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