't come out saying that this doesn't have a cost if all we're supplying them (the A's) is the land," said Victor Matheson, associate professor of economics at the College of the Holy Cross in Worcester, Mass. "The land is very valuable real estate."

Rather than be redundant, I'm reposting the "Cutting through the B.S." entry from last week, which covers much of the same ground.

First, I'll start off with some context on the report. The media has published several figures that sound good, but further understanding is in order.

  • $130 million per year in direct spending in San Jose. This is based on what's called a "stabilized" year, which for the purposes of the report is 2018. This acknowledges that much of the newness of the ballpark will wear off over time, allowing attendance to settle just under 2 million/year (24,300/game). This breaks down to $82.8 million of spending in the ballpark, $40.5 million outside the ballpark, $1.8 million by the various visiting teams, and $5.2 million for non-MLB events. There are some odd ratios used to get to these totals. For instance, the study assumes that 10% of players will live in San Jose, and that 10% will spend 50% of their income in the city. What? The other 90% will live outside San Jose and will spend only 5% of their income in the city. All-in-all, some 5.1 million (7%) will be spent within the city. Another $50 million would come from spending directly related to ballpark and team operations. Compare the $130 million figure to projections for the 49ers stadium, which were $72 million and $160 million for the City and County, respectively. I'm skeptical about these numbers, but CSLI claims they're based on information from MLB teams, other sports franchises, and surveys. There must be some correlation, but the numbers described within the text don't always match up with what's in the tables.
  • Nearly 1000 jobs will be created outside of construction. Granted, moving team operations from Oakland to San Jose will net dozens, if not hundreds of new jobs. From a greater regional standpoint, it's really just displacement. Moreover, there will be displacement of the low-paying jobs. Many of the Aramark-sourced vendors in Oakland will lose a seasonal baseball gig, while Aramark-sourced vendors in San Jose will gain one. For years many of these vendors have worked multiple venues to help make ends meet, which makes sense since we have the luxury of having six local pro sports teams combining to cover the entire calendar year. And if the 49ers and/or Raiders move to Santa Clara, there will be even more displacement. Many vendors won't be willing to travel 40 miles to work food or janitorial service. So it's great for South Bay workers, terrible for East Bay workers. Not that I needed to explain that in great detail.
  • Per capita spending. The study separates fans into different groups in order to properly establish their spending patterns. For A's games, in-ballpark spending is projected to be $49 per person per game. That sounds high until you break it down into its components: $30 for a ticket, $15 for food and beverage ($6 nachos + $7 beer + $3 dessert = $16), $3 merchandise (part of more expensive item spread out over multiple visits), $1 parking (3 people per car, 30% of fans using available parking). The Coliseum's 2009 Fan Cost Index is $46.81 per person per game, and that includes a child discount on tickets. Many fans (including myself) go quite cheap by finding free parking, or by bringing in outside food. Still, I pay $13 for a bleacher seat, $7.20 roundtrip from Fremont BART to the Coliseum, $3 in gas, plus $7 for a large sandwich and drink from somewhere else. It adds up.
  • That hint. In the afternoon post, I mentioned there was a hint at the deal. In the general fund revenue section is this sentence, "Under the Ballpark Development Scenario, the hard
    construction costs of the stadium are used as a proxy for the assessed value." Assuming there are no appraisal shenanigans like the kind the Giants pulled in SF, the figure points to an assessment of the ballpark only, which means that the land will remain City property while the A's will lease it for the stadium. In other words, it's a repeat of the Giants' land deal.
What you, gentle reader, want to know is: Are these realistic numbers? The strange breakdown of player spending and the projections of property tax pass throughs to school districts are specious. Other numbers appear to be realistic, in some cases conservative. The study projects $1.5 million in tax revenue. It's not high, and there's a good reference point in HP Pavilion. Sharks games produce between $1.2 and $2 million per year in taxes with fewer games and less overall attendance (though greater ticket prices). That said, $1.5 million is a drop in the bucket for a city of 1 million people. Claims of making money from the deal are key for Mayor Chuck Reed, as he wants to uphold his fiscal conservative credentials. Given the litany of bad stadium deals listed in the last appendix in the report, it would be a great victory if the project were simply revenue neutral. Not sexy, but a little more realistic.

Media coverage of the economic impact report and reactions:
The money: Wolff connects the dots @ Bloomberg, talks T-rights @ Forbes
The lede @ the Merc and SFGate
The tube: KTVU and KGO stories