Game theory | Sports economics

LeBron James has provided a lift to small businesses

Sports teams may benefit local economies after all

By W.Z.

DOES the presence of a star athlete benefit local businesses? It might, at least when LeBron James (pictured) is involved. Mr James, who by one common statistical measure is the greatest basketball player of all of time, was drafted by the Cleveland Cavaliers in 2004. Originally from Akron, Ohio, Mr James began his career enthusiastic to play for his home-state club, but gradually became disillusioned after being saddled with mediocre teammates for years. In a much-publicised television event in 2010, Mr James announced that he would “take [his] talent to South Beach” to play for the Miami Heat. Four years later, with two championships under his belt, Mr James returned to the Cavaliers.

A recent paper by Daniel Shoag of Harvard and Stan Veuger of the American Enterprise Institute, a think-tank, uses Mr James’ moves to and from Miami as a test case to gauge the impact of sports on local businesses. The study finds that small-business owners should indeed be keen on a having a professional basketball team around: Mr James’ presence in Cleveland and Miami was associated with a 13% increase in the number of bars and restaurants within one mile of the stadium (see chart), and a 24% increase in employment. But while the effects of such magnitudes are economically significant, the authors note that Mr James’ impact decays quickly the farther away one is from the stadium. Moreover, when the authors split their analysis by city, they found Mr James did not have a statistically significant impact on business in Miami. It's possible this paper says more about this particular pairing of player and city than sports economics in general.

Professional sports teams have long argued that their presence in a city generates positive externalities—that is, that their presence benefits local businesses such as restaurants, hotels and bars. The existence of such externalities could, in theory, justify the use of public funds to subsidise sports teams. Earlier this year, the Oakland Raiders, an NFL team, confirmed that they would move to Las Vegas, thanks in no small part to a $750m contribution from the state of Nevada towards a new stadium.

But the academic literature has been far more sceptical of such arguments, generally finding little-to-no evidence of such externalities. Economists argue that in the absence of a professional sports team in their city, consumers would simply spend their money on other forms of leisure, meaning that public subsidies for sports stadiums amount to little more than a transfer of wealth from taxpayers to rich team owners. While Messrs Shoag and Veuger’s study isn’t nearly enough to overturn this line of reasoning, they do add an interesting wrinkle by demonstrating that Mr James has been a boon to at least some businesses. Extrapolating, if the presence of a single athlete can have a noticeable impact, then we ought to expect that the presence of an entire sports team should have a bigger effect still.

From a public-policy perspective, the establishment of a few dozen new restaurants is far from sufficient to justify the spending of hundreds of millions of tax dollars on a sports stadium. But there’s nothing rational about a being a sports fan, and it’s impossible to quantify how much joy a particular city’s citizens get from having a professional sports team. Mr Veuger says what while his study probably adds more evidence against sports teams’ arguments for public funds, he has “long been a strong supporter of large public subsidies to the sports teams that I support, and this does not change that.”

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