Tuesday, April 13, 2010

Stadium debt 

Stadium debt, in some cases, hangs around a lot longer than the teams that once played in them. From the Houston Chronicle comes this story that the vacant Astrodome "carries as much as $32 million in debt — nearly as much as the original cost of construction." $32 million may seem like rounding error in an era of $500 million ballparks. Nevertheless, there's a whiff here of the old political trick of shifting benefits towards the present and costs to the future. And not just in Houston:
Olympic Stadium in Montreal was not paid off until two years after the Expos left for Washington, D.C. Three Rivers Stadium in Pittsburgh still was carrying $45 million in debt at the time of its demolition in 2001.

Seattle's Kingdome was razed in 2000, and King County is scheduled to finish paying off its debt in five years.
22 years of payments

Public money will be required to cover Astrodome debt payments for 22 more years, according to county financial projections.
The story goes on to note that the current debt stems from renovations made to address relocation threats made by the Oilers and Astros in the 1980s.
The Astrodome's debt stems from the $60 million cost in the late 1980s of adding 10,000 seats, removing the scoreboard and installing 72 luxury boxes. County commissioners approved the project in an effort to persuade Oilers' owner Bud Adams to keep the team in Houston. The team left town after the 1996 season.

When asked if the expansion looked like a bad investment in retrospect, Precinct 4 Commissioner Jerry Eversole replied, “Hell, yeah!” But Eversole, who was not yet on the Court when the spending was approved, also said it has to be looked at in the context of the times, when two teams were threatening to leave town.

“We couldn't not try to keep the Oilers and we couldn't not try to keep the Astros,” Eversole said.

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Tuesday, March 30, 2010

Why Government Spending Stimulus Often Fails to Stimulate 

Niels Veldhuis and Charles Lammam, responding to political criticism on a study they wrote on Canadian government stimulus attempts, have written an useful piece on why many economists think government spending tends to have a multiplier that is less than one (via fellow TSE blogger John Palmer).
In another 2009 study published in the prestigious American Economic Review, Stanford University professor John Taylor reviewed the evidence over the past decade on fiscal stimulus and concluded “there is little reliable empirical evidence that government spending is a way to end a recession or accelerate a recovery.”

A 2008 study, “What are the Effects of Fiscal Policy Shocks?” by University of London professor Andrew Mountford and University of Chicago professor Harald Uhlig, assessed and compared the economic impact of various cases of deficit-financed spending, deficit-financed tax cuts and tax-financed spending from 1955 to 2000. They found that spending related measures are the weakest ways to stimulate the economy and that both deficit-financed and tax-financed spending have the effect of discouraging private investment.

The International Monetary Fund (IMF), which Prime Minister Harper has cited as an authority, recently surveyed fiscal stimulus initiatives in advanced and emerging economies and concluded that the average effect of discretionary fiscal policy “does not provide strong evidence of countercyclical effects.” Simply put, the IMF concluded that fiscal stimulus is generally not an effective way to combat recessions.
Aside from the obvious macroeconomic angle, what's the sports angle here? The article helps explain why sports economists consistently find that stadium construction subsidies fail to generate much, if any, "economic impact" in local markets in terms of metro-area wide employment and income. First, stadium construction tends to crowd out other forms of construction since construction resources can't be working on two separate projects at exactly the same time, indirect evidence for which I found in my 2002 Journal of Urban Affairs article on construction industry employment and wages. Second, spending at sports events that comes from locals crowds out spending on other activities such as dining out and attending movies. Third, sports subsidies are financed with debt instruments and/or taxes. The debt crowds out other types of investment spending while taxes discourage economic activity.

If there's a consensus among sports economists, it's that sports subsidies are poor uses of taxpayer money*.

*Update: Rod Fort correctly notes in the comments that there are externalities associated with sports, both positive and negative, that are being addressed by sports economists and should be included in any cost-benefit analysis. I should have been more explicit in that last sentence and said that sports subsidies are poor uses of taxpayer money to increase employment and income.

