Rhett’s Rant of the Week #1: The City of Detroit

We’ve decided to take our rants from podcast central to writing on a regular basis, so here is the first of a weekly installment between Darrick and Rhett.

The city of Detroit is absurd. After years of financial turmoil, the city of Detroit became the largest American city to go bankrupt in history. The causes are numerous, but the majority of them have to do with with how their union system is structured, but I’m not here to get into that type of political discussion because this is a sports site. What I do have to discuss is the reported amount of over $400 million dollars going to a new hockey stadium for the Red Wings. I’m sorry, I didn’t realize sports were immune to the word BANKRUPT.

This is what bankruptcy looks like.

The arguments for the stadium are the same tired ones that are always made by politicians. “I know there’s a lot of emotional concern about should we be spending the money,” said Orr (the emergency manager appointed by the governor to take care of the bankrupt city). “But frankly that’s part of the economic development. We need jobs. If it is as productive as it’s supposed to be, that’s going to be a boon to the city.”

I’d love to hear how building a new stadium is going to bring in jobs, or help economic development at all for that matter, because studies done on this particular topic actually show that the opposite is true. In case you don’t want to take the time to navigate through the entire paper the basic summary is this: retail employees see some slight benefits, but sports related occupations, hotel employees, and food service employees all had negative impacts, totaling in an overall negative impact. And in case you think that study is biased, check out the one done by the Kansas City Federal Reserve that shows that while a baseball or football stadium costs taxpayers an average of $188 million, they generate only $40 million in long term benefits and tax revenues. Do we think that a hockey stadium is any different?

Dave Berry from the Freakanomics blog does a good job explaining the reasons that may not immediately come to mind as to why sports stadiums don’t help the economy, so I’ve listed those reasons and switched the example to fit the situation in Detroit.

The Substitution Effect: Sports are just one form of entertainment. If the Red Wings didn’t play in Detroit, the people in Detroit would simply spend the portion of their entertainment budget currently dedicated to the Red Wings on something else (i.e. dining out, movies, etc…).
The Crowding-Out Effect: Sporting events attract crowds. When people know those crowds are going to appears, those who are not attending the sporting event tend to avoid the general area. For example, the 2008 Olympics in Beijing failed to increase the number of tourists in Beijing in August of 2008 relative to what the same city saw in August of 2007.
Leakages: The Red Wings do employ very high-priced labor. But many of those players probably don’t live in Detroit (nor would they want to right now). This means that the income earned by these players doesn’t stay in the Detroit economy.

I love sports, and I love the city of Detroit, but if I learned anything from my senior thesis paper on professional stadium financing it’s that new stadiums don’t help the economy. 85% of economists are in agreement over this, and instead the city of Detroit are subsidizing the wealth of a man worth over $2.5 billion dollars. To those like Mr. Orr running Detroit…you should be ashamed of yourselves. The city, and its people deserve better.


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