FACILITY FINANCING CHAPTER 9

TERMS

Subsidies

Subsidizing construction

Infrastructure Subsidies

Operational subsidies

Gestation Era

Public Subsidies Era

Transitional Era Subsidies

Fully Loaded Era

MLB (A58)

Tax Reform Act 1986

Deficit Reduction Act Of 1984

Sport Facility Investments

• There are three types of investment:

• A. Subsidizing Sport Facility Construction

• This is the amount given toward building a sport facility.

Types of Investments

• C. Operational Subsidies:• The lease agreement

between government and the teams who play in the venues.

B.Infrastructure Subsidies:This is the amount that government acquires site and/or services (water, electricity, security, and etc.)

The Four Eras of Stadium Subsidies

• A. Gestation Era 1961-1969

• B. Public Subsidies Era 1970-1984

• C. Transitional Era 1985-1994

• D. Fully Loaded Era 1995-2003

(Era of subsidies continued)

• Gestation Era 1961-1969

• During this era, it was common for the government to finance and construct facilities for the franchise team.

• This is done through a lease agreement in which the government is the landlord.

• During this time, this occurred in the Midwest and East coast.

• Public Subsidies Era 1970-1984

• Popularity of sports grew tremendously. Funding was perceived to be the exclusive responsibility of public entities.

• They used bonds or revenue bonds redeemed by sales tax

Era of subsidies continued)

• Transitional Era 1985-1994

• This era saw the government assumed less of the proportion of financing new sport facilities.

• The Deficit Reduction Act of 1984 which prohibit the use of tax- exempt bonds to finance luxury boxes. The Tax Reform Act of 1986 prohibit use for new sport facilities.

• Fully Loaded Era 1995-2003

• This era saw 47 new major new facilities were built.

• Most facilities were financed by private-public

• partnership.

FINANCING SOURCE OF BUILDING STADIUM

Stadium Funding Sources

Trends in the Minor Leagues

• There has been a resurgence of interest in minor league games, attendance at minor league games exceeded 38.8 million.

• The attendance increases have urged for bigger and better stadiums.

• MLB incorporated Attachment A58 to the Professional Baseball Agreement. It specifies standards for minor league stadiums.

• Non-compliance of A58 means minor franchise would lose their major league affiliation and player development contracts.

GREER STADIUM

BENEFITS

• Positive externalities:• Public good• Psychic impact

• Controversies• Franchise free agency

Sports teams and owners

Leagues

Fans/patrons

Cities/municipalities

Positive externalities – overflow effects like the creation of new jobs, growth in related businesses.Can help justify public investment in a private business.In the sport industry, this includes local businesses like bars, restaurants, hotels, and retail stores. Radio and newspapers also benefit from sport

Historical Changes in Financing

Phase 1 – private sources of revenuePhase 2 – general obligation bonds (GOBs)•Phase 3 – changing array of complex and creative financing methods:

GOBs – Debt and interest paid out of local government general funds

Modern period

•Initial public funding sources - sales taxes, property taxes, and stadium rent, but increasingly came from hotel and rental car taxes and others. •Private sources - capitalizing revenue streams from the facility (e.g., naming rights, premium seating, and sponsorships) and borrowing against those to pay for construction.

Laws of Interest in Building Facilities

• 1984 Act – Prevented tax exempt bonds for financing luxury suites

• 1986 Act – Prohibited tax exempt bonds for facility where a single organization was responsible for 10% of more of revenues generated in facility (Private Use Test)

• Changes caused interest rates in bonds to increase.

Public Financing―Direct Revenue Sources

Sales tax Tourism / food &

beverage taxes Sin taxes Sale of

government assets

State appropriations

Sales Tax Funding for Facility Construction

Facility Funding Through Tourism and Food and Beverage Taxes

COORS FIELD & LUCAS OIL STADIUM

Public Financing―Direct Revenue Sources• Ticket or parking taxes /

surcharges

• Lotteries / gaming revenues

• Player income taxes

• Utility and business taxes

• Reallocation of existing budget

Public Financing― Indirect Sources

Land donations Infrastructure

improvements Tax abatements• Land – Brooklyn Nets, St. Louis

Blues

• Infrastructure – St. Louis Cardinals

• Tax abatements• $10 million in Utah for owners of MLS

stadium, Nationwide Arena (half of normal amount)

Parking Taxes

Trends in Colleges

• There has been an increase the number of college stadiums either renovated or expanded.

• 1. The best student athletes and the best coaches are attracted to institutions that have the best facilities.

• 2. The football pot is lucrative with bowl payouts, football T.V., and NCAA College Basketball Championships.

• 3. Division I schools are using the sale of premium seating as the basis for financing major facility improvements.

COLLEGE FOOTBALL STADIUMS

Observations:

• 1.Americans spend three times as much money on flowers, seeds, and potted plants as they do on spectator sports.

• 2. A major university is not only larger than any sports team, but may exceed the size of an entire league.

• 3. Teams are cultural icons which people identify with and are willing to pay for.•

Factors Contributing to Enhanced Private Sector Investment in Professional Facilities• 1. Opportunity Costs

• 2. The Equity Issue

• 3.Owner Leverage

• 4. The Community Power Structure

• 5. The Increasing Costs Stimulus

• Students are to add these words to your terms. Turn them in with the other term on or before the 19th.