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

1. New York Sports and Convention Center:A Definite “False Start” Rajasekharan Pazhaniappan Erica Shinohara Jessica Strong April 30, 2005

2. 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

3. 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

4. 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

5. 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

6. Current use of area

7. Future plans

9. 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

10. 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

11. 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

12. Event & Attendance

13. Visitor Type and Mix

14. Ticket and Event Prices

15. Multiplier

16. 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%

17. Jobs and Tax Revenues Generated

18. Methodology

19. PV Benefits $399 million PV Costs – $306 million NPV $93 million The Basic Math IBO

20. 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

21. 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

22. 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

23. Synthesis - Actual Base Case

24. Synthesis - Opportunity Cost • Opportunity cost of foregone property tax revenue

25. Synthesis - Revenue Growth of 2.5 % • Business cycles mean growth and recession

26. Synthesis - Discount Rate

27. Synthesis - Stadium Attendance

28. Synthesis - Number of Expositions

29. Synthesis - Incremental Property Tax

30. Highly Sensitive Synthesis - Multiplier

31. Combined Synthesis - Realistic Scenario

32. 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