Dennis Coates: Increasing NFL games reduces tax revenues

BALTIMORE (Map, News) - NFL training camps open this month, and the 2006 season kicks off in early September.

In anticipation of the season, business owners in NFL cities across the country will begin hiring extra staff, building up inventories, and otherwise preparing for the flood of new business each home game will send their way.

If the experience of Dallas and Houston during the last 16 years is a guide, those efforts will be for nothing.

In a recent study of monthly taxable sales and sales tax collections in 126 Texas communities over the period from January 1990, through April of 2006, Craig Depken, of the University of Texas at Arlington, and I found that each additional NFL regular season game held in a month lowers both by statistically significant amounts.

Specifically, taxable sales fell by about $7.8 million per game and sales tax collections fell almost $570,000.

To best understand these figures, some context is necessary. During the period of our study, average monthly taxable sales in Houston and Dallas were $378 million and $240 million, respectively.

Sales tax collections averaged $25.6 million and $16.1 million per month in Houston and Dallas, respectively.

For Houston, the impact of a single NFL game is to reduce taxable sales and sales tax collections by about 2 percent; in Dallas the reductions were about 3.5 percent of each.

While these are substantial sums of money in an absolute sense, the effects are small in a relative sense.

But the Dallas Cowboys don’t play in Dallas, they play in Irving. What then were the effects on Irving?

Our findings were especially troublesome in Irving, where an additional Cowboys game would reduce taxable sales in a month by 19 percent, and sales tax collections by 20 percent.

People who ought to know tend to agree with our findings.

Maura Gast, of the Irving Convention and Visitors Bureau, told the Dallas Morning News that Cowboys games attract few out-of-town visitors and that “traffic around Texas Stadium probably depresses the city’s economy on game day.”

Gast asked hypothetically, “As a local, when you think about where you are going on the weekends and have errands to run, do I want to do it in a 50,000-person traffic sprawl?”

Daniel Olney, Dallas’ economic development research manager, told the Dallas Morning News that our study appears to be reasonable, and “the net impact is never as big as it’s being claimed by the boosters.”

On the other hand, in Arlington, where they recently broke ground for a new stadium for the Cowboys, Mayor Robert Cluck and Linda DiMario, of the Arlington Convention and Visitors Bureau, each faulted the study. They argued the focus was too narrow, as the study did not address the free publicity and civic pride professional sports generate for the city.

Mayor Cluck prefers to believe the results of a study commissioned by Arlington that projects the new Cowboys stadium will generate $1 million to $1.5 million in sales tax revenues annually.

If this study is correct, then sales tax revenues will rise by about 2.6 percent.

However, the city has agreed to pay $325 million, half the stadium project cost. Annual interest costs on a debt of that size swamp the projected sales tax increase.

Based on Cluck’s preferred tax revenue estimates, the city of Arlington would still be a net loser from construction of the new Cowboys’ stadium.

As football fans get ready to pay for tickets and concessions, both they and nonfans should recognize the indirect costs of supporting the team.

Lower sales tax collections must be made up for in higher property or income taxes, or greater government borrowing and the attendant interest costs, if government services are to be maintained.

Alternatively, the lower tax collections may be offset by reduced government services, closed fire stations, reduced police patrols or fewer well-maintained streets and highways.

Enjoy the games, but remember what they really cost.

Dennis Coates is professor of economics at the University of Maryland, Baltimore County; and a football fan.

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