LeBron James' return to the Cleveland Cavaliers may have captured the imagination of sports fans around the country, and nowhere more than in Cleveland. But there's no way his return will help the Cavaliers give the area's economy a $500 million lift as some have argued, according to economists contacted by MoneyWatch.
The $500 million figure, released by Cuyohoga County Executive Ed FitzGerald earlier this week, "is as bad of an economic impact statement that I have ever seen," according to Victor Matheson, a professor of economics at the College of the Holy Cross, adding that "it is almost certainly a gross exaggeration."
Vanderbilt University economist John Vrooman described the estimate as "pure pie in the sky." Both Matheson and Vrooman study the economic impact of sports. The Cavaliers couldn't be reached for comment. But Nathan Kelly, an official in Cuyohoga County, said the impact figures are for the Cavaliers as a whole and not James in particular, even though media outlets such as Bloomberg News argued that it was for the superstar.
Kelly said the $500 million figure is "within a range" and not a formal analysis. "We are not budgeting on this," he added. However, Cuyohoga is betting that the Quicken Loans Arena, the Cavs' home court, will go to sellouts as it was during 2010, the last season James played.
The Cleveland situation isn't unique. Economists have argued for years that sports fans and those trying to gain support for big sporting events often overestimate the economic impact of such events. Some business owners in New Jersey, for instance, have complained that the recent Super Bowl in the Garden State didn't bring them anywhere near the windfall they expected. Similar complaints have been made about the Olympics and World Cup.
"In the case of LeBron James, this is just a case of wishful thinking," Matheson said. "Often there is a true attempt to deceive the public to try to garner public support for new arenas."
According to the analysis released by FitzGerald, the region expects $170 million from Cavs games "combined with indirect and induced impact, approximately $500 million annually for the local economy, especially through the restaurant industry, convention business, and hotels not just in Cleveland but throughout Cuyahoga County and Northeast Ohio." He described the estimate as "conservative."
FitzGerald's analysis includes what economists call a "multiplier effect," which measures the impact of a dollar being spent at one business then being spent someplace else. Matheson likens it to pouring water from one bucket into another.
Economists, though, are cautious about using this sort of data since there are always "leakages" in the process. Still, Cuyahoga County is basing its analysis on the idea that every dollar spent on the Cavs will be respent about three other times.
"No one uses a multiplier of three," Matheson said, adding that typically these calculations are done between 1.75 and 2.25. "Literally, that's being pulled out of thin air."
The rest of Cayuhoga County's figures also don't stand up to scrutiny. About $129 million, or 25 percent of the $500 million estimates, comes from increased ticket revenue that goes directly to the Cavs. Another $171 million is expected to come from increased development around the Quicken Loan Center, while another $195 million will come from the playoff games the team theoretically should play in.
However, Vrooman estimates that the team will probably gross about $1 million for these games, far lower than the $15 million figure incuded in the forecast
"The ticket money has to come from somewhere ... and so the Cavs' coffers will overflow at the expense of the rest of the entertainment sector as well as the overall Cleveland economy," Vrooman wrote in an email. "The Cavaliers use a dynamic, or variable, pricing scheme that mimics the secondary (StubHub) market. If the prices rise, it is good news for the seller and bad news for the buyers. This scheme will capture all of the potential gains of the LeBron effect for the Cavs. Cavs fans won't know what hit them."