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Wednesday, February 10, 2010

Baseball Players vs. Bankers 

Today in his blog, Paul Krugman blasts President Obama for comparing banking executive pay to baseball players' earnings. In a recent interview Obama stated, while $17 million is “an extraordinary amount of money” for Main Street, “there are some baseball players who are making more than that and don’t get to the World Series either, so I’m shocked by that as well.”

Krugman has two main criticisms of the president's remarks. First he notes, "To my knowledge, irresponsible behavior by baseball players hasn’t brought the world economy to the brink of collapse and cost millions of innocent Americans their jobs and/or houses."

Well, maybe not baseball players, but I would direct readers to the recent post here at TSE about the role of the 2004 Olympics in the current economic crisis in Greece.

Second, Krugman writes, "These bank executives are not free agents who are earning big bucks in fair competition; they run companies that are essentially wards of the state."

Sure, but aren't baseball teams also guilty of tugging at the public purse-strings? The "Big Four" professional leagues in the U.S. have received well in excess of $10 billion dollars in direct and indirect subsidies for stadium construction and operation over the past two decades. As a percentage of operating revenues, sports teams are almost certainly more heavily subsidized than financial institutions.

While I tend to agree with Krugman about the banking executives, let's not let the athletes and owners off so easily.

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Tuesday, January 19, 2010

Portugal's Hangover 

Portugal hosted Euro 2004, a fantastic tournament with a surprise winner in Greece. But as the financial crisis unfolds, some Portugese feel a tinge of regret over the expense involved. Not just the capital costs of building "seven modern stadiums from scratch" and renovating three others*, but also ongoing maintenance expenses:
Second-division Beira Mar can’t afford the upkeep of a 30,000-seat, $94 million municipal stadium in Aveiro, while first-tier Uniao de Leiria doesn’t have enough revenue to maintain the city’s $120 million arena. On the south coast, lower-league teams Farense and Louletano rely on taxpayers’ money to bankroll the $61 million stadium they share.
Some are calling for the stadiums to be demolished. The bloomberg story breaking this news notes that this may be relevant to Ukraine and Poland, cohosts of Euro 2012, who seem wary of overspending. A representative of the soccer players union claims that the complaints over stadium expenses are just political posturing, and indeed if most of the costs are sunk, to may be efficient to keep things as they are. But calling attention to $100 million investments that are now used in, let's say unusual ways, is perhaps a political statement worth making:

Municipalities are finding other uses for stadia. The Leiria stadium, whose annual electricity bill this year will be about 111,000 euros according to published accounts, hosts corporate events. Rooms at the Faro-Loule stadium are being used for temporary classes as a local school is renovated. In Coimbra, the municipal stadium will stage a concert by rock band U2 in October.

Still, the situation is unsustainable, according to Pereira, the Aveiro deputy. He said the town should consider demolishing its stadium.

“It was a mistake building it in the first place,” Pereira said. “Now we have to do something about it.”

Maybe Bono can figure something out.

* reported here

A tip of the hat to Allen!

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Monday, January 11, 2010

No More Super Bowls in Miami? 

A story in today's Boston Herald reports that posted prices for Super Bowl tickets range from $2,000 to $5,000 in the secondary market. Here are some interesting quotes from market participants:
"The corporate orders are way down. Definitely the corporations are under scrutiny because of what’s going on in the world," said Michael Lipman, president and CEO of Miami-based Tickets of America, which sells Super Bowl tickets. "This is a total fan-driven Super Bowl. What teams are in is going to dictate the market and prices."

That doesn’t necessarily mean it will be an easy ticket, though.

"This year because of it being in Miami, it’s extremely popular," said Robert Tuchman, executive vice president of Premier Global Sports, which arranges corporate and group travel to sporting events. "Also, because the economy has bounced back a little bit, there’s more interest than last year in Tampa."

