Like bridesmaids fighting for the bouquet, cities from New York to LA are falling over themselves to snatch up LeBron James for their respective NBA franchises. The frenzy started after James became a free agent on Thursday. Out came the calculators, the city hall invitations, and the reporters. What they all seemed to take for granted was that acquiring the number one player in the NBA would pay off in the end in the form of increased spending, job creation and tax revenues.
The thinking goes as follows: Crowds that flock to see James play will spend money not only on tickets, but on refreshments, hotels, restaurants, bars and other entertainment. Jobs will be generated to serve all these extra fans. And all that extra spending, along with James’ tax payments, would prop up city finances. The stakes seem so high that New York City Mayor Michael Bloomberg released a video plea to James as part of the city’s “C’Mon LeBron” campaign. In Ohio, meanwhile. Gov. Ted Strickland and Sen. Sherrod Brown joined local celebrities in singing a song to James, titled “Please Stay LeBron.”
But all pleading, cajoling, and publicity don’t make the numbers work. Sports stars, even marquee names like Lebron James, can fill stadiums and put a smile on the faces of hot-dog vendors, but they do little to improve the fiscal situations of the cities in which they play, For that matter, the consensus among economists is that sports teams themselves don’t provide a real net economic benefit. Both New York City and James’ current home city, Cleveland, are among the six urban centers with a legitimate shot at landing the star. Both are striving to convince him that their city is the one for him, and they provide a good sampling of NBA cities — one is a major cosmopolitan center with 8 million residents, the other a sleepy midmarket city in the Midwest with a population of 431,000.
But despite their differences, the financial impact of a LeBron James would be the same for both: little to none.
“Professional sports are a tiny fraction of any big city,” says Dennis Coates, an economist at the University of Maryland. “The impact of a single player on the economy of the entire city would be imperceptible. It makes no difference whether it is New York or Cleveland. No effect is no effect.”
Hyped Hoop Dreams
But to look at the media reports and words of city officials, you’d think that professional sports are an unrivaled economic engine.
Not so, says Coates. Fans who spend on such events will subsequently spend less on other forms of entertainment, meaning that overall spending on entertainment in a city remains even, whether or not a pro sports team is playing. “People have limited resources, in the form of income and time. Any spending on one activity necessarily comes at the expense of some other activity,” says Coates.
So even if James helped send the Knicks to the playoffs, an outcome that would generate over $3.6 million for each home game, according to the New York City Economic Development Corporation, net spending on entertainment in the city would probably not change. Fans may ante up for tickets, but that means they won’t be shelling out for that Broadway show or date-night dinner.
Some point out that James’ income taxes alone would provide a windfall for the city. But any number of factors cloud that picture. Lebron James would pay a substantial amount in income tax from his $43 million in salary and endorsements. But New York City only collects taxes for the portion of the year the James would live in New York, which would not likely be 365 days. For a whole year, he’d pay about $1.5 million to the city at the maximum tax rate of 3.648 percent. The real number would probably be far less than that. (In Cleveland, it would be only $860,000, if he lived there year round .)
Either way, it wouldn’t make up for the tax breaks the city gives Madison Square Garden, which owns the Knicks. In 1982, the Knicks were threatening to decamp to New Jersey. As a result, Madison Square Garden has been exempt from all property taxes ever since. This costs the city over $10 million per year in lost revenues. And all those new jobs generated by a popular team? They wouldn’t exist. A 2003 study by Coates and Brad Humphreys, also of the University of Maryland, found that “attracting new professional sports teams did not raise income per capita or total employment in any U.S. city.”
Much like the literature refuting global warming, the myriad economic impact studies indicating a financial benefit from a sports team’s presence tend to be commissioned by those with a vested interest in the subject. There is consensus among economists who study sports, on the other hand, that neither sports teams nor their marquee players have any significant impact on city finances.
The best basketball player in the world may be able to dribble and dunk, but he can’t make a dent in a city’s coffers.
