BY MATT LUNDY FOR SPORTSNET.CA
CanadianBusiness.com, Editor
It’s natural to assume that the National Hockey League lockout will negatively affect the economy. For proof, look no further than some of the recent projections.
The Bank of Montreal’s deputy chief economist said a cancelled season would trim up to 0.1 per cent (or $1.8 billion) from Canada’s gross domestic product. South of the border, bureaucrats in St. Paul, Minn., claim their city took a US$60-million hit during the last lockout. Experts in Long Island, N.Y., are predicting their own $60 million loss if the upcoming NHL season never gets underway.
The general assumption (at least the one trumpeted by sports boosters) is that franchises provide an economic stimulus to host cities. Meaning: Consumers buy tickets and eat at restaurants near venues. The out-of-towners might even spend the night in a hotel. On the other hand, the belief is that cancelling games would suck the aforementioned money back out of the economy.
But a number of economists don’t buy into that line of thinking. Not only do they believe that lockouts and strikes don’t hurt the economy, but some of their research has shown that work stoppages make a negligible impact at best.
In 2008, professors Victor Matheson, Robert Baade and Robert Baumann published a study in the Southern Economic Journal that analyzed the impact of pro sports on taxable sales in Florida over 25 years.
Their study focused on four state areas, each of which experienced some sports-related disruptions to their economies. Some of those disruptions are widely thought to be good for business (expansion franchises, construction of new stadiums and arenas, and hosting mega-events like the Super Bowl), while others are considered bad (strikes and lockouts).
But the professors’ findings didn’t align with conventional thinking.
“New stadiums, arenas, and franchises, as well as mega-events, appear to be as likely to reduce taxable sales as to increase them,” the paper said. “Similarly, strikes and lockouts in professional sports have not systematically reduced local taxable sales.”
Professors Dennis Coates and Brad Humphreys took a different approach. Their study (also in the Southern Economic Journal) looked at how per capita income was affected by work stoppages in the National Football League and Major League Baseball over a nearly three-decade span. Once again, perceived wisdom was proven wrong.
“Work stoppages in baseball and football have never had significant impacts on local economies,” said the study. “The departure of a franchise in any sport… has never significantly lowered real per capita personal income in a metropolitan area.”
So why aren’t lockouts and strikes having the dreadful impact that so many predict? One popular theory is the substitution effect.
“The big thing is that if you were a season-ticket holder for the Maple Leafs, and all of a sudden the team’s not there for a year, you don’t just sit at home those 41 home games,” says Matheson, an economics professor at the College of the Holy Cross in Massachusetts.
“You figure out something else to do with your time and money.”
Certain businesses will undoubtedly suffer during the NHL lockout, but consumer spending should be redirected elsewhere: to movie theatres, restaurants, malls, as well as teams from other sports leagues.
Coates and Humphreys raise a couple other theories — albeit untested ones — in their study.
Sports events, they argue, increase local government spending on public safety and traffic control.
“If this category of public spending declines during a strike and the metropolitan government either borrows less or collects fewer taxes or fees as a result of this decrease in spending, then additional money will remain in the pockets of private citizens,” they write.
Another theory is that sports may hinder workplace productivity. “If workers spend time discussing the outcome of last night’s game rather than devoting this time to job-related activities, then these workers will be less productive in terms of output produced per unit of time,” write Coates and Humphreys.
“Fewer such opportunities exist during sports strikes. Therefore, other things equal, during these strikes one would observe higher productivity, production, and income.”
Even the predictions cited at the outset of this piece are highly questionable.
Minnesota Public Radio has already dissected St. Paul’s claim that $60-million was lost during the last NHL lockout. As MPR notes, the city’s analysis is weak not only because it looks at just two years worth of data, but because of one crucial detail: that during the lost 2004-05 NHL season, St. Paul actually increased its sales tax intake over the previous season. (The $60-million figure is simply a consumer spending gap between the lockout and first post-lockout seasons.)
Meanwhile, BMO’s tally is a rough estimate and isn’t based on any studies they conducted.
As the lockout drags on, expect even more questionable figures to be thrown around. To be fair, there are businesses that will bear the brunt of this lockout, whether it’s a souvenir shop near Toronto’s Air Canada Centre or a pub down the street from Montreal’s Bell Centre.
But history has shown that local economies won’t suffer during work stoppages, and some might even improve.