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Is Sacramento's arena deal bad?

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Economic studies say Sacramento made a mistake with their new arena deal. But that doesn't necessarily mean they did.

On May 20th, the Sacramento City Council voted 7-2 to approve financing for a new sports and entertainment complex in Sacramento.  With the topic of a new arena comes the standard influx of arena naysayers explaining how our sports fandom has screwed our city.

Kevin Draper of The Diss NBA wrote an extensive and well-researched piece explaining why economics support the idea that publicly-funded arenas are bad for cities. You won't enjoy much of what he says, but I suggest reading it anyways.  It's important to read the other side of the argument.  And while Kevin and I may not see eye to eye on every issue, I've often found him to be an intelligent and enjoyable writer.  He isn't STOP, and he shouldn't be ignored simply because we don't like what he says.

I'm not here to tell you the reports he cites are incorrect.  I'm not an economist, and you're unlikely to find an economic paper that supports a publicly funded arena.  And I agree with his assertion that the oft-quoted figure of $7 billion dollars for Sacramento is rather silly.  I think Mayor Johnson and the pro-arena coalition cite numbers that are best-case scenario and may ultimately be unrealistic.  I can acknowledge all of this while still being in favor of a new arena in Sacramento.

I can do this for a number of reasons that you won't find in any economic paper.  I'll be using anecdotal arguments that Draper may not view as substantial enough, but that I still feel are valid reasons that may not be captured in an economic study.

One of Draper's major criticisms is the concept that arenas simply draw in money from other areas of town.  While, as a whole, this may be true, it's not entirely true.  How many Kings fans commute in from Auburn, Woodland, or Stockton?  In an area as geographically sprawled as Sacramento and its surrounding cities, Kings game are drawing in people who otherwise may have no reason to visit Sacramento proper.  Will this be the majority of the fans in attendance at any given game?  Probably not, but it is not insignificant.

This concept is supported by my own personal experiences.  Denver is about an hour North of where I live.  I have friends who live there, but I never have a desire to drive up to Denver and spend money at bars or clubs.  I go to Denver for sporting events, the majority of which happen in the Pepsi Center, or concerts, many of which also happen in the Pepsi Center.  After a game or a concert, I join crowds of people who walk out in to the city and visit nearby bars and restaurants.  This is not uncommon for people who live in the cities surrounding Denver.

In Sacramento's case in particular, failing to fund a new arena means losing the Kings.  And while you can argue that losing a professional sports franchise wouldn't economically devastate a city, there's an opportunity cost.  Sacramento has already been losing out on events as Sleep Train Arena fell into disrepair and became increasingly outdated.  Big concerts pass over Sacramento.  The NCAA stopped holding March Madness games in Sacramento.  Losing these events means losing the added revenue from people visiting Sacramento for these events.  While this money may not equal billions of dollars, these dollars do add up.  And these losses can't be accounted for in a study, because it's nearly impossible to speculate what events may or may not happen in your city depending on the presence of a new arena.

There are a few arguments where Draper ventures into familiar STOP arguments.  Draper repeats the refrain that the Kings are not obligated to develop the area surrounding the new arena.  And he's correct, they aren't.  But it would be incredibly stupid for them to not follow through on that pledge.  The arena will revitalize the downtown area, increasing real estate values in the area.  The Kings ownership group has a significant stake in the surrounding real estate.  To not develop that area is to shoot themselves in the foot.  It would mean failing to capitalize on a prime real estate opportunity.  It would be stupid business.  Have you seen the folks who own the Kings these days?  You can describe them with many adjectives, but stupid is not one of them.  The Kings are unlikely to be a money-making venture.  NBA teams rarely are.  But developing that surrounding area is a money-making venture that also happens to help Sacramento.  And as much as we might like to think that Vivek and Co. are doing this out of the goodness of their hearts, I imagine they would like to make additional money in the process.

And finally, there's the old argument that this money would be better spent on schools or infrastructure or police.  And, as usual, this ignores the fact that the city would be spending this money once and hoping it made a difference.  Instead, the city is investing it into an asset that the city will own.  An asset that can generate revenue that can be put towards schools, infrastructure, or police services.

Ultimately though, we're talking about economic studies.  Economic studies say that public funding for arenas are bad fiscal policy.  They say this based on hard economic data, and they say this based on fiscal results.  These studies aren't designed to measure soft benefits, such as civic pride.  And while you can discount those benefits and say the money is all that matters, I'll respectfully disagree.  There's a benefit to being proud of where you live.  It can make you decide not to live somewhere else, for example.  These benefits are valued differently in different studies.  They are difficult to assign a value to.  Studies and figures in support of arenas typically grant these benefits a higher value.  Studies that demonstrate arenas as being bad for cities often discount these because of their inherent ambiguity.  This isn't to say one way is right or wrong, it's to say that to understand the results of an economic study you have to look at the methodology.

Time will be the judge of whether or not this deal was good for Sacramento.  I, personally, believe it will be a good deal for the city, even if I doubt the economic benefit reaches the figures that Mayor Johnson loves to cite.  People who oppose public funding for arenas are vocal and are often single-minded on the topic.  I believe that each deal is different, and I believe the city of Sacramento finds itself with a very good arena deal.  The arena is being funded with no taxes, no hit to the general fund, and without the city being on the hook for any cost overruns.  The city will own the asset.  The Kings will stay in Sacramento for 35 more years.

Is it possible I'm wrong and this deal will hurt Sacramento?  Yes.  That is 100% possible.  But it's also 100% possible that this is a good deal for the city.  I believe it to be good.  That doesn't mean I've buried my head in the sand.  It means I've paid a lot of attention to the details of the process, and I'm convinced it will be beneficial to Sacramento.