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

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

  2. 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. • “SWEETHEART LEASE” • team gets most of the park’s revenues, bears little of its costs.

  3. 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.

  4. 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

  5. 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).

  6. 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.

  7. 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 • TRADEOFFS • 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 …

  8. 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).

  9. 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.

  10. “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.

  11. 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.

  12. 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)

  13. 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.

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