Posted by John Vrooman on Monday, February 5, 2018 in National Basketball Association.

Interview with Charlotte Biz Journal.

I’m writing about the one-year mark before the NBA All-Star Game is played here in Charlotte. The impact estimates are between $60 million and $100 million and I’m fairly sure you have questioned the credibility of such estimates. My questions for you: what do you think a more realistic value for such an event might be

The real world rule of thumb is to simply move the Chamber of Commerce estimates one decimal point to the left (divide by 10).

and do you see any intangible marketing/awareness value for cities to host all-star games, bowl games, golf majors, etc etc?

The impact estimates are usually exaggerated because they ignore the big event costs (real and congestion) and distributional effects within the regional economy. The net multiplier or spread effects are usually zero-sum at best because the event promoters don’t consider the non-event economic activity that is displaced by their event.  Local bars and restaurants will rock but they will create a vacuum for the rest of the metro market. Occupancy rates will remain the same (especially in resort cities) but room rates and car rental rates will explode for everybody including the locals.

As a result the event may have positive impacts for promotors (or their clients) but it crowds out other local economic activity and ignores congestion cost to the rest of the metro region.  Regional multipliers are also relatively small and lead to overly optimistic impact estimates because indirect secondary spending leaks out of any local economy like a sieve.

Some events may still have an impact if the crowding out effect is neutralized because the economy is currently got room during slower periods of capacity underutilization. For example the NBA all-star game could have room for a positive impact in Indianapolis in winter while it would have zero net effect because of crowding out in winter hot spots like LA, Miami or New Orleans.  But the negative congestion costs of crowding and rising rates are always ignored or underestimated.

Ask the host cities the overhead congestion costs of the granddaddy NFL Super Bowls in Arlington TX (2011), Indianapolis (2012), Big Easy (2013), East Rutherford NJ (2014), Glendale AZ (2015), Santa Clara CA (2016), Houston TX (2017) and Minneapolis MN (2018). Local security costs are alone enough to neutralize any economic effects that can leak out of the new wave of luxury venues.

This is especially true for small suburban satellite cities that have been taken to something for nothing subsidy school by their larger metro markets. They have no chance to recapture capture any piece of net spinoff action from their surrounding big cities while bearing all of the direct and indirect event costs. Good news for the event promoters, teams and big leagues; bad news for the host municipalities and local residents.

V