An NBA All-Star Game hasn't tipped off in Charlotte, N.C., since the early '90s. If the city can make a few upgrades to its arena, though, the annual showcase of basketball stardom might return within the next few years. That's at least according to new league Commissioner Adam Silver who, as SportsBusiness Daily reports, says the Bobcats can host as early as 2017. So what's an NBA All-Star Game worth? And how much money should Charlotte spend to get it?
Delving into the dollars and cents
Estimating the economic impact of a major sporting event isn't an exact science. But typically, host cities make an educated guess. This year's NBA All-Star Game likely brought at least $90 million to New Orleans, according to its host committee. In Houston a year earlier, reports pegged the game's value near $100 million, a few million more than when Orlando hosted in 2012.
Over the past few seasons, the economic impact of an All-Star Game has fluctuated in this range, with Arlington, Texas, in 2010, being the lone exception. That year's game, held in Cowboys Stadium, was thought to have brought much more -- over $250 million -- to the surrounding area.
Stadium capacity -- due to what's known as the "multiplier effect" -- can significantly alter economic impact. When NBA fans spend money on hotels, food, and transportation, the multiplier effect assumes the businesses themselves spend a portion of that money locally. Arlington, for example, set NBA attendance records with over 90,000 fans at its All-Star Game, four times the amount that bought tickets to Los Angeles' game one year later. As you might expect, L.A.'s estimated economic impact was much less than Arlington's.
Should Charlotte make the necessary upgrades?
When looking at recent history, Charlotte would be wise to use Phoenix and Orlando as a blueprint. All three are middle-market teams, Charlotte's population of 775,000 nearly splits the difference between both cities, and in terms of arena capacity, each is within 1,000 seats of one another. Phoenix's All-Star Game, in 2009, generated about $100 million in economic impact, and Orlando's value, in 2012, was near $95 million.
Assuming Charlotte's looking at roughly nine figures in economic impact, a 60:40 split between direct and indirect spending (from the multiplier effect) should be expected. Whether it's Orlando, L.A., or most other host cities, this ratio remains fairly constant.
Because Commissioner Silver specified Charlotte's arena needs an updated scoreboard, new suites, and lighting, but nothing else major, I believe the city will pull the trigger. Its Regional Visitors Authority recently requested up to "$42 million in taxpayer money to pay for various [arena] renovations," according to the Charlotte Business Journal, so the benefits of an All-Star Game appear to outweigh the costs.
The bottom line
This analysis assumes the NBA gave Charlotte a guarantee, when in reality, it didn't. If multi-million dollar upgrades are made and the city doesn't host the game, all could be for naught.
On the other hand, the Bobcats are playing better this season, and if it ended today, the team would make the playoffs for only the second time in its 10-year history. This, and the fact that the franchise's value spiked by 30% last year, indicate Charlotte might be smart to upgrade its arena regardless of the All-Star risk. Finally performing better than it has in years, an All-Star Game push could be the pat on the back the team, and its fans, need.
Jake Mann has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.