This article first appeared in the St. Louis Beacon, Oct. 18, 2011 - In this era of moneyball, how seriously should you take estimates of the economic impact that the World Series will have on St. Louis?
Whether it's playoffs or an All-Star Game or a political convention or a major golf championship, whenever St. Louis lands a high-profile event, forecasters are always quick to issue their predictions of how the area will grow richer from all the money brought to town by visitors flocking to be part of the big show.
This week's numbers from the Regional Chamber and Growth Association: a $24.4 million boost for the area from the World Series, adding to a total impact of $52 million from the Cardinals' unexpected run in post-season play.
But what do those estimates mean? Has anyone taken past predictions and compared them against reality? Should decision-makers use the projected impact as a basis for future action?
Ruth Sergenian, chief economist for the RCGA, says the group's forecast is based on solid methodology, but she acknowledges that past predictions haven't been tested and the numbers are designed as much to measure excitement and prestige as they are to gauge precise effects on the region.
"This is looking at a 16-county economy and what happens when a new shock of money comes in and how it travels around, the dollars that wouldn't have been here without that," she told the Beacon. "That's really what the model is intended to do."
Economics professor Patrick Rishe of Webster University says the impact estimate is a quick take on what could happen, based on plugging ballpark figures into a computer model.
"When these kinds of events come around," Rishe said, "convention and visitors bureaus or chambers of commerce like to project in advance, but actually to do a more detailed analysis takes time and money and resources, and that's why they generally don't get done. It's really more public relations. No one is holding fire to their feet."
And the Wisconsin firm that developed the computer model used by the RCGA to come up with its figures says the tool is only as good as the numbers fed into it.
"It's like any other software," said Ambrose Alward of MIG, which developed the program known as IMPLAN.
"If you use Microsoft Word, you can write a doctoral thesis on it, or you can just bang your fingers on the keyboard."
Where Do the Estimates Come From?
Alward explained that IMPLAN is designed to be used for questions that do not require policy decisions to be made, like deciding whether to implement a new tax or a smoking ban. But if a new business is coming to town, or a military base is closing, it can help officials determine what the financial impact might be.
"The way an economist would use IMPLAN would be to make some assumptions," he said. "We're expecting X amount of people in a study area to come to the game. We expect they will purchase a ticket. We expect them to buy a beer and a hot dog. They will pay for parking. Maybe they'll go out to dinner after the game and get a drink at a bar.
"That's usually done through gathering survey data that comes from outside the IMPLAN software. Then they will do another survey of people from outside of the local economy, people who will be buying hotel rooms and renting cars and eating more of their meals out, maybe do some sightseeing. We figure out the patterns for those people as well."
Beyond those scenarios, Alward said, the computer model can take certain statistics -- say the number of hotel room nights that will be bought -- and figure out how much that will mean in terms of cleaning services or toiletries in the rooms or vacuum cleaner repair or additional laundry.
Once they combine those benchmarks with the survey data, forecasters using IMPLAN can come up with an estimate of how big of an impact something like the World Series will have. For Sergenian at the RCGA, because many of the numbers come from authoritative sources such as the Cardinals and Major League Baseball, she thinks the projection is pretty accurate -- as far as it goes.
But she acknowledges that if anyone were going to use the numbers to make any long-range policy decisions about the future of the region, the $24.4 million impact estimate would require much more detailed analysis.
As it is, Sergenian said, the figure "is another way for a playoff series to get national attention to the region. It's not intended to be the entire analysis that would need to be done for decision making."
Leakage and Displacement
Even with those caveats, though, some economists look on such estimates with a very skeptical eye.
Rishe, who said he became interested in the issue back in 1988, when he was a student in Charlotte, N.C., and that city attracted the NBA Hornets, breaks down spending into three sources: visitors, participants and the outside community, including groups involved in the operations of whatever event is at hand.
He emphasizes that you can't use figures from one area to try and extrapolate to another.
"You shouldn't use the Final Four in Houston to predict a Final Four in St. Louis or a Final Four in Arizona," he said, "because the economic factors are different. If you are talking about the economic impact of a single playoff game in downtown St. Louis, then the figures are probably similar over time."
Another pair of considerations are what Rishe called displacement and leakage.
Displacement takes into account the fact that because people are spending money going to a World Series game, they won't be able to spend those dollars on something else they may have planned to attend. And if they already are St. Louis area residents, that shift of funds doesn't add anything new to the local economy.
"If I come from Webster Groves or Chesterfield or Ballwin and spend money downtown," he said, "that's not new money for the whole region. It makes downtown businesses happy. There's no question that businesses in proximity to the stadium will be busier. But is that new money coming to the St. Louis region? In many cases, probably not.
"People are just redirecting their spending. That's a key distinction, and I seriously doubt it has been taken into account as much as it should be."
Sergenian goes along with that reasoning, but only to a point. Even if a movie theater sees a much smaller attendance on the nights that the Cardinals and Rangers are playing, or a store has few customers, "I'm not disputing that sales go down, but that business owner doesn't close down. His employees are still working."
Then there's leakage: the fact that a lot of the money that may be shelled out in the St. Louis area doesn't stay here. Rishe notes that a certain percentage of the ticket prices goes to Major League Baseball, along with merchandising money. If a hotel or a restaurant chain owns local outlets, some of the revenue brought in by the big games goes right back out of town.
He does agree that in terms of prestige and attention, the St. Louis area will benefit from the national spotlight that the World Series brings, even if much of that comes from the real but unquantifible giddiness that comes with being a winner.
"Certainly, it can boost the exposure of St. Louis nationally," Rishe said, "and that can lead to long-term tourism benefits. Maybe next year, someone who has never been to St. Louis will come here because they were inspired by the World Series."
Finally, there's the fact that in the macro scheme of things, even if the economic impact predicted by RCGA and the computer model comes to pass, it won't have much of an effect on residents of the area.
Washington University economics professor Steve Fazzari, whose quick calculations of the possible impact matched the estimate from the RCGA, compared the $25 million forecast with the 2.8 million residents of the area.
"That's less than 10 bucks a person," he said. "You're not talking about something that will fundamentally change the area's economic outlook as a whole."
Compared with the debates over whether the Obama administration's stimulus package was worthwhile, in terms of its scope and its size, issues like the economic impact of a baseball series are pretty minor, Fazzari said. That may be why no one has tried to take projections, then go back after the fact and see how accurate they were.
"If you were talking about a serious economic stimulus," he said, "may it would be worth the resources to do that kind of research. But the answer is that it's not that big of a deal. It's not worth it.
"At the end of the day, whether that number is $10 million or $40 million, what's the difference? The dollar impact on the overall economy is just not significant enough to justify to try to tie down these numbers in detail."