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globe on hockey

Renderings of the proposed Edmonton arena

At the centre of the bun fight between Edmonton politicians and Oilers owner Daryl Katz is the question most big North American cities with a professional sports team face at some point: is it worth using public dollars to help out the team? It's a debate that largely turns on economic arguments. Those who support using civic money to build arenas to keep their franchises in town point to the economic spinoff benefits: jobs, tax revenue, increased business for bars and restaurants around the facility.

Those who are against shelling out the money usually point to the work of academics, two in particular – Dennis Coates and Brad R. Humphreys – to argue that there is actually no economic benefit at all. In one paper, Coates and Humphreys examined all 37 American cities with professional football, baseball or basketball teams during the 27-year period from 1969 to 1996. In their analysis, they stripped away the bigger trends that influence a city's economy (the decline of the manufacturing industry, for instance), to isolate the effect of a sports team on per capita income.

Their conclusions are surprising. The franchises had no discernible effect on the growth rate of per capita income in any of those cities and actually had a negative effect on per capita income overall. That's right: having a pro sports team might hurt your city's economy.

How is this possible? Coates and Humphreys suggest a few possibilities. One is that public money spent on building an arena is money not spent on other things that might have a greater economic impact. If a city decides not to help out its team, those dollars could instead go to, say, improving public transit or hiring staff or offering incentives for companies to relocate to the city. Another possible reason is that the dollars sports fans spend to see a game could otherwise have been spent on something else that would have been more beneficial to the local economy. For example, say I spend $80 on a ticket to a hockey game, and most of that money goes to players who don't live in town year-round. The players will end up taking some of that money with them during the off-season to spend elsewhere. If instead, I use my $80 to take a couple of friends out for dinner, and most of this money is used to pay cooks and servers at the restaurant, those dollars stay in town.

In short, there are trade-offs – "opportunity costs," in the language of economists – to building an arena.

All of this can seem a little beside the point in Edmonton's case. Regardless of its sports teams, the economy of Alberta's capital is chugging along. In 2010, metropolitan Edmonton had the third-highest median total family income in the country, behind only Ottawa and Calgary. The population climbed more than 11 per cent between 2006 and 2011. The question is not so much whether the city will grow, but where that growth will go. And this is where the downtown arena comes in.

Edmonton was mostly built in the post-war period, sprawling in all directions (for comparison, the city proper is a little larger than Toronto, despite containing less than two-fifths the population.) Put an arena downtown, the thinking goes, and you encourage people to go to nearby restaurants and bars, instead of hanging out at a shopping centre in the suburbs. If all this activity livens up the area enough, more people will choose to buy condos there, rather than living in a tract house on the edge of town.

So the question for Edmonton isn't a pure economic calculation, but it still contains a trade-off. The city has to decide whether the promise of urban vibrancy that a downtown arena offers is worth the money – and whether there are other ways to spend those dollars that would do a better job of achieving it.