Chicago’s Big Ten Hoops Tournament Promises March Thrills! And Free Money?

The Big Ten men’s basketball tournament is back in town.  And apparently, remedy see Trey Burke & co. will not only be raining threes on the floor of the United Center but raining dollars all over Chicago.\n\nCrain’s Danny Ecker expects the city’s haul to be “$8 million to $12 million of visitor spending.”  While eternal optimist Mayor Rahm Emanuel—flanked by sports-business community leaders and Big Ten representatives at a recent presser—predicted “$40 million in economic activity.”\n\nWhy not?  As long as we’re just throwing numbers out there.\n\nBecause the economic impact studies that politicians mine for sound bites and journalists use to boost word counts are little more than propaganda paid for by event promoters.  The millions in “visitor spending” and “economic activity” doesn’t account for many of the hidden public investments and opportunity costs involved in bringing these kinds of events to Chicago.\n\nUntil city officials and their private-sector partners are more transparent about the costs of the Big Ten Tournament, we can’t have informed public debate about whether or not playing host is a good idea.  But that won’t stop us from trying…\n\n


\nAfter Chicago had hosted the event at the United Center in six of the eight previous years, in 2006 the Big Ten awarded the basketball tournament to Indianapolis from 2008 through 2012.  The reason?  Despite lower attendance potential, Indy showed a willingness to invest more in sports tourism, providing the Big Ten with \”increased financial incentive” to host in the Circle City.\n\nThe Big Ten loves financial incentives.  They’re part of what make it the most valuable conference in college sports, bringing in $310 million in total income last year according to Forbes.  That’s right, everyone involved in big time college athletics is rolling in dough except, of course, the “amateur” athletes.\n\nAnyways, enter the Chicago Sports Commission: the organization founded in 2011 to bring sports tourism to Chicago.\n\nThe Sports Commission falls under the Choose Chicago umbrella, the “destination marketing organization” for Chicago.  Choose Chicago is a private entity whose budget increased from $17.8 million in 2011 to $27.6 million in 2012.  According to their annual report, all but about $4 million of that money came from state funds, city and state grants, government corporations (specifically, MPEA), airport taxes, and other state payments.\n\nChoose Chicago is described as “nonprofit” but its board is made up primarily of corporate executives whose companies stand to gain oodles from increased tourism and special events in Chicago (hotels, airlines, advertising, etc.).  One member of the board is the king of public subsidies himself, Jerry Reinsdorf, in whose presence one must tolerate the constant whirring of his taxpayer-money-to-private-profit machine he lugs with him everywhere.\n\nIn 2011, Big Ten conference executives again summoned solicitors.  At stake were the rights to host various future Big Ten events.  They invited Chicago and Indianapolis to “Wow!” them with inklings of the splendor that would be the Big Ten’s upcoming tournaments if these cities were to win the affections and confidence of conference officials.\n\nChicago promised a fan fest at Daley Plaza including a basketball court for public use, a “tip-off luncheon,” alumni parties, and more.  Ultimately, the Chicago Sports Commission’s bid won the city another chance to host the basketball tournament this year and again in 2015.\n\nHowever, nowhere in 2011 or since has any precise figure been given indicating how much the Big Ten will receive from Chicago for the privilege of hosting this event, or how much this four-day frat party is going to cost the city.\n\nI inquired via email to the Chicago Sports Commission but received no response.  Apparently they weren’t impressed by my “concerned citizen/dissident blogger” credentials.\n\nSo again I turned to the internet.  And I found something that I didn’t know: Jerry Reinsdorf is chairman of the “Big Ten Tournament Host Committee” (whirr! whirr! whirr!).\n\nI kid the corporate executives, but I can’t really knock them for pursuing their own business interests.  Just like I can’t knock killer whales for playing “no net volleyball” with a helpless sea lion before devouring it; it’s just instinct.\n\nBut our elected officials enable tourism’s private beneficiaries through publicly funded bids for events like major basketball tournaments.  They’re supposed to be promoting our interests.  So the big question is: what does the rest of the city gain from subsidizing a college basketball tournament?\n\nIn the opinion of well-informed critics, not much.  In 2003, economics professors Victor A. Matheson and Robert A. Baade studied the NCAA Tournament, finding that the average economic impact of these events on host cities was negative.\n\nIn the published paper, which is worth a read, Matheson and Baade say something interesting about the bidding process: \”the NCAA has learned to use their market power to extract monopoly rents,” write the authors, “Cities have to pay at least in kind to host the event… It could be argued that if multiple cities bid for the event, then the winning bid is likely to exceed the event’s marginal revenue product. It is in the interest of the NCAA to encourage as many cities as possible to bid for its tournament.\”\n\nIn other words, it’s in the Big Ten’s best interest to create competition between Chicago and Indianapolis for the right to host college athletics over which the NCAA (via the Big Ten conference) has a “monopoly.”  That seems obvious.  What’s scary is that winning bids to host these types of events are “likely to exceed” their financial return.\n\nBut how might all this tourism otherwise end up having a negative impact on the local economy?  Especially after the press and the mayor are throwing around economic boosts in the tens of millions of dollars?\n\nMatheson explains in another paper from 2006 titled “Mega-Events: The effect of the world’s biggest sporting events on local, regional, and national economies.”  He writes:  \”Of course, leagues, team owners, and event organizers have a strong incentive to provide economic impact numbers that are as large as possible in order to justify heavy public subsidies.\”\n\nBesides being “wildly optimistic” about the number of visitors and their spending habits, these impact studies tend to ignore a number of factors, including “the substitution effect,” “time switching,” and “crowding out.”  You can read about those in Matheson’s paper.  The the one that really gets me is “leakages.”\n\nBasically, the revenues from an event like this are not evenly dispersed.  Matheson uses an example of a hotel wage worker.  Hotel operators are likely to raise room rates during “mega-event” weekends, but they won’t pay their workers any more than they do normally.  Regardless, workers are expected to work harder during these times of high demand.  “As a hotel’s revenue increases without a corresponding increase in costs, the return to capital (as a percentage of revenues) rises while the return to labor falls.”  In other words, rates are higher and hotels may be nearer capacity, but that additional revenue is not going to the people who need it most.\n\nThis example represents one tiny part of a larger critique of sports and sports tourism subsidies: Public investment is steered away from blighted areas of the city; returns are skewed to benefit wealthy profiteers; and the jobs that are created for common folks are largely low-wage, part-time, and/or short-lived.\n\nLook, I like Big Ten basketball, but let’s call this tournament business what it really is: another example of “Stimulus, Chicago-Style.”  It’s an event to benefit downtown commercial operators, local politicians, and consumers with lots of disposable income.\n\nAnd for everyone else, it’s business as usual.

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