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Baade featured in three different news outlets
Ernest A. Johnston Professor of Economics Robert Baade’s take on a proposed stadium in Nashville was covered by the USA Today Network, the Houston Chronicle, and WRCB Chattanooga.
Nashville’s proposed MLS stadium may have hidden costs to city coffers
By Mike Reicher
Nashville Mayor Megan Barry’s pitch for a Major League Soccer stadium as a “private-public partnership” intentionally placed the “private” first, to emphasize the team’s financial contribution to building the $275 million stadium.
Team owners — led by billionaire investor John Ingram — will pay $9 million each year toward the $13 million annual debt payment, if the league chooses Nashville for a franchise. Stadium visitors will contribute through ticket tax and sales tax revenue. The deal will limit public investment, Barry said, to $25 million for stadium infrastructure, plus any annual shortfall.
But a key financial point was glossed over in the pitch: Sales tax revenue redirected into the stadium financing could be a drain on the city and state coffers, experts say. Those attending soccer games likely would have spent their limited entertainment dollars at honky-tonks, movie theaters or another sales-tax-producing business. Funds that would have been paying for police, schools and roads will now be paying off the stadium debt.
Economists typically estimate this so-called “substitution effect,” but the economic impact report used by Nashville officials did not take this into account. The MLS owners group paid for the analysis and provided some of the basic assumptions to the Boyd Center for Business & Economic Research at the University of Tennessee, which authored the five-page report.
“It doesn’t seem to be the kind of objective appraisal that the city would need to render a believable opinion on why they should spend public money subsidizing the stadium,” said Robert Baade, the Ernest A. Johnson professor of economics at Lake Forest College in Chicago.
Nashville officials have praised the stadium’s potential for job creation and redevelopment of publicly owned fairgrounds. City and team leaders say they trusted the economic analysis, which estimates $77.7 million in ongoing annual economic impact and $15.1 million in sales tax revenue. The lead author of the report is William Fox, a respected economist who directs the Boyd Center.
“Regardless of who pays for the study,” said Sean Braisted, spokesman for Barry, “we are confident that the analysis done by Dr. Fox reflects the economic impact of the stadium on Nashville.”
A spokesman for the owners group echoed that. The team provided Fox with information from the MLS and “other experts,” Clint Brewer said in a statement. “We are absolutely confident that he has taken all factors into consideration in his modeling.”
One of the co-authors of the economic impact report, Lawrence Kessler, a research assistant professor, said his team didn’t examine any substitution effects, but “we tried to be as modest as possible” when making assumptions and projections.
A limited pool of spending
Based on the financing package, Nashville could be redirecting more than $3 million of sales tax revenue a year to pay off the debt. Nashville could hire about 50 police officers with that amount.
Braisted pushed back on the idea that the stadium would be cannibalizing other business: “I don’t think you can say these sales tax dollars would be generated in Nashville without the stadium.”
Economists say that’s not how consumer behavior works. “Families have limited time and money,” Baade said. “The reality is, if people weren’t spending money at soccer events, then the money would be spent on other things.”
For this to be completely “new” sales, one of two things would have to happen, according to Geoffrey Propheter, a professor of public affairs at the University of Colorado, Denver. Either spectators would draw down their savings to pay for a day at a soccer game, or the stadium’s economic activity would boost local income enough to generate extra spending.
“That argument — that a sports team increases local area income — has been debunked,” he said.
Fans will be spending in Nashville, but would they come anyway?
The economic impact study tried to determine how much visitors from outside the Nashville area would spend when they come to town and attend an MLS game. Authors assumed that 15 percent of all stadium visitors would be from out of the area, and they would generate $14.5 million in annual economic activity outside of the stadium — spending at restaurants, hotels and elsewhere.
But the report didn’t attempt to determine what portion of those people were coming to Nashville specifically for a soccer match.
“Some people are going to be visiting Nashville no matter what,” Propheter said. “And they’re going to spend their money in Nashville no matter what.”
On the other hand, how many people have been leaving Nashville to go watch MLS games elsewhere? Their spending would now be captured here, said Braisted, the city spokesman.
That’s probably a minor effect, said Baade, the Lake Forest economist. “It’s not as if you have hordes of people leaving your community to watch soccer.”
Stadium attendance would depend on the team’s performance
Stadium boosters point to the popularity of international soccer matches in Nashville this year as evidence of a strong market. This past summer a Gold Cup match drew more than 47,000 fans, and English Premier League rivals Manchester City and Tottenham drew more than 56,000.
The University of Tennessee economic impact report lists other MLS teams’ attendance. It mentions Orlando and Seattle, teams with the two highest average attendance in 2016. It also called out Atlanta’s team, which set a league attendance record of nearly 72,000.
At first, attendance may get a boost from the “newness” of the team, said Baade, the economist from Lake Forest University. “But if the team doesn’t perform very well, you can expect the attendance will reflect that.”
Nashville, the report projects, could expect 27,000 fans a game, “consistent with attendance for some teams across the country.” That would assume that 98 percent of the stadium’s 27,500 seats would be full, on average, each game.
The median attendance for the league is closer to 20,000, according to an analysis of MLS statistics. The economic impact report’s authors said they used the Nashville owners’ assumptions about attendance.
“It seemed relatively realistic,” said report co-author Kessler. “But we can only work with the numbers we have.”
–USA Today Network, Tennessee, November 11, 2017