taxpayer financed stadiums revised 4 dec 2008 l.
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Taxpayer-financed stadiums (revised 4-Dec.-2008). Ballparks and team revenues. A team’s ballpark affects its revenues. Attractive, comfortable, conveniently located parks draw more fans. Luxury suites and skyboxes raise venue revenues a lot (and are easier to build in new parks).

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Taxpayer-financed stadiums (revised 4-Dec.-2008)

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ballparks and team revenues
Ballparks and team revenues
  • A team’s ballpark affects its revenues.
    • Attractive, comfortable, conveniently located parks draw more fans.
    • Luxury suites and skyboxes raise venue revenues a lot (and are easier to build in new parks).
    • If the increased revenue is used to improve the team, the improved team quality will keep revenues high.
  • Most teams do not pay for their own ballparks.
    • Team’s costs are less if they can get someone else to pay for it.
      • Most parks are publicly financed (taxpayer financed).
    • Team’s costs may be less if they can lease it from the city or state.
        • team gets most of the park’s revenues, bears little of its costs.
ballparks and team revenues cont d
Ballparks and team revenues (cont’d)
  • The stadium directly affects:
    • GATE REVENUES (ticket-sale revenues)
      • Gate revenues vary wildly from team to team. 2007:
        • Red Sox , Yankees ~$170 M
        • Rays, Marlins, Royals < $25 M
      • Stadium not the only factor, but a significant one.
        • Both prices and attendance usually shoot up when team moves into new stadium.
    • VENUE REVENUES (non-ticket $ from stadium)
      • $ from luxury suite rentals, personal seat licenses; concessions and parking revenue (depends on terms of lease); naming rights; advertising in stadium.
      • Venue revenues vary even more wildly than gate revenues.
ballparks and team revenues cont d4
Ballparks and team revenues (cont’d)
  • Forbes estimated venue revenues for 1997 season
    • Ranged from $34.9 M (Yankees) to $1.5 M (Reds).
    • Five teams had $21-27 M, 3 teams had < $2 M.
    • All but one (Yankees) of top six were in new parks.
    • Bottom seven teams ranged from $1.5 M to $3.7 M.
      • Five got new stadiums (Reds, Brewers, Tigers, Pirates, Mariners)
      • One made major renovations (Angels)
      • One was slated for elimination (Twins) and now has a new stadium in the works
ballparks and team revenues cont d5
Ballparks and team revenues (cont’d)
  • A glut of new ballparks? The revenue boost from a new ballpark often wears off quickly.
    • Two months into 2003 season:
      • Attendance drop from 2002 was most severe (nearly 16%) for teams who moved into new parks in 1991-2002.
      • Team with brand-new park (Reds) had mediocre attendance.
      • “The bloom is off the rose a little bit regarding new stadiums” -- Bob DuPuy, president of MLB
    • The Pittsburgh Pirates’ PNC Park
      • Opened 2001, considered one of the best in MLB.
      • In 2008 Forbes estimated the park’s contribution to the team’s value at just $48 million (16% of team’s total value).
        • Fourth-lowest in MLB.
        • ~ Same as two small-market teams looking for new stadiums (Tampa Bay, Minnesota).
a good ballpark can help a team a lot
A good ballpark can help a team a lot . . .
  • Forbes estimated parks’ contributions to team values:
    • Median in 2008 was ~ $100 M, ~25% of total team value
      • Typically the park contributed 20-25% of total team value.
      • Teams with the most valuable parks:
        • Yankees ($237 M, but only 18% of team value)
        • Red Sox ($177 M)
        • L.A. Dodgers ($176 M)
      • Teams with the least valuable parks:
        • Marlins ($26 M, 10% of team value)
        • Twins ($47 M, 14% ")
        • Royals (50 M, 16% ")
        • Pirates

. . . but how much does it help the city it’s in?

-- Time to review two economic concepts.

opportunity cost
Opportunity cost
  • A resource is SCARCE if there’s less of it than we would like.
    • Most resources have more than one use.
  • The OPPORTUNITY COST of using a scarce resource is the (forgone) value of its best alternative use.
      • Ex.: coming to class vs. catching up on sleep
      • If you want more of one thing, you must settle for less of another.
    • The opportunity cost of using scarce taxpayer dollars to build a new baseball stadium is …
the multiplier
The multiplier
  • Recall: GDP is the sum of various types of spending (C + I + G + NX)
  • An initial increase in spending can have a ripple effect and raise total spending by a multiplied amount
    • chain of spending, as money gets spent and re-spent
  • MULTIPLIER = the total increase in GDP caused by a $1 initial increase in spending
    • Very important, if government is trying to raise GDP through fiscal stimulus (new spending).
the multiplier cont d
The multiplier (cont’d)
  • The multiplier is smaller than one might think because of leakages from the spending stream.
    • Income and sales taxes, imports, inflation…
    • Real-world multiplier for U.S. = 1.5 (approx.)
    • Real-world multiplier for cities = much less
      • Import leakages are much greater for cities
      • For a city, expect the multiplier to be < 1.
field of schemes ballparks and local economies
“Field of Schemes”:Ballparks and Local Economies
  • How much do ballparks help a local economy? Is a new stadium a good public investment for a city?
    • Economists agree: Not much. NO.
    • Independent empirical studies consistently find little positive impact.
      • Stadiums and sports teams create very little new spending. They divert spending from other forms of entertainment (opportunity cost).
      • The multiplier associated with building a new ballpark is very small -- most of the income generated is re-spent outside the city.
ballparks and local economies cont d
Ballparks and Local Economies (cont’d)
  • Components of a team’s effect on local GDP:
    • (1) injection of new consumer spending
      • From local market, this is about $0 – people have a ~fixed entertainment budget (more for sports means less for dining, etc.)
      • From neighboring markets, will tend to be more (esp. for small localities); typically small, though.
    • (2) multiplier effect, as money gets re-spent
      • Very small for sports teams – leakages are very large.
        • Leakages are especially large in small localities.
    •  Net impact of a sports team on local GDP is small.
ballparks and local economies cont d12
Ballparks and Local Economies (cont’d)
  • Payoffs from alternative projects (e.g., roads, hospitals, schools) typically much higher.
  • Dennis Coates & Brad Humphreys (2000): study of 37 cities with pro sports teams.
    • Average net impact of getting a team was to lower local income slightly. In per-capita terms:
      • + $67 in new spending
      • - $73 in higher taxes, decreased services
      • = - $6 (net loss)
why do cities subsidize pro sports stadiums
Why do cities subsidize pro sports stadiums?
  • (1) Team owners tend to be politically powerful (main reason).
    • They typically threaten to leave the city if they don’t get a publicly-financed stadium.
    • Cities tend to be in a weak position to counter threats to leave.
      • Sports-league monopolies do not make it easy for cities to attract another team. (Ex.: Los Angeles and NFL.)
  • (2) Mayors and other local politicians often envision a team and/or stadium as part of their legacy.
    • Because voters frequently reject referendums for tax-financed stadiums, politicians often do not put it up for a public vote.
  • (3) Social or psychological value attached to having a pro sports team
  • (4) Many people mistakenly think that sports stadiums do make a big contribution to the local economy.