Unexpectedly Intriguing!
29 August 2017

In case anyone ever wonders why so many cities and states are so willing to borrow billions of dollars to be paid back over decades with taxpayer dollars to build professional sports stadiums, the motive describing the thinking of public officials was captured earlier this year, in the city of Pittsburgh, as the city's professional hockey team was on its way to winning Lord Stanley's Cup in consecutive years, for the second time in the team's history. Pittsburgh Post-Gazette columnist Brian O'Neill got an estimate of how the city's government values the sport.

I called Paul Leger, the city's finance director, to find how much playoff loot the city collected in 2016. That was such a great year, with the Penguins playing 13 of a possible 15 home playoff games in April, May and June. They also won this big silver punch bowl kind of thing that looks way cool when you watch it go by in a parade, but that's not my point here.

Those playoff games brought in more than $1.8 million in amusement taxes, nearly $106,000 in the facility usage fee charged to the hockey players who don't live in the city, another $72,000-plus in payroll taxes and nearly $130,000 in parking taxes on all those fans' cars, according to Mr. Leger.

That comes to more than $2.1 million. Divided by the 13 games, it works out to about $163,000 per contest, and tickets haven't gotten any cheaper since.

That's the benefit of a championship season. Now, as good as the Pittsburgh Penguins have been in recent years, when they've been among the best teams of all time, they've only made it through to the championship finals in six seasons, where they've won the Stanley Cup five times.

They've been playing in the NHL since the league expanded in the 1967-68 season. In the 49 completed seasons since, the Pens have....

  • Missed the playoffs altogether 17 times (35%)
  • Were eliminated from the playoffs in the first round 13 times (25%)
  • Made it as far as the second round of the playoffs 10 times (20%)
  • Made it past the second round 8 times (16%)

Making it to the playoffs certainly appears to be nice for the city government's coffers, but the real question is how much of those tax collections came at the expense of other economic activity within the city and adjacent communities that would also have generated tax revenue? Did Pittsburgh's city government struggle badly to balance its books in the long years where the team didn't make it into the NHL playoffs? Will the city or Allegheny County have to raise their taxes if the Penguins go through the same kind of dry spell that characterized over one third of all the seasons they've played in their history?

Or do the Penguins' post-season playoff appearances simply shift where a portion of the economic activity that is occurring within Pittsburgh's metropolitan area is happening? Say from the suburbs down to the neighborhoods surrounding the government-financed $321 million PPG Paints Arena.

Don't get us wrong - business in that part of town can be really good when the Penguins make it into the post-season.

It's not just city hall that makes a windfall from playoff hockey. The Carlton restaurant opened in BNY Mellon Center in 1984, Mario Lemieux's rookie season, and ever since its fortunes have risen and fallen with the Penguins.

Kevin Joyce, The Carlton's owner, will tell you he’s a six-minute walk from the arena, downhill both ways. Really, he says, there's a way to do it and he'll be happy to explain the to-and-from routes to you. He also has a limo shuttle for customers who don’t care to hear about that.

"It means so much," he said of a long post-season run. "I fill my restaurant for every home playoff game. I do big numbers."

All three dining rooms and the lounge fill, and he more than doubles his staff from 14 to 31. White tablecloth restaurants such as his generally don’t do as well in the summer months, so it's ironic that a hockey team can make or break his June.

"And don’t forget the drink tax," Mr. Joyce said.

Mr. Joyce hates the 7 percent Allegheny County tax on alcoholic beverages. If the Penguins go all the way this year, maybe I'll call the county to see if anyone can tally the uptick in the drink tax on hockey nights in Pittsburgh. That there is one, no one should doubt.

We can't speak for specific hockey nights, but we can pull the alcoholic beverage tax revenue date from the Allegheny County Controller's web site.

We looked at the last four years, where the Penguins played in each post-season, but only through the second round in 2014 (playing into May 2014), the first round in 2015 (only playing into April 2015), and into the Stanley Cup finals in both 2016 and 2017 (playing into June in both years).

Following the logic that revenues from the county's alcoholic beverage tax are higher in the months where the Penguins make it farther into the post-season, which typically covers the period from April through June each year, we would predict that the tax collections during these months would see the following patterns:

  • Alcohol tax collection shown for May in each year from 2014 through 2017 would be about the same as each other.
  • Alcohol taxes reported for the month of June in the years 2014, 2016 and 2017 would be about the same, but June 2015 would fall short (since the Penguins were eliminated earlier that year).

  • The county's alcohol tax revenues in July 2016 and 2017 would exceed the collections in July 2014 and 2015. (Note: At this writing the data for July 2017 has not yet been reported, so we can only consider 2016).

The chart below reveals what we found for the monthly alcohol tax collections for the four years 2014 through 2017.

Year Over Year Comparison Allegheny County Alcoholic Beverage Tax Collections by Month, Fiscal Years 2014 - 2017 (YTD), Not Adjusted for Inflation [Current U.S. Dollars]

The chart above shows nominal tax revenue data, as reported by the county controller's office in each year, which lags one month behind when the alcoholic beverage tax is assessed (for instance, taxes assessed in April would be collected and reported in May). If you want to see the data to be adjusted for inflation, we can accommodate you, but it's not significantly different for the months in question.

Testing our hypothesis for the reported alcohol beverage tax revenue figures, we find that...

  • For May, three of the years (2014, 2016 and 2017) are about the same as each other, but 2015 falls surprisingly short. We had hypothesized that the values would be similar for all years for this month.
  • Looking at June, we would have expected the data for 2015 to fall short, but we see that 2014 did instead, while 2015, a year where the Penguins last game was in April, had alcoholic beverage tax collections that are directly comparable to what the county collected during the Penguins' Stanley Cup winning years.
  • For July, we see that both 2014 and 2015's county alcohol tax revenues are similar and fall below 2016's Stanley Cup year, which is in line with what we would have expected, and is the only month that outcome is the case.

What these results tell us is that other factors likely have a greater influence over the county's alcoholic beverage tax revenues than the Pittsburgh Penguins post-season play, where we suspect that the relative strength of the local economy has a stronger influence. Determining how much influence each factor might have would require much more detailed data, which may not be available. Given the data we have available today, this analysis is about as far as we can take it.

Notes: The title of the version of this article that appears on our site, "The More the Penguins Skate, the More the City Takes", is borrowed from the headline of the Pittsburgh Post-Gazette article by Brian O'Neill that inspired this analysis!

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