Why experts say City Council should ignore the economic impact study on the 76ers’ arena proposal

With Monday night’s release of the city’s long-awaited impact studies on the 76ers’ proposal to build a new arena in Center City, lawmakers, lobbyists, activists, and stakeholders this week are poring over the hundreds of pages in the four reports.

But when it comes to the economic impact study — which is likely to play a central role in the coming City Council debate over the project — academics who specialize in stadium and arena finance have some simple advice: Ignore it.

“The study is completely useless,” said Geoffrey Propheter, a professor of public affairs at the University of Colorado-Denver and the author of Major League Sports and the Property Tax. “That’s not a commentary on if it’s done well or not. That’s just a commentary on economic impact studies.”

The city tapped CSL International, a consulting firm with offices in Texas, Minnesota, and New York, to conduct the economic analysis. The firm found that during the arena’s construction and its first 30 years of operation, it would generate $1.9 billion in new economic activity and $390 million in new net tax revenue for the city, the Philadelphia school district, and the state.

Consulting firms such as CSL are often hired by entities involved in promoting new sports facility proposals or deciding whether to move forward with them. Independent academics who research the economics of sports arenas have long been frustrated by the often-rosy projections that they produce and the outsized role they play in public debates.

J.C. Bradbury, an economist at Kennesaw State University in Georgia, called the CSL report a “concocted PR document” and said the firm was “notorious for doing these for-hire projections for paying clients” that fly in the face of “academic consensus.”

“There is nothing credible here,” Bradbury said. “These are not rigorous studies of observed outcomes; they are fanciful forecasts of an imagined future.”

CSL did not respond to a request for comment.

Asked for comment on the academics’ criticism, Mayor Cherelle L. Parker’s office sent a statement from Chief of Staff Tiffany Thurman.

“To ensure that the public has full access to the research, the administration has placed the consultants’ findings online,” Thurman said.

A Sixers spokesperson said in a statement that the team is still reviewing the city’s analyses but believes they are good news for the project.

”It is clear already that they support what we’ve said since we first announced 76 Place: The arena is an appropriate use for Center City and will generate significant new jobs and tax revenue because Philadelphia can support two arenas,” the statement said. “Our parking and traffic assumptions are achievable and these findings are more evidence that 76 Place can be developed in a way that protects our neighbors and maximizes benefit to Philadelphia.”

While the CSL study concluded that the arena would attract economic activity, it painted a less rosy picture than estimates released by the 76ers. The team has claimed that the arena would produce about $1.5 billion in new tax revenue, but it has declined to share the study it commissioned.

(The CSL report’s main findings, including the $390 million net tax revenue benefit, were reported in net present value, a calculation that reflects the value of money over time since a dollar today is worth more today than it will in the future. The Sixers said Tuesday that the team’s report used nominal values, which in the CSL report is equivalent to an almost $1.1 billion tax revenue gain.)

Propheter noted that consulting reports rely on numerous assumptions, many of which are provided by the clients. He pointed to a disclaimer at the beginning of the report, which states, “All information provided to us was not audited and was assumed to be correct based on our professional judgment and experience.”

“I always get a kick out of them,” Propheter said of those types of statements.

The primary issue with economic impact studies, he said, is that they do not compare the effects of projects to what would happen in alternative scenarios, leading to a report filled with “policy-irrelevant information.”

Council members evaluating the project would be better off with a cost-benefit analysis comparing the proposal to the status quo and other potential development scenarios, he said. Those analyses, while costlier and more time-consuming to produce, give you “the full picture of those tradeoffs,” he said.

“Every single decision [officials] make will create winners and losers,” Propheter said. “What you want to know is: Who are the winners, who are the losers, and how much do the winners win, and how much do the losers lose?”

Propheter noted that another of the impact studies released Monday ― on how the arena would affect the surrounding community, posing a “significant potential risk” to the adjacent Chinatown neighborhood ― contained information he thought was missing from the economic analysis. That report, however, didn’t put a price tag on the project’s potential impact.

Arthur Acolin, a real estate professor at the University of Washington who has studied the trajectory of Chinatowns in cities across the U.S., recently wrote a report aimed at filling in that gap when it comes to the debate over the 76ers’ proposal.

Acolin found that the displacement of nearby businesses and residents caused by the arena project could cost as much as $908 million in lost tax revenue. (Like the Sixers, Acolin’s paper used nominal values, meaning the $908 million finding is comparable to the nearly $1.1 billion tax revenue gain reported by CSL.)

“As part of the public discussion, I was thinking about the people who are currently there and the businesses that are currently there,” he said. “Those neighborhoods on the margins of downtown are very vulnerable to changes. A small change in environment can make the difference of being in business and being out of business.”

For Bradbury, these economic impact studies are flawed primarily because they assume spending related to the arena would not occur otherwise.

“Economists have studied the economic impact of sports facilities for years,” he said, “and they consistently find little to no economic effects because sports spending is largely just a reallocation of existing spending.”