Tuchman’s company, which runs sportstravel.com, has already sold out of packages at the Fontainebleau Hotel in Miami Beach and Epic Hotel in Miami.
Not bad for a recession-wracked economy. As I read the story, I recalled an opinion piece in the Miami Herald last week, which excoriated Commissioner Goodell and the NFL for the following threat:
As Super Bowl XLIV approaches, the National Football League has delivered a not-so-sporting message to hosting South Floridians: Bend over.

NFL Commissioner Roger Goodell warned local officials that this might be the last Super Bowl game held at Dolphin Stadium unless the facility is refurbished at a cost of $250 million, give or take.

Although the league is wallowing in profits, it has no intention of bankrolling the renovations. The Dolphins haven't said how much, if any, the team would contribute.

Most likely, the money would have to come from public funds, possibly hotel bed taxes collected in Miami-Dade, Broward and Palm Beach counties.

It's old-fashioned extortion, but the NFL has no shame. You'd have better luck negotiating with the Gambino family.

Forget the recession. Forget the fact that our boneheaded politicians just committed $490 million to a new baseball park that is doomed to be a budgetary suckhole for decades.

And forget the fact that the football stadium was renovated just a few years ago for $200 million-plus, and that the Dolphins admit they don't need any upgrades for regular-season games.

Mr. Goodell is a fussy fellow. He would like swankier skyboxes and new hi-def lighting, please. He would also like an expanded roof on the stadium to prevent raindrops from dampening the festivities.
Now, it strikes me that the statements of market participants quoted in the Boston Herald ring true: people are willing to pay top dollar for a Super Bowl ticket in February, because it is paired with a trip to Miami Beach, warm weather, and so on. Can stadium amenities really be worth an investment of an additional $250 million, for a single game once every six to ten years, in which the city itself and its natural surroundings, more than anything else, dictate the demand for this particular location?

If this is indeed a standard "relocation" threat being foisted on local taxpayers by the NFL, it does not seem credible to me.

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Friday, December 25, 2009

Subsidies: The Gifts that (taxpayers) Keep on Giving 

Happy holidays, loyal TSE readers. Here at The Sports Economist, we like to keep track of who has been naughty and who has been nice in the sports economics world. And as a long time practitioner of the Dismal Science, I am obligated to provide an update on the naughty part of the list on this festive holiday occasion.

The New York Times has an interesting article today that serves as a reminder that you, the taxpayer, continue to pay, pay, pay to keep your local sports teams outfitted in the finest facilities that subsidy dollars can buy. The first paragraph of the article, titled "Stadium Boom Deepens Municipal Woes," sums up the current state of sport facility subsidies quite nicely
Years after a wave of construction brought publicly financed stadiums costing billions of dollars to cities across the country, taxpayers are once again being asked to reach into their pockets.

From New Jersey to Ohio to Arizona, the stadiums were sold as a key to redevelopment and as the only way to retain sports franchises. But the deals that were used to persuade taxpayers to finance their construction have in many cases backfired, the result of overly optimistic revenue assumptions and the recession.
I couldn't have said it better myself. The article goes on to describe events in Cincinnati, where sales taxes dedicated to paying for the new facilities built for the Reds and Bengals in the past 10 years have not generated enough money to pay for the facility operation and service the debt on the bonds floated to build these stadiums. In order to make up the $14 million annual deficit associated with these two facilities, Hamilton County now "plans to cut basic services, lower its legal bills and drain a bond reserve fund with no plan for paying it back." Worse, the sweetheart deals given the Reds and Bengals only require the teams to pay rent on the facilities until 2014, at which point the deficit will get even bigger. A similar situation has arisen in Indianapolis, a city famous for its sports-led downtown redevelopment plan. Like Cincinnati, Indianapolis is struggling to find funds to operate Lucas Oil Stadium and Conseco Fieldhouse.

In this season of giving, the lesson to be learned from Cincinnati, Indianapolis, Columbus, and the other cities discussed in the article is that sports subsidies don't necessarily end when the shiny new stadium is built and turned over to the local team. In many cases, the generous terms of the long term leases given to teams mean that taxpayers will continue giving the teams that play in theses facilities significant subsidies for decades.

