Juking the Stats: Why the NBA Finals Won’t Be a Godsend for the Economies of Denver or Miami

Photograph Source: All-Pro Reels – CC BY-SA 2.0

I’m not a gambling man. Even if I were, I wouldn’t dare prognosticate with any confidence as to who will prevail in this year’s NBA Finals matchup between the Denver Nuggets and Miami Heat. Despite growing up as an avid basketball fan, my engagement with the sport has waned over the years, and now I only watch a handful of games each season. This trajectory probably resulted from years of research on the historical undersides of the professional basketball industry. I liken it to a journalist who, after reporting on the hellishness of the processed meat industry, never looks at a hot dog the same way again.

There is one thing related to the NBA finals, however, that I could have predicted with near absolute certainty: Once Denver and Miami secured spots in the championship series, the mainstream media would begin to hold forth on the event bringing an economic windfall to both cities. Like clockwork, every NBA Finals brings an outpouring of news stories about how the games will boost growth in the host locales by supercharging spending on hospitality and garnishing the cities’ reputations as exciting places to visit.

This year is no exception. Forbes’s Brian Bushard, for example, reports that Denver and Miami “can expect [the NBA Finals] to bring in tens of millions to their local economies.” Dennis Huspeni of the Denver Gazette opens a similar story with the claim that the Nuggets’ postseason success means “a shot in the arm for Denver businesses.” Andrew Lisa, in an article posted by Yahoo! Finance, echoes the claims of Bushard and Huspeni, while adding some notes on the “priceless value of free media attention” generated by the games. The list of such pieces goes on.

The problem is: there exists virtually no independent empirical evidence that any of these claims hold water. Study after study by academic economists has contradicted the mainstream media’s insistence that professional sports championships prove a boon to local economies. These scholars have designed many different models to estimate the effect of hosting these events on host cities’ economies. Some look at the impact on employment growth, others on taxable sales, and still others on per capita income. In almost every case, the studies reveal that having a home team advance to the final round of play exerts no statistically significant positive impact on these variables. In fact, some of the analyses suggest that the impact may actually be negative.

While these results might seem counterintuitive at first glance, economists have offered several sensible explanations. Championship sporting events, while they may spur increased consumption by local sports fanatics, can simultaneously “crowd out” spending by the rest of the local population. By exacerbating quality-of-life nuisances such as traffic and noise, the games convince some to hunker down at home to avoid the hassle, negating the augmented expenditures by those who partake directly in the festivities.

And while events like the NBA finals might boost economic activity in the immediate vicinity of the arenas that stage them, this usually fails to translate into improved growth in the city or region at large. Consumers tend not to increase their overall expenditures absent an increase in their incomes; and the decision to spend on a locally hosted sports mega-event typically comes at the expense of outlays elsewhere in the city. (Economists call this the “substitution effect.”) So reporters at the Denver Post are not necessarily wrong when they claim that the Finals will provide “much-appreciated infusions of energy and economic rush for a downtown that’s still rebounding from the Coronavirus pandemic.” What they miss, however, is that such infusions will almost certainly translate into reduced spending for businesses outside downtown.

To be fair, if the games draw huge numbers of fans from outside the region, this could mean a net gain for the economies of Denver and Miami. And nothing excites the local press more than reporting on sports tourists from far-flung places. CBS Colorado, for example, gushes over a Taiwanese couple who traveled thousands of miles to spend the first part of their honeymoon attending Game 1 in the Mile High City. (While the outlet quotes the groom as saying, “I convinced my best wife to come here for our honeymoon,” it did not secure comment from the bride.) However, the lovebirds from Taiwan are probably the exception that proves the rule. The idea that throngs of people from outside Denver and Miami are coming by the planeload to watch the Finals strains credulity. And even in cases where a strong argument can be made that an event attracts significant numbers of out-of-town visitors—for example, the Super Bowl, which occurs at a neutral site—research shows the economic impact to be far less than the promises of boosters.

