Why the Grand Prix's $58M economic impact claim is mostly bullshit

In the ongoing debate over whether the Detroit Belle Isle Grand Prix's organizers should be allowed to convert the city's one-of-a-kind island park into a private raceway, gearheads typically fall back to one point — the annual event provides a huge economic boost to the city.

This year, billionaire Grand Prix founder Roger Penske is claiming that his 2017 race generated $58 million in spending in the local economy, up $11 million from 2014. He hired a sports consulting firm that came up with the figure, and the media accepted it as fact.

On the surface, it's a hard point to argue against. Are we really going to deprive hardworking local business people of $58 million just because some park users don't want to share Belle Isle with IndyCars for up to four months each spring and summer?

The problem is that many critics view the type of economic impact studies that the Grand Prix funded as wild exaggerations that are more exercises in public relations than serious economic analyses. The sports industry is full of charlatan economists who assemble these type of reports for clients attempting to access public resources, though there are plenty of studies, articles, and books refuting them.

For example, The New York Times recently reported on a study of the 2012 Indianapolis Super Bowl. Organizers claimed the event led to 224,000 hotel stays, but the study found guests booked less than a quarter of that estimate.

Since there's growing frustration with the race in its current location on Belle Isle, and the economic impact is Penske's central justification, it's worth examining the study's claim in detail.

(For the sake of argument, let's ignore for now that the race could be held elsewhere in metro Detroit and the region would still benefit from the alleged economic impact.)

The first issue is one of credibility. The Grand Prix paid for the study, hiring St. Louis-based SportsImpacts — a marketing firm — to produce some numbers.

SportsImpacts provided us with their findings' executive summary, which we ran by Field of Schemes' co-author Neil deMause. His website tracks public subsidies for sports franchises, and he's written a book on the economic impact of sports stadiums and events.

He tells Metro Times the Penske report isn't the worst he's seen, but he notes most firms are given a target figure from which they essentially work backward.

"Most companies that do economic impact studies are in business to come up with an analysis that is going to make their clients happy," deMause tells us. "So if you are being hired by the Grand Prix to study whether there's an economic impact, you are going to bend over backward not to say that there's no impact at all.
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"There are enough assumptions that you can tweak the study to make it sound better or worse, depending on what you do for your clients," he adds.

       
One of the big issues deMause notes is a concept called substitution. Any money spent at the Grand Prix is money not spent elsewhere in Detroit's economy.