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Friday, December 04, 2009

The Face of Stadium Subsidies 

A great picture from the Minneaplois Star-Tribune:


These are Minnesota Vikings fans at the state capitol, "demanding public money for a new stadium."

The accompanying article mentions one way under consideration to pay for the stadium: new taxes on new gambling.
Rep. Tom Hackbarth, R-Cedar, also was well-received. He wants a constitutional amendment that would allow revenue from slot machines at the state's two horse racing tracks to be used for a Vikings stadium.

"We're in debt a billion dollars," said Hackbarth in addressing the shivering crowd. "We don't have any money at the state level to put toward a stadium ... this is the only way."
This is consistent with political choices over the past 300 years of N. American history, a topic that I've studied a good bit. As I point out in my work, gambling revenue was once earmarked for things like bridges, hospitals, and university buildings. To my knowledge, stadiums are a recent addition to this list. Representative Hackbarth's idea is similar to the mechanism used in Pennsylvania to finance the hockey arena for the Pittsburgh Penguins.

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Tuesday, November 24, 2009

Evidence that I am an Obstacle to Civic Progress 

The public debate about a new arena for the Oilers has been going on for some time up here. Last weekend, the local paper, the Edmonton Journal, published several articles about the proposed new hockey arena in downtown Edmonton. One of the articles, "Blue Lines & Bottom Lines" discusses, in detail, the pro and anti arena subsidy arguments. The article contains quite a bit of detailed information, and generally does a good job of presenting the two sides of the debate, in my opinion.

I was especially amused by the comments made by Patrick LaForge, president of the Oilers, about me, and my well known anti sports subsidy position:

LaForge says Humphreys and economists like him have it all wrong, that their fixation on certain economic measures misses the bigger picture of what makes a city thrive.

"To a large degree, it's people with Humphrey's view that prevents us from building the next Eiffel Tower, the next Peace Arch, the next CN Tower, because people who think like him can't find the economic rationalization to do it.

"I think that sports and entertainment is a unique industry and it adds value to a city. ... You can't replace it with a refinery or a pulp mill. They might have similar economic impact, but it's not a substitute for entertainment for the masses.

"It's people like him (Humphreys) that are going to prevent the world from being a place of entertainment, arts and culture. And I said that to him. It's not that people have to buy into my thinking 100 per cent, either, but he represents a view that I just 100 per cent disagree with."

Yep, that's me. Slavishly devoted to sucking the joy and happiness out of urban life as we know it in North America, one article and blog post at a time. I'd like to write more about this, but I am busy trying to get the Edmonton Opera shut down.

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Tuesday, November 17, 2009

Pontiac Silverdome Sells for $583k 

The Pontiac Silverdome, built in 1975 at a cost of $56 million (over $200 million in today's dollars), was sold at auction yesterday for $583,000. Folks, houses in your neighborhoods sell for more than that!

The city of Pontiac played host to the Detroit Lions in the Silverdome for just shy of three decades. Yet judging by the picture in this article, the economic development spurred by the stadium largely consisted of parking spaces, which now sit empty. Moreover, they've been spending $1.5 million a year on upkeep for the empty facility, in a period when city budgets are a disaster. Apparently, they are relieved to "to shed the costly structure." Surely there is a message in this saga for public bodies with thoughts of taking the stadium plunge.

The story does recall a junket to Mexico for "a Pontiac councilman," two business associates and "three female companions."

HT to Steve!

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Monday, October 19, 2009

Ottawa stadium proposal 

This article in the Ottawa Citizen has plenty of details on a plan to spend $100 million or so in public money to renovate Ottawa's empty and "dilapidated" Frank Clair Stadium. The developers promoting the investment are up front about the likelihood that the stadium will pay for itself -- it won't. So they propose that taxes and rents from a proposed retail district adjacent to the stadium be used to pay off the bonds and cover the stadium's operating losses. It appears that the developers plan to sink their own money into the retail district.

It's an interesting exercise to figure out what the motivation is for the development group. After all, why divert the revenue from a profitable investment (retail) into an unprofitable one?

