Competitive edge: How sports betting helps boost New Jersey’s economy

Martin Daks//February 11, 2019

Competitive edge: How sports betting helps boost New Jersey’s economy

Martin Daks//February 11, 2019

New Jersey’s landmark victory in the Supreme Court last year, which overturned a ban on sports betting, led to a tsunami of activity that reportedly generated more than $1 billion of wagers after just over six months. The state’s take was only a sliver of that, reportedly $10.4 million in taxes in 2018, but focusing on that number understates the importance of professional and collegiate sports to New Jersey’s economy, according to some experts.

“It’s not exactly the same impact as having Amazon HQ2 in Newark, but the economic activity generated by New Jersey sports is definitely a positive,” according to James Hughes, a professor and dean emeritus of the Edward J. Bloustein School of Planning and Public Policy at Rutgers University-New Brunswick.

Enhancing revenues

Sporting events do add incremental value, he noted. “Every time a game is played at MetLife, or the Devils stadium, a portion of the players’ salaries is prorated so they owe some taxes to New Jersey. If New England plays game here then some of their salary is assigned to NJ, so that’s positive. Added to that are taxes on the tickets and other income-producing activity.”

Assigning a dollar value isn’t easily done, however, and estimates can be all over the map. Super Bowl XLVIII in 2014, for example, was played in MetLife Stadium and was projected to pump more than $500 million into the New Jersey/New York economy. It actually brought in less than $220 million directly, according to a PricewaterhouseCoopers study,

However, PwC noted that the analysis excluded the so-called “multiplier effect,” which accounts for “indirect” impacts like a concession company’s purchase of goods from local producers and manufacturers. It also excluded so-called “induced” impacts, which occur when the income levels of residents rise as a result of increased economic activity and a portion of the increased income is re-spent within the local economy.

Another study, by the Pennsylvania-based research and analytical consulting firm Rockport Analytics, found that Super Bowl XLVIII added $600 million to the region’s economy.

Hughes, though, has another take on the spending, drawing a distinction between in-state and out-of-state residents who flock to sporting events. “When a New Jersey resident attends a sporting event and spends money, it can be asked if there’s truly a net benefit, or would the money have been spent elsewhere in the state for something else anyway?” resulting in a net wash. After all, a local who plunks $150 down at a football game might have spent that money on other taxable purchases instead. “So in that case the net benefit may be a bit unclear. But if out-of-state individuals are buying the tickets and spending money here, it’s clearly a benefit to the New Jersey economy.”

Intangible benefits

There are other intangible benefits, he noted. “When Giants Stadium opened in 1976 (it was later demolished and replaced by MetLife Stadium), it brought some big benefits to the Meadowlands, which was previously known as a garbage dump,” said Hughes. “Having a stadium there, and hosting teams like the Giants and the Jets, legitimized the location and brought prestige to it. That also gave confidence to investors that the area was worthy of consideration.”

Professional teams may capture much of the glory, but college-level sports also matter, said Daniel Miles, a vice president and associate principal at Econsult Solutions Inc., a Philadelphia-based consulting firm that works with businesses and public policy makers.

“An analysis we performed found hard numbers that college-level sports at Rutgers University were a positive for the area,” said Daniels, who worked on the report with other Econsult researchers. “In addition to contributing to the state’s brand image, Rutgers athletics also attract large numbers of people to the games, including Big 10 fans from outside of the state.”

“University athletics, particularly revenue sports like football and basketball, serve an important role for the University in attracting and retaining students,” according to the study, Economic Impacts Of Rutgers Athletics And Future Implications Of The Big Ten. “National programs and athletic success have been found to correlate with increased applications, higher enrollment, and higher SAT scores,” it noted. “Having a higher quality student body can help improve Rutgers’ reputation, and improve university rankings.”

In 2014 to 2015 Rutgers Athletics spent $67 million on its programs and debt service, a figure that was anticipated to increase to $85 million by 2021 to 2022, according to the study. “These expenditures comprise of only a small portion of the entire Rutgers budget, about 2%, however, they have a significant impact on the economy of New Jersey,” it noted. But the return is impressive. Between 2014 and 2015, and 2012 to 2022, “the total potential economic impact from athletics spending within the State of New Jersey is [expected to generate] between $109 and $139 million, including 920 to 1,180 jobs, and $2.2 million to $2.8 million in taxes.”

Rutgers’ 2014 move, from the American Athletic Conference to the more-prestigious Big Ten, also enhanced the university’s financial prospects, according to the Econsult researchers.

“Compared to Rutgers’ former conference, the American Athletic Conference, the Big Ten is a more-competitive conference with higher quality programs and higher quality athletic facilities,” the study noted. Planned capital improvements — in 2016, the university announced “the Big Ten Build,” a $100 million campaign for new or upgraded athletic facilities — “will potentially generate $96 to $191 million in economic impact, 660 to 1,320 jobs, and $2.6 to $5.2 million in taxes during the construction period,” according to the Econsult study.

New tax law could hurt

But a provision in the federal Tax Cut and Jobs Act, which took effect last year, could put a dent in attendance at college events, Miles warned. Under the previous tax law, contributions to a college or university that gave the donor the right to purchase season tickets or favorable seats were generally eligible for an 80% tax deduction, despite the general rule that donations made in exchange for some kind of gift were not deductible. The new law wiped out that exemption, and Rutgers now notes on its website that “Payments made to the Rutgers Scholarship Fund, Stadium Expansion Fund, or RAC Revitalization (for season tickets), from January 1 [2018], and after are not tax deductible, these will now be regarded as “Athletic Seat Fees”’.

On a positive note, however, admission to the Big Ten did benefit the learning capabilities of the university. “Participating in the Big Ten Conference brings membership in the Big Ten Academic Alliance, a consortium of 14 world-class research universities,” according to a Rutgers announcement. “This alliance continues to give our students and faculty opportunities for meaningful scholarly collaborations as well as access to members-only databases, conferences, and library collections.”

And Miles noted that Supreme Court win on sports betting — and the state’s rapid entry into the category, which was previously dominated by Nevada — could also give the state a “first mover” advantage. “We’ve already seen evidence of ‘sports gaming’ popups in Atlantic City that teach people about sports gambling,” he said. “The next big thing could be Esports,” or competitive video gaming where teams or individuals play against each other, sometimes for hundreds of thousands of dollars in prize money.

Tickets for a recent Esport tournament in the Barclays Center in Brooklyn went for about $200 apiece, he added. “I could see that happening in New Jersey, maybe at centers like the Meadowlands, or the Prudential Center in Newark, or in Atlantic City.”

Between the jobs and taxes they generate, sporting events still appear to be a home run for New Jersey.