Will Sports Really Pay Off in O.C.’s Economic Arena?

Those who would bring professional basketball and hockey teams to Orange County paint a rosy picture of prosperity, projecting a great boost to the local economy generated by the teams and a new indoor sports arena.

But many economists say sports franchises and indoor arenas do not necessarily result in an economic boon.

“That seems to be a matter of debate that hasn’t been resolved yet,” said Pepperdine University economist Dean Baim.

As Anaheim and Santa Ana, Orange County’s two largest cities, race to be the first in the county to build a modern arena that can attract a big-name professional sports franchise, there is easy talk of millions of dollars in new revenue. But Baim and others raise some flags of caution.

There is some evidence that when a professional sports team moves to a city it boosts local employment, Baim notes, but there also is ample evidence to the contrary.

“There is validity to the argument that a new facility diverts entertainment money rather than generating more spending,” he said.

Anaheim and Santa Ana have pledged public subsidies for their proposed arenas. To justify using taxpayers’ money, city officials say their local economies will greatly benefit.

In Anaheim, an National Basketball Assn. team playing in a new arena would mean $78.9 million new annual sales for the area economy, according to a financial study for the city by the firm Laventhol & Horwath and the arena’s developer, Ogden Corp.

The economic benefits of the Anaheim arena assume “favorable estimates of financial performance,” the Laventhol & Horwath report said. For example, it is assumed that an NBA or Major Indoor Soccer League team would have attendance equal to or above the league average.

In Santa Ana, an indoor arena’s economic benefits would amount to $69 million a year, according to a study by Economic Research Associates on behalf of the city.

“When a worker is paid to work on this (arena) project he will take the money and spend most or all of it on other goods and services,” the study says.

However, there is another point of view, Baim says.

Some studies have found that a new sports facility simply draws customers who would otherwise spend their money on something else in the same community. The reasoning is that there is a limited amount of disposable income in any area for entertainment purposes.

In six separate studies since 1987, Robert Baade, professor of economics at Lake Forest College in Illinois, found in most cases there is no change in key economic indicators when a sports facility is added or renovated in a community, or when a professional sports franchise moves to town. Among the cities he studied were San Diego, Tampa Bay, Seattle, New Orleans and Denver.

Baade also found a “lower rate of economic growth in cities that adopt a sports-development strategy than (in cities with) development growth of other sorts.”

Baim said studies such as Baade’s reason that cities boosting sports are “ . . . taking investment dollars away from perhaps more lucrative ventures . . . and generating only service industry-type jobs.

“You are taking someone who could be doing something else and now he’s throwing peanuts, literally,” he said.

Baim does not necessarily agree with that view. But in his study of 14 sports facilities, Baim found that only one--Los Angeles’ Dodger Stadium--generated a positive cash flow to local government. The cumulative drain of all 14 facilities on the public purse was $136 million. Among the sports facilities studied were Anaheim Stadium, San Diego Jack Murphy Stadium and the Oakland-Alameda County Coliseum and Arena.

Most studies on the economic effect of sports franchises are self-serving, done to bolster arguments in favor of or opposed to building arenas and stadiums, he said.

“They are usually produced by people with an interest in how they come out,” Baim said. “They stack the assumptions as much in favor of the desired outcome as possible. They work with multipliers that are unrealistic or assumptions that no new money would be generated.

“It’s really like nailing Jell-O to a wall.”

When an economic study forecasted a $1.4-billion gain for the Sacramento economy over 30 years if the Los Angeles Raiders moved there, Thomas W. Hazlett, who teaches economics and public policy at UC Davis, said it wasn’t worth “the Raiders’ deposit slip it’s written on.”

“The assumptions,” Hazlett wrote in September, 1989, in the Wall Street Journal, “were so optimistic as to make Rosy Scenario blush--for instance, that the Sacramento Raiders will sell more tickets at 30% higher prices than the San Francisco 49ers. . . . Most important, it is simply posited that no dollar spent on Raiders football would ever otherwise be spent in Sacramento.”

Baim said his studies tend to look at the raw numbers of people employed. They indicate that when “a team shows up, it seems to be related to an increase in employment,” he said.

There are less tangible effects of having a sports franchise in town, Baim conceded.

“There’s the perception that the city is now a major-league city,” he said, which “tends to attract businesses.”

But Baim said there also seems to be a “darker side. Crime seems to go up.”

Cities with between 750,000 and 2 million population with sports facilities were found to have “statistically significant” higher incidences of crime than those without similar facilities, he said.

“The conventional argument is a team can serve as a model for youngsters to learn fair play and how to play by rules,” he said. “But it seems maybe just to work the opposite.”

Anaheim Police Chief Joseph T. Molloy said the city’s arena will increase the demands on his department.

“Professional basketball and other major sporting events invariably lead to a high degree of emotional fan involvement,” Molloy said in the city’s arena environmental impact report. “More frequently than ever before the actions by some fans require police intervention.”

Consequently, Molloy said, additional police services must be funded if Anaheim’s arena is built.

Business owners in the vicinity of Santa Ana’s proposed arena have voiced similar concerns, claiming the facility would depress property values by promoting drug dealing, drunken brawls and other disturbances at rock concerts to be held there.

Another significant cost factor is the often underestimated price of construction, Baim said.

The renovation of Yankee Stadium in New York, originally estimated at $21 million, ended up costing more than $100 million. Construction costs for the New Orleans Superdome were estimated at $15 million to $20 million and came in closer to $150 million, he said.

This week Anaheim officials disclosed that construction bids for a 20,000-seat indoor arena there, originally thought to cost $85 million, have come in at $94 million.

Another potential cost to taxpayers is the relatively new phenomenon of the “franchise fee,” a lump sum paid to a team as inducement to move the club to a new venue. In successfully wooing the Raiders back to Oakland, city officials agreed this week to meet owner Al Davis’ demand for a $53.5-million fee.

Anaheim City Manager James Ruth flatly rejects any possibility that the city would pay a franchise fee to lure a sports team to its proposed arena.

Likewise, Ogden Corp., the Anaheim Arena developer, has no intention of paying such a fee, according to Marie Monet, president of Ogden Financial Services, a subsidiary.

If such a fee were demanded, it would be paid by the group of as-yet undisclosed private investors seeking a franchise for Anaheim, Monet said. “The same group prepared to purchase the team. Not the city, not Ogden.”

A spokesman for Spectacor Management Group, which plans to operate the Santa Ana Arena, said neither his firm nor the city would pay any franchise fee. The fee would be paid by the ownership group that buys or moves the franchise, he said.