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

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Presentation on theme: "1 Volume 2, Chapter 6 Professional sports facilities, teams, government subsidies, and economic impact."— Presentation transcript:

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

2 Pro Sport c6-stadium2 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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8 8 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

9 Pro Sport c6-stadium9 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

10 Pro Sport c6-stadium10 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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14 Pro Sport c6-stadium14 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

15 Pro Sport c6-stadium15 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

16 Pro Sport c6-stadium16 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

17 Pro Sport c6-stadium17 Political 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

18 Pro Sport c6-stadium18 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

19 Pro Sport c6-stadium19 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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21 Pro Sport c6-stadium21 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

22 Pro Sport c6-stadium22 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

23 Pro Sport c6-stadium23 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…

24 Pro Sport c6-stadium24 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

25 Pro Sport c6-stadium25 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

26 Pro Sport c6-stadium26 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)

27 Pro Sport c6-stadium27 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

28 Pro Sport c6-stadium28 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

29 Pro Sport c6-stadium29 Why 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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