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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

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

Rajasekharan Pazhaniappan

Erica Shinohara

Jessica Strong

April 30, 2005

outline
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
scope of our study
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
jets background information
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
hudson yards project background
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
proponents argue that stadiums bring economic development to cities
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
however detractors say there are definite costs with publicly subsidized stadiums
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
key assumptions in calculating npv
Key Assumptions in Calculating NPV
  • 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
timeframe and discount rate
Construction

Lagged tax benefit

from construction

Operation

Lagged tax benefit

from operations

Timeframe and Discount Rate

2006

2009

2010

2015

2036

2043

Discount Rate = 6%

the basic math
PV Benefits $399 million

PV Costs – $306 million

NPV $93 million

The Basic Math

IBO

challenging cost assumptions
Challenging Cost Assumptions

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
challenging benefit assumptions
Challenging Benefit Assumptions

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
synthesis
Synthesis

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
synthesis opportunity cost
Synthesis - Opportunity Cost
  • Opportunity cost of foregone property tax revenue
synthesis revenue growth of 2 5
Synthesis - Revenue Growth of 2.5 %
  • Business cycles mean growth and recession
conclusion
Conclusion
  • 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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