I was glad to hear Inglewood is in line for a new NFL stadium. The location sure beats the congested downtown site our City Council and mayor were trying to push.
Any major project – whether a stadium, commercial or residential – carries with it promises of new revenue and economic growth.
The promoters of the Inglewood stadium are assuming that the tax revenue generated would be more than sufficient for the city to reimburse the investors for required infrastructure improvements to the surrounding area.
Aside from whether it is fair to provide any form of assistance to the investors, can we really bank on estimated economic improvements developers and politicians put forth?
It depends in part on whether you believe commercial projects are similar to a zero-sum game concept – an improvement in one area produces an offsetting effect in another.
The answer has much to do with what I call discretionary substitution…..and few segments of the economy are as discretionary as entertainment. And the NFL, as any major sport, is pure entertainment.
For a broad range of residents, available dollars for entertainment are limited. Whether a family goes to Disneyland or a professional football game is a mutually exclusive decision for all but those with deep pockets.
Another factor is availability of free time. Many wealthy people do not necessarily have an abundance of it. They are rich in part because they devote significant time to their business affairs. The average family, on the other hand, is consumed with staying above water; their time is devoted to making ends meet.
As a result, there are trade-offs when it comes to what events or activities we choose to entertain us. To some extent, the discretionary spending deck gets reshuffled with each new product entering the market. There are still 52 cards, and the card values remain the same. The odds of winning at solitaire are unchanged. You substitute a Disneyland ace for one from the NFL.
Price points for major sports admissions are skewed heavily towards high-rollers. Corporations and other large organizations purchase blocks of tickets and use them to entice clients and as perks for key employees. But there are budgetary limits. Most companies want assurances of value in return as they would for any other form of marketing or compensation. It is very reasonable to assume that a company may replace ticket purchases for, say, Kings games for the NFL.
Where does that leave the Kings or other teams?
They will market the available seats to other buyers in the chain, who will make their own substitutions, and so down the line it goes.
What about the client or employee who receives a ticket gratis from a company?
Almost always, the recipients are on their own for concessions – a pretty expensive bite at any venue. That may translate to fewer nights out at a restaurant or movie.
For a new stadium’s positive economic impact to pan out, you need an abundance of deep pockets, something LA has. There are enough wealthy individuals and firms who will spend more than they otherwise would if the NFL comes to town, so I expect there would be an uptick in the region’s net revenue and economic activity if a team is secured.
Adjacent neighborhoods may realize an improvement in quality of life, as would certainly be the case in Inglewood, although there would be hidden costs as well.
But how much will the net benefit be to the local communities and the greater metropolitan area?
It will be important to discount projections to account for the ripple effect of discretionary substitution, as complex an analysis as one can attempt. Although extremely challenging, it is a task government needs to perform if it is to fulfill its due diligence obligations to the public. It is debatable whether local governments make an honest effort, if at all, to understand all of the key ins and outs.
Inglewood will probably come out a clear winner because the ripple effect will mainly hit beyond its borders. Los Angeles – both the city and county – could realize a modest benefit (allowing for costs of managing additional traffic and safety), especially if many fans visit from out-of-town and fill hotels, but little benefit should be assumed to the extent attendance and participation is drawn from the general population.
Property tax revenue would experience a big bump, and state income tax on the players’ earnings would not be chump change (that’s assuming the new team comes from outside the state). But how much of that will filter down from Sacramento to local governments?
Residents and stakeholders have to be on guard for gung-ho assumptions. It is important that voters in communities adjacent to Inglewood scrutinize the deal, too. After all, we share the same freeways, airport, and hotels. Emergency services overlap, too. Residential and commercial streets flow into each other – traffic is a shared liability.
I welcome the return of the NFL to our important sports market, but we better understand the deal to be sure it is as positive an addition to our greater economy as suggested by its supporters.