A report to the city of Anaheim on the economic effects of Angels baseball at the “Big A” is so replete with unsubstantiated assumptions that it can't be used as a reliable indicator of the team's financial impact on the city, interviews and public records show.
The report, written by Texas-based Conventions, Sports & Leisure, makes generalized assumptions on consumer behaviors based on studies in other major league cities and uses formulas disputed by other economists. The zip codes of ticket buyers were reviewed but no Angels-game attendees were interviewed.
The report does not include millions in team-related city costs, some of which most City Council members were unfamiliar with until being informed by the Register.
One sports economist dismissed the entire city-funded report, saying the Texas consultant that performed it is in the business of providing cities and teams with reports that show favorable financial outcomes.
“Based on everything else I've seen CSL do, this is a promotional study,” said Andrew Zimbalist, co-author of “Sports, Jobs and Taxes: The Economic Impact of Sports Teams and Stadiums.” “If CSL came out with a study that said Anaheim had no positive economic impact, they wouldn't get any more work.”
The Angels' economic impact on Anaheim is important because the city is renegotiating the Angels' lease, which runs through 2029, at the request of the team. Although the team has not publicly threatened to exercise its opt-out provision, at least three of the five City Council members have said they are concerned that the Angels might find more favorable circumstances and a new stadium elsewhere in the greater Los Angeles area.
“The economic impact is probably the No. 1 factor” in wanting to keep the team, Councilwoman Lucille Kring said.
Several economists and city officials interviewed said they believed that the team does provide civic and financial benefits for the city. But they also said that city officials should have accurate numbers before they negotiate a lease more favorable to the team. Questionable assumptions in the report leave uncertain how much Anaheim can give up in its renegotiations before the city starts subsidizing the team – if it isn't already.
CSL principal John Kaatz said that the city asked his firm to account for the money generated by having the Angels in town, but not associated city expenses. He acknowledged the speculative nature of such estimates but said the report made appropriate adjustments.
“Every economist will take a different approach to methods,” he said. “Our methods are based on extensive experience around the country. Our assumptions in the model are based on what we've seen in other cities. Anaheim is a particular place with unique characteristics, but we stand behind our model. There's no question that it's tough to make the determination, but CSL has been doing this for more than 20 years.”
The 12-page report credits the team with generating $204 million in new spending in the city and $4.7 million in annual revenue for the city treasury. The Register found that using the consultant's assumptions, net city revenue drops to about $2.3 million when the expenses are accounted for.
But some economists are skeptical of the consultant's numbers, taking issue with the report's methodology and data in determining the new spending and annual revenue figures. (Specific methodology and data used is not included in the study, though Kaatz reviewed numerous aspects of the methodology with the Register.)
Chapman University economist Esmael Adibi oversaw a 1996 economic impact report on the Angels that did not receive team or city funding. He offered a more charitable view of the Texas consultant's report than Zimbalist – but still identified key shortcomings that tend to bolster the estimates of revenue and jobs for the city.
“There's no question there's a positive economic impact,” Adibi said. “The question is what it is. And there's no question that there are firms that do this kind of work and maybe it would be better to go to academics.”
Angels spokeswoman Marie Garvey said it was inappropriate for the team to comment because the study was commissioned by the city, not the Angels.
The biggest source of Angels-related funding to city coffers – 58 percent – comes from hotel taxes, according to the report. This is one of numerous disputed estimates, with critics raising several challenges:
• The background assumption – not stated in the report – that 18 percent of all Angels ticket buyers spend the night in a local hotel has been challenged by Mayor Tom Tait, among others. “That would be nearly 7,000 people a game. That's unlikely.”
• Some hotel guests come to town for other reasons and then decide to attend a game, meaning their hotel occupancy would not be affected if the team wasn't in Anaheim, Zimbalist said.
• The premise that 90 percent of game-goers who rented rooms did so within the city limits – unstated in the report but explained to the Register by CSL's Kaatz – is impossible to ascertain without surveying attendees, Adibi said.
“Orange is five minutes from the stadium,” Adibi said. “It's going to take extensive research to determine how many people stay in hotels in the city of Anaheim. If you do samples of 200 or 300 people at three or four games, you get much better information.”
Adibi said he and 10 economics students spent roughly 400 manpower hours researching his 1996 economic report – and that they took the much simpler task of estimating the economic impact of the team countywide. Boring down on the single city of Anaheim would be considerably more challenging, he said.
Adibi's 1996 study found that total new spending countywide, thanks to the Angels, was $106 million – or $160 million in 2013 dollars. He said increases in ticket prices and other costs that have exceeded inflation could conceivably bring that amount to the Texas consultant's conclusion of $204 million – but for the entire county, not just for Anaheim as estimated in the $30,000 report by CSL.
“With the budget they had, they would have a hard time doing detailed surveys,” Adibi said.
SWEETENING THE POT
Kring and other City Council members say it's not just about money – that civic pride and city image are also motivations to make sure the home field remains in Anaheim.
“I think the Angels are important to the people of Anaheim,” Councilwoman Gail Eastman said. “The Angels are our team. Also, people know the city because of all the amenities the city has to offer, and the Angels are one of those.”
But Eastman said the economic impact is also a reason to negotiate a new lease.
