1 Volume 2, Chapter 6 Professional sports facilities, teams, government subsidies, and economic...

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Volume 2, Chapter 6Professional sports facilities, teams, government subsidies, and economic impact

Pro Sport c6-stadium 2

Stadium for professional teams Franchises often pursue new facilities or renegotiate

leases in pursuit of additional revenue Luxury suite, naming rights, advertisement, signage not included in revenue-sharing

Financing stadium era Prehistoric era: before 1965, mostly public funding Renaissance era: 1966-83, bonds secured by taxes,

increased facility utilization by other events Revolution era: 1984-87, law reduce public funding to

stadium construction New frontier era: after 1987, greater complexity, involve

multiple parties from public and private sectors: land, infrastructure improvement, tax, investment capital…


Stadium boom

Stadium boom 77 major league lease renegotiations, stadium

construction/renovations 1990-2000, cost 12 B 37 new stadiums/arenas open 1990-2000, cost

6.5B >50% major professional sports franchise

get/request new/renovated facilities by 2000 Mostly receive significant amount of public

funding


Financing instruments for stadium Club seats: must be leased on long-term basis

Better seating/chair, lunge area, wait-staff One of the largest revenue producers

Personal seat licenses: up to 85% total seats Contractual agreement between team and purchaser, pay

in exchange for team guaranteeing right to purchase season tickets at specified seat location for designated period of time, can be resold on open market

Team receive money for upgrading facilities, guaranteed ticket base

Fans receive right for ST, may valuable in market Government reduce costs to tax payers for stadium Refunded with certain percentage in several years


Financing instruments for stadium Naming rights

May include other advertisement in facility, ‘official sponsor of…’, auxiliary stadium areas, practice facility…

Concessions Concession rights for sale of food, usually exclusive

Restaurants: even in off days Local specialties, national chains

Fun and games: may open all year Swimming pool, Six Flags, museums…

Retail stores: venue a constant tourist destination Full-scale mall, several restaurants in Tropicana Field

Luxury suites, parking, advertising, Facility tours


Cities in pursuit of sports franchises

Money is the most important factor Also civic image

Value of ‘big league’ label difficult to calculate Cities bid for major league sports, major events with high

costs of public funding Owners use competing cities as bargain power

St. Petersburg, FL build Florida Suncoast Dome in 1988 with tax dollars, hoping to attract MLB teams

Try to attract White Sox from old Comiskey Park with new stadium and 10 M loan

WS ask Chicago to pay 150 M for new Comiskey Park St. Petersburg finally got Devil Rays in Tropicana Field


Public funding of stadiums 16 baseball-only stadiums built for MLB

None in previous 13 years Total cost 4.9B, average 306M 3.27B (66.7%) from public money Only PacBell Park in SF was largely privately financed

Local government issue federal-tax-exempt bonds to help pay for construction Lower interest rate Estimated 47-94 M per stadium

Cities compete with each other for professional teams Smaller cities have to offer better package than larger

ones


Favorable stadium deals Very low rent

Chicago White Sox pay $1/year Phoenix Suns, Milwaukee Bucks pay no rent Also share revenue from parking, concessions,

signage Pay rent by attendance

Cleveland Indians: $1.25/ticket if attendance > 2.5M, $1/ticket 1.8-2.5M, $0 under 1.8M

Team may earn more by NOT selling any ticket (revenue sharing, rent for stadium), rewarding teams for doing poorly

Pro Sport c6-stadium 17Political process of public funding for stadiums Team owner proclaim his team needs a new

stadium to remain competitive Threat to move

Gather support from local beneficiaries Contractors, construction companies, construction

unions, architectural firms, bankers, lawyers who work for bankers…

Team/owner find key politicians for support Launch public relations campaign Referendum

Vote result usually close, as it should be Otherwise owner is asking too few


Economic impact study

Team usually hire large consulting firm to produce economic impact study of new ballpark Inappropriate methodology, based on antiquated

input-output models, unrealistic assumptions Just to make new ballpark ‘sounds’ good Always conclude that hundreds of millions of

dollars and thousands of jobs would be generated per year from the ballpark


Real economic impact

Professional sport is still a relatively small business in cities Yearly average team revenue in MLB 112 M 0.3% of local economic activity in mid-sized

cities 0.03% in large cities

Employee 70-130 in front offices 1000-1500 day-of-game personnel in unskilled,

low-wage, temporary, part-time jobs


Real economic impact Substitution effect: consumers have largely

inflexible leisure budget Pro teams compete with other entertainment business Teams spend very little revenue in local Local entertainment business spend most revenue in

local, but lose money to pro teams Out-of-towner in attendance increase local spending

but percentage usually low (5-20%) Most out-of-town fans do not come because of the game,

rather for business/family reasons. They would spend money in other entertainment in the

same city anyway Media personnel covering the game: usually small


Real economic impact Leakages

53-55% MLB team revenue goes to players Majority of increased revenue due to new

stadium usually go to players Player paid ~40% federal tax, higher saving rate,

may not live in home city Revenues in concession stands goes to

concession company based elsewhere Local entertainment business has lower federal

tax rate, lower saving rate, spend most of their money in local metropolitan area


Real economic impact Budgetary impact

Decreased government service and/or higher taxes Monopoly in pro leagues enable teams to drive

impression bargains in negotiating with financial and lease terms

Economically, host cities receive negative net operating income form stadiums Most empirical studies fail to detect any discernible

positive effects on local economic growth associated with stadium or sport team

‘put a city on map’ effect would not attract many business or travelers Concerned more on labor, location, infrastructure…


Real economic impact Income redistribution

Sales tax accounted for 29% public funds to baseball stadium construction

Sales tax fall disproportionately on lower-income families

Most of stadium revenue to to players and owners

New stadium cater higher-income groups with club seats, luxury suites, restaurants…

Increase ticket price for new stadium, built by public money


Real economic impact

City redevelopment Stadiums may revitalize central city area Necessary to plan surrounding activities with

appropriate synergies, usually require more public investment

Increase real estate value/rent: possible, but only in close vicinity


Real economic impact Cultural enrichment

Bring pleasure to many people Unlike other cultural establishments such as museum, the

revenue from stadiums go to private individuals Sports as cultural icon and coalition glue Consumer surplus: enjoyment of attending games

or through media Public-image enhancement, enhanced community

visibility Estimated by contingent valuation method (CVM),

willingness to pay Usually negative or small positive (less than public

subsidies)


Crowd out effect

Major sport events, such as Super Bowl, can bring significant revenue to host cities Is it really true? Or simply politics? New money vs replaced spending Spending on Super Bowl largely displace

spending by tourists who would have gone to these cities but could not do so

Professional sport teams Local sports franchises crowd out other local

spending in local residents


Stadium boom in Italian football

Most teams pay rental for public stadia Juventus Arena, opened Sep, 2011, Italy’s

first privately owned football venue Italian government is set to pass a new law

which will facilitate the development of privately-owned stadiums in Nov, 2011 Failed to compete with other countries to draw

important matches

Pro Sport c6-stadium 29Why do cities compete for sport franchises?

Monopoly power given to professional sports leagues

Gaining/keeping a team with subsidies or losing it without subsidies? Political issues

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