NBA dispute raises economic worries in downtown Phoenix

by Emily Gersema – Oct. 28, 2011
Courtesy of The Arizona Republic

[Editor’s Note: Downtown Phoenix is a crucial piece of the health of Phoenix and the light rail corridor. Light Rail Advisors supports business development along the tracks in Phoenix, Tempe and Mesa.]

The cancellation of the Phoenix Suns’ games for the October preseason and two weeks in November has diverted some basketball fans from hanging out in downtown Phoenix and left businesses wondering whether more canceled games could hurt their bottom line.

After 15 hours of talks on Wednesday, the NBA players union and team owners said they are hopeful a deal could be reached within days, which would allay fears of economic fallout.

A lot of money is tied to the games, in addition to ticket, food and beverage sales. The Suns are in the 19th year of a multimillion-dollar, 30-year lease with Phoenix to operate and play in US Airways Center.

Outside of the arena, downtown businesses benefit from fans’ attendance of the 41 home games in the NBA season. Fans splurge on drinks and food before and after the games. Many drive and pay for parking.

Yet, assigning a dollar amount to the Phoenix Suns’ value for the local economy is difficult; no major Valley business group has ever studied the issue.

Martin Shultz, chairman of the non-profit Phoenix Community Alliance, said businesses are hurt by game cancellations.

“It is a setback,” said Shultz, a season ticketholder. “It’s not going to break us. On the other hand, it’s really disappointing. I hope it resolves itself quickly.”

Some economists and business managers believe the financial toll of the NBA labor dispute is zero to minimal. Others argue it means restaurants, bars and shops, particularly in downtown areas, see fewer customers and lose hundreds, if not thousands, of dollars they would otherwise earn in a typical NBA season.

The city will probably take a small loss because of its financial agreements with the Suns for renting and running the arena.

Business impact

Sports economy experts disagree on the significance of pro-team arenas to local economies.

Andrew Zimbalist, considered a national guru of sports economics, said studies suggest the sports teams have no net effect on jobs or incomes in the area.

“The money that people spend at a basketball game is part of their discretionary leisure budget,” said Zimbalist of Smith College. “If they don’t spend it at a basketball game, they’ll spend it somewhere else. And if it’s not going to have an impact on the total amount of economic activity, it’s not going to have an impact on sales-tax revenues.”

But that’s assuming fans, when games are canceled, are hanging out in restaurants, theaters or other entertainment venues in the same city that is home to the arena, said John Eaton, a marketing professor at the W.P. Carey School of Business at Arizona State University.

“Over the course of a season, I think you could certainly argue that the loss of millions of dollars (in sales and sales-tax revenues) is a possibility,” Eaton said.

Last November, the Suns’ seven home games were attended on average by 17,662 fans who filled 96 percent of the arena’s 18,422 seats. The fans come from all over the Valley and sometimes from around the country.

That month, the city collected nearly $1.4 million in sales taxes from restaurants and bars, an estimated $140,000 more than it collected in October 2010. City officials don’t know how much of that can be attributed to Suns fans.

Even though November is regarded as a moderate-turnout month for NBA fans at arenas around the U.S., the month marks the start of an increase in foot traffic for downtown restaurants like Hanny’s.

Alex Cuozzo, Hanny’s general manager, said patronage during the NBA season depends on a number of factors.

“It kind of depends on who they’re playing, and whether or not Arizona wins,” Cuozzo said. “If Arizona wins, we get a really big crowd. We have capacity for 430 people.”

The newest restaurants in downtown Phoenix have yet to experience the ebb and flow tied to the season.

One of them is Sam Fox’s Arrogant Butcher, which opened earlier this year at CityScape, a two-block retail and office complex facing the arena.

Downtown workers, including Suns staff, are frequent patrons. Fox was hoping to see even more business from fans with the start of the NBA season.

“I’m disappointed, obviously,” Fox said of the game cancellations. “It’s such an extra boost for our business. It’s great exposure.”

City impact

In 1992, the Suns and the city reached a deal to finance and build the $90 million arena. Phoenix agreed to pay $35 million for the project, financing it with tax-free bonds. It has been repaying the debt through a special tax on hotel rooms and car rentals, so the burden is carried by tourists.

The city also helped the project along by buying the land the arena sits on, at Jefferson and First streets, for $12 million, and by financing the $17 million Jefferson Street garage between the arena and Chase Field with money from what is now the Phoenix Convention Center.

The Suns financed a portion of the construction with tax-free bonds from the Maricopa County Industrial Development Authority.

The deal required the Suns to sign a lease with the city. The Suns paid $500,000 in rent the first year, and then the rent began increasing 3 percent each year afterward. In addition, the Suns must pay 10 percent of the arena’s annual revenues to the city, but the team keeps the rest, some of which covers the Suns’ debt repayments for the construction.

The Suns’ payment to Phoenix last year was roughly $1.6 million – $750,000 for the 10 percent share, and another $850,000 for rent, said Jeff DeWitt, Phoenix’s finance chief.

With some games canceled and the potential for more, “we’ll probably see that payment drop a little bit this year,” DeWitt said.

Phoenix taxpayers are not on the hook for any debts related to US Airways Center, he added, unlike taxpayers in other cities that have chipped in or paid all construction costs of a new arena, such as Memphis’ FedExForum for the Grizzlies.

Republic reporters Paul Coro and Rebekah L. Sanders and the Associated Press contributed to this article.


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