Economic Impact of the Pirates on the Pittsburgh Region

Article excerpt

ABSTRACT

This article examines the economic impact of the Pirates major league baseball franchise on the Pittsburgh region, defined as Allegheny, Armstrong, Beaver, Butler, Washington, and Westmoreland counties, by running two simulations using the 1994 Pittsburgh REMI Model to assess the impact of the Pirates on the local economy. Effects on the local economy are estimated based on the negative impact that would result from the Pirates leaving the Pittsburgh region. The Pittsburgh REMI Model is used to compute the indirect and total impact this would have on the local economy. In the first scenario, money that is currently used by the city and county governments to support the Pirates at Three River Stadium is returned to local taxpayers by lowering personal taxes in Allegheny County. In the second scenario, the money that is used to support the team is redirected by local government and is used to increase spending for other local public goods and services.

INTRODUCTION

Much controversy currently exists in the City of Pittsburgh as to what the real impact of the Pirates is on the local economy and whether or not the amount of financial assistance the team currently receives from local government and the construction of a new, publicly-financed, $240 million baseball-only stadium can be justified. In the past, a number of reports have been written to analyze the economic impact of the Pirates on the region. A quick look at three of these reports is in order before proceeding with the main analysis of this article.

In the past, most reports on the economic impact of the Pirates on Pittsburgh found that the team had a substantial positive economic impact on the region. However, there have been serious flaws in the methods used in these reports, causing them to seriously overstate the actual impact of the team. In his report, Malloy (1979) estimated that the Pirates attracted $33 million in new economic activity into the region annually. He arrived at this amount by estimating the amount of spending by local and visiting fans at the Pirates' home games and on game-related activities and then by applying a multiplier effect to yield his results. However, Malloy counted all games and related expenditures, including those by local residents. In doing so, he ignored the impact of substitution effects on the local economy, i.e., a dollar spent to see a ball game by a local resident is a dollar he won't be able to spend elsewhere. Moreover, Malloy treated local, preexisting money the same as new money from outside the region by applying the multiplier effect to local expenditures as well as to money flowing in from non-residents. As a result, he greatly overstated the impact of the Pirates on the region.

In 1995, graduate students from the Carnegie-Mellon University Heinz School for Public Policy released a study recommending a new baseball-only stadium be built for the team because it would yield substantial revenues for local governments as well as generate significant economic growth Apllebaum et al., 1995). This study found the impact of the Pirates to be $52.9 million in the City of Pittsburgh and $93.6 million for the MSA. However, this study suffered from the same fatal flaws as Malloy's study by generously overestimating the amount of spending made by the team locally on supplies, etc. When all of the appropriate corrections are made to this report, the actual impact of the Pirates on the region falls between $15 and $24 million (Haulk, 1995:11).

In his 1995 paper, Haulk examined the competitive state of the Pirates relative to other major league franchises and estimated the total net flow of money into the region generated by the Pirates and found that past reports had greatly overstated the magnitude of the impact that the team had on the local economy. Controlling for local substitution effects and team expenditures outside the region and using a multiplier of magnitude 1. …