In addition to “crowding out” and the “substitution effect,” experts point to another economic phenomenon that helps explain why sports championships fail to boost local growth: “leakage.” In case you were worried, this has nothing to do with urinary incontinence. Instead, it refers to the fact that a significant proportion of expenditures on these events filters up into the pockets of wealthy team owners and players who spend much of their time (and cash) outside their teams’ respective cities. That is, the spending often gets reinvested elsewhere. This year’s NBA Finals are a case in point. Nuggets owner and real estate tycoon Stan Kroenke divides his time between a multitude of states, including California, Colorado, Missouri, Montana, and Texas. By contrast, Micky Arison, who owns both Carnival Cruise lines and the Miami Heat, appears to reside primarily in the Miami area. However, he has proven less than enthusiastic about allowing his wealth to trickle down for the benefit of ordinary residents. Back in 1996, for instance, Arison and the Heat pledged to build a new public park on Biscayne Bay if the public approved building a new arena on public land. The voters did their part and the Heat got the land. Today, more than a quarter of a century later, the park remains to be built.

Why, then, does the mainstream media remain committed to debunked claims about the local economic impact of the NBA Finals? A big reason is that the journalists who cover the issue talk to the wrong people. More specifically, they fixate on getting comment from local business associations, owners of businesses adjacent to stadiums and arenas, and municipal officials. Coverage by a Denver ABC affiliate relies on statements from staff at Denver Economic Development and Opportunity, a local agency focused on “local and global business development,” as well as from the Downtown Denver Partnership, a nonprofit advocacy group led by local investors. The Mile High City’s NBC affiliate looks only to the Denver Metro Chamber of Commerce for insight. In other words, these outlets rely exclusively on input from people who have a vested interest in putting a positive spin on any local story of note and drumming up interest among potential visitors.

Surely, the aforementioned coverage in the Denver Gazette and Denver Post did a more impartial job, right? Nope. The former paper also depends on figures offered up by the Chamber of Commerce and Downtown Denver Partnership, while additionally citing a downtown bar owner, a pro-tourism nonprofit called Visit Denver, and a Visit Denver offshoot known as the Denver Sports Commission. In fact, among the seven different local and national articles I examined in researching this piece, not one quoted an independent academic economist or urban planning expert. Perhaps this should not come as a surprise, as local media in particular have a long history of uncritically parroting fantastical claims by their booster sources in hopes of increasing their own circulation.

One could be excused for asking: Why does any of this matter? So what if the press pumps up the NBA Finals and other sports mega-events as economic godsends for their respective cities? The answer is that this type of reportage makes it easier for the public to accept the constant overtures by pro sports franchises for public subsidies. If championships bring an economic windfall, it only makes sense to subsidize teams so they can retain more revenue to build stronger teams. If we acknowledge, however, that championships have an extremely limited—and potentially negative—impact on local economies, we have to start asking hard questions of team owners and their allies in municipal and state governments. Why, for example, should we prioritize spending tax dollars on professional sports rather than things like public education and housing?

Boosters in Denver and Miami will no doubt protest that their NBA arenas relied mostly on private funding. This is true, at least relative to most other pro sports facilities. However, as University of Michigan scholar Judith Grant Long has shown, after factoring in “hidden” public costs like ancillary public infrastructure, property tax breaks, free public land transfers, and municipal support services, both facilities (each opened in 1999) have garnered significant taxpayer support. In the case of the Nuggets’ Ball Arena, by 2010 these largely unacknowledged costs amounted to 30 percent of the total capital expenditures incurred in constructing the venue. For the Heat’s Kaseya Center, the figure stood at 56 percent. These percentages have only increased in the last thirteen years.

But the NBA Finals boosters have a final trump card. As Huspeni writes in the Denver Gazette, “beyond the direct economic impact, the amount of visibility…from finals and championship games is immeasurable.” Indeed, and that is precisely the point. If we cannot measure such intangible benefits, why gamble taxpayer money on trying to generate them?

So, go ahead and tune in to the remainder of the clash between the Nuggets and Heat. But be sure to tune out the media’s claims about what it means for the economic well-being of their cities.

Sean Dinces is the author of Bulls Markets: Chicago’s Basketball Business and the New Inequality. You can learn more about his teaching, writing, and research at www.seandinces.com.