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New York Sports and Convention Center: A Definite “False Start” Rajasekharan Pazhaniappan Erica Shinohara Jessica Strong April 30, 2005 Outline Scope of our study Overview of New York Sports and Convention Center (NYSCC) Arguments for / against stadiums Key assumptions and Methodology

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New york sports and convention center a definite false start l.jpg

New York Sports and Convention Center:A Definite “False Start”

Rajasekharan Pazhaniappan

Erica Shinohara

Jessica Strong

April 30, 2005


Outline l.jpg
Outline

  • Scope of our study

  • Overview of New York Sports and Convention Center (NYSCC)

  • Arguments for / against stadiums

  • Key assumptions and Methodology

  • Cost and Benefits of the project

  • Synthesis

  • Conclusions


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Scope of Our Study

  • Brief comparison between NYSCC Developer report and the NYC IBO analysis

  • Critical examination of assumptions made for Cost Benefit computation

  • Analyze the impact of the assumptions made on the reported net benefits

  • Limited to City of New York’s perspective


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Jets’ Background Information

  • Since 1984, home games held at the Meadowlands Stadium in New Jersey (shared with the New York Giants)

  • 2004 franchise value = $567 million

  • Current capacity is 80,242 seats

    • Average attendance from 1983-2004 was 65,731

  • In 2003, average ticket price was $66 per ticket; $368 per game for a family of 4


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Hudson Yards Project Background

  • Multi-purpose facility construction and renovation

    • Construction of new 75,000 seat open-air stadium, exhibition and entertainment center

    • Expansion and renovation of existing Jacob Javits Convention Center; 1 million new sq.ft.

    • Extension of No. 7 subway line




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Proponents argue that stadiums bring economic development to cities

  • Increased revenue through tourism spending, new jobs, and taxes

  • City becomes a “big-league” city through publicity and new businesses

  • Benefits accrue and offset the subsidies so there’s no cost to the city over time


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However, detractors say there are definite costs with publicly-subsidized stadiums

  • Benefits and multiplier effects are usually overestimated

  • Gross revenues spent at stadium are substitutes for other entertainment

  • Future popularity of team is uncertain

  • Opportunity cost: money could be spent to increase social welfare in other ways


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Key Assumptions in Calculating NPV publicly-subsidized stadiums

  • Number and types of events

  • Attendance

  • Type and mix of visitors

  • Ticket and event prices

  • Multiplier effect

  • Timeframe and discount rate

  • Number of jobs and tax revenue generated


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Event & Attendance publicly-subsidized stadiums


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Visitor Type and Mix publicly-subsidized stadiums


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Ticket and Event Prices publicly-subsidized stadiums


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Multiplier publicly-subsidized stadiums


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Construction publicly-subsidized stadiums

Lagged tax benefit

from construction

Operation

Lagged tax benefit

from operations

Timeframe and Discount Rate

2006

2009

2010

2015

2036

2043

Discount Rate = 6%


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Jobs and Tax Revenues Generated publicly-subsidized stadiums


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Methodology publicly-subsidized stadiums


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PV Benefits $399 million publicly-subsidized stadiums

PV Costs – $306 million

NPV $93 million

The Basic Math

IBO


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Challenging Cost Assumptions publicly-subsidized stadiums

Costs are grossly understated:

  • Opportunity Cost – foregone property tax

  • Cost of additional public service

  • Costs of additional infrastructure

  • Encumbrance or reduction in City’s bonding capacity


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Challenging Benefit Assumptions publicly-subsidized stadiums

Benefits are vastly overstated:

  • Optimistic stadium attendance

  • Number of expositions – not incremental

  • Number of jobs and quality of jobs

  • Multiplier – no consideration of leakages

  • Incremental Property Tax

  • Tax revenue growth rate - optimistic


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Synthesis publicly-subsidized stadiums

Scope – Reexamining crucial assumptions:

  • Opportunity costs

  • Constant revenue growth of 2.5 %

  • Discount rate of 6 %

  • Stadium attendance

  • Number of expositions

  • Incremental property tax

  • Multiplier


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Synthesis - Actual Base Case publicly-subsidized stadiums


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Synthesis - Opportunity Cost publicly-subsidized stadiums

  • Opportunity cost of foregone property tax revenue


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Synthesis - Revenue Growth of 2.5 % publicly-subsidized stadiums

  • Business cycles mean growth and recession


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Synthesis - Discount Rate publicly-subsidized stadiums


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Synthesis - Stadium Attendance publicly-subsidized stadiums


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Synthesis - Number of Expositions publicly-subsidized stadiums


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Synthesis - Incremental Property Tax publicly-subsidized stadiums


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Highly Sensitive publicly-subsidized stadiums

Synthesis - Multiplier


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Combined Synthesis - Realistic Scenario publicly-subsidized stadiums


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Conclusion publicly-subsidized stadiums

  • Developers greatly exaggerate the benefits to the city

  • Including a convention center does not offset net losses

  • The project is a drain on current and future generation of city taxpayers

  • Stadium politics

  • Alternatives exist


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