The starting point for negotiations is a document drawn up by city staff and city consultant Charles Black, former president of the San Diego Padres, in consultation with the Angels. Among other things, that proposal would reduce the team's payments to the city.
The team currently pays the city $2 on every ticket sold after the first 2.6 million. That threshold would increase to 3 million under the proposal, largely eliminating that revenue to the city because the team is drawing only slightly more than 3 million fans. This year, 3,019,505 tickets were sold.
The proposal also would allow the Los Angeles Angels of Anaheim to drop “Anaheim” entirely from its name. And it would grant the team a 66-year, $1-per-year lease on 150 undeveloped acres around the stadium, which the team could develop according to the existing high-density residential, commercial and retail zoning. All tax revenue generated by the development for the city would be rebated to the team, according to the team's proposal.
In return, the city would no longer have to make its $600,000 annual maintenance payment for the city-owned stadium. The Angels would pick up that tab, as well as the bill for an estimated $130 million to $150 million in needed renovations.
City officials emphasize that none of the proposal is set in stone. A majority of the council has expressed opposition to surrendering the sales, hotel and property taxes generated by the new development.
Mayor Tait, the sole dissenter in the 4-1 vote to renegotiate the lease based on the proposal, has far broader reservations, and objects to the virtually free lease of prime real estate for development. The land value has not been appraised, but estimates have ranged from a city staff-reported low end of $30 million to a high end of $380 million that Tait says he saw on a city document.
Several council members see the team as being roughly a break-even proposition for city coffers. They recite the city's annual costs of about $600,000 for maintenance and $400,000 for debt service as being offset by the team's payment of $2 per ticket over the 2.6 million threshold. Since the lease was signed in 1996, those numbers have left the city with a modest $52,132 subsidy to the team – basically a break-even situation.
But that calculation doesn't account for the $1.3 million in annual city administration, overhead and property insurance paid for out of convention center funds, according to budget documents and internal emails.
When asked by the Register about that expense, four of five council members – all but Jordan Brandman – said they were unfamiliar with it.
On the revenue side, the commonly used “break-even” calculation doesn't account for city taxes generated by Angels games and related activities.
That's where the economic impact study comes in. To assess the impact to city coffers, an accurate accounting of tax revenues is necessary. But economists differ on many aspects of the Texas firm's study in addition to the hotel issue. And each of those aspects dramatically affects the estimate of what ends up in city hands.
Three of the disputed assumptions:
• The $14.25 per game out-of-stadium spending by non-Anaheim ticket buyers who do not stay in hotels. When asked about that amount at a City Council meeting, Kaatz offered an alternative calculation removing this assumption.
• The calculation that new direct and indirect spending is 1.7 times the amount of new direct spending alone. Zimbalist said 1.2 times would be more accurate.
• The estimate that 90 percent of game-going hotel guests stay in the city. The Register recalculated findings based on a 75 percent figure.
Changing these three items to the lower assumptions would reduce city tax revenues from the report's estimate of $3.6 million to $2.6 million. That's before accounting for $1.3 million in administrative costs and without considering economists' other objections to the study.
Tait estimates tax revenues are closer to $1.3 million.
“What we make in tax revenue is pretty much a wash,” Tait said. “The big subsidy is the city-owned stadium and parking that the team basically gets for free.”
However, at a time when some cities are burdened with millions in new stadium debt payments, Anaheim is in relatively good shape, according to Stanford economist Roger Noll, co-author of “Sports, Jobs and Taxes.”
“The net operating cost to the city is in the same range as other cities,” Noll said. “Some gain a little, some lose a little. The main financial cost of a stadium is its original construction cost.”
That cost is in the rear-view mirror for Anaheim, which completed the stadium in 1966 and gave it a massive renovation in 1996.
THE ‘SUBSTITUTION EFFECT'
Another criticism of the consultant's report is that it inaccurately calculates the “substitution effect” – Angel-related spending that would be spent in the city on other entertainment options if there were no baseball games to attend. While Kaatz said that has been accounted for, others were skeptical that it was addressed proportionately.
“(There are) people who live in neighboring towns but would travel into Anaheim for entertainment anyway,” said Neil deMause, co-author of “Field of Schemes: How the Great Stadium Swindle Turns Public Money into Private Profit.” “I hear there's a theme park of some kind there.”
Zimbalist's attack on the report as “boilerplate” echoes a similar complaint by Tait, who points out that the first copies of the report distributed to city officials referred to research done at “similar minor league sporting events.” The Angels, of course, are not minor league.
City Council members' reaction to the commissioned report – and to the critiques by other economists interviewed by the Register – range from outright rejection of the document to complete embrace of it. Tait is the council's harshest critic, calling the study's assumptions “absurdity upon absurdity.”
Eastman was not critical of the report but said she was interested in other views as well.
“I'm open to considering new information,” she said. “A lot of work is going into casting a critical eye on a new lease. None of us are willing to do some of the things other cities have done to keep teams, including direct subsidies.”
Brandman, however, said he was fully convinced of the Texas consultant's findings.
“I absolutely believe the report,” he said. “It's a reputable company.”
When read Adibi's comments about the study, Brandman said he respected the Chapman economist – but it didn't change his view.
“Everyone has the right to disagree,” Brandman said. “Economists do it all the time. There may come a time when we get another study, but this study is solid and I believe it.”