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Wednesday, October 07, 2009

Skyboxes for me, but not for thee? 

This story from Mobile, Alabama, brings to mind movie scenes of Roman emperors, seated in the prime seats of the Coliseum:
In late August, when the Mobile City Council and Mayor Sam Jones first toured the $2.5-million addition to Ladd-Peebles Stadium, including 11 new skyboxes, District 6 Councilwoman Connie Hudson said she was surprised to hear the city council would have a suite separate from the mayor’s, which is located just between the 40- and 50-yard lines.

“It was announced to me on the day we toured,” Hudson said. “We’ve always shared, like we do with the Baybears.”

The 11 new skyboxes bring the total at city-owned Ladd-Peebles Stadium up to 14, as three were built in 1997 in part of the press box addition. In addition to the two skyboxes available to the city, the Mobile County Commission also has a suite, which brings the total of skyboxes for local government use to three, or 21 percent of the skyboxes in the 61-year-old stadium.

Speaking generally, and taking into consideration the differences between facilities in other cities, Bud Ratliff of the Mobile Bay Sports Authority says most stadiums have only two skyboxes reserved for city and county use, but doesn’t see a problem with the current arrangement at Ladd-Peebles.
Silly, me, until reading this I had not considered the possibility that public officials themselves were direct beneficiaries of the public investments made in commercial sports facilities. The story is titled "Skyboxes at Ladd-Peebles Could Provide Huge Economic Impact." There is nothing in the story that remotely supports that contention. Rather, the story is entirely consistent with the public choice analysis of stadium subsidies, with the caveat that we add direct benefits to the politicians themselves to the analysis. As one spokesperson said, this setup "is standard across the country." Don't you just love the political class?

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Wednesday, September 30, 2009

Arena Bailouts 

In Pittsburgh:
Add $5 million to the money Pennsylvania is giving toward Pittsburgh's pricey Uptown hockey arena.

This time, it isn't site acquisition or construction cost overruns, but a shortfall that occurred when interest on variable rate bonds soared last fall after credit agencies downgraded the bond's insurer, Financial Security Assurance Inc.

That left the city-county Sports & Exhibition Authority, which is building Consol Energy Center, with an extra $5.08 million bill and no money to pay it.

The state, which agreed to give about $40 million in Redevelopment Assistance Capital Budget grants to cover site acquisition and extra construction costs for the $325 million arena, will tap a different account for this bailout. Gov. Ed Rendell's proposed budget would appropriate $5.08 million from the Pennsylvania Gaming Economic Development and Tourism Fund for the bond bailout.

The bailout has generated little public discussion. It was buried in Rendell's proposed 2009-10 budget, with little to indicate the money would pay for arena bond shortfalls.
In Jacksonville:
As speculation over a possible Jacksonville Jaguars exit builds, the city has identified about $5 million a year that can be used to pay for needed maintenance at the Sports Complex — primarily Jacksonville Municipal Stadium.

City Council President Richard Clark said Tuesday evening he’s planning on introducing a bill that will redirect bed tax money now going to the Prime Osborn Convention Center to the city’s three major sports and entertainment venues.

With the convention center debt scheduled to be paid off in October, Clark will propose that the money going to the Prime Osborn instead go to the Baseball Grounds of Jacksonville, Veterans Memorial Arena and the stadium, home of the Jacksonville Jaguars.

“The Jaguars are an enormous economic driver in this city, and we owe it to them as much as we owe it to the taxpayers who own the stadium,” Clark said.

Every Jacksonville hotel bill generates six cents on the dollar for three funds: two cents go to the Sports Complex; two cents go to the Tourist Development Council; and the rest goes to the convention center.
Five million a year may seem like small potatoes, but I keep reading that state and local budgets are in shambles. And the details in these stories suggest that taxpayers may well be on the hook for additional liabilities in the future.

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Wednesday, September 16, 2009

A good deal gone bad? 

A Minneapolis developer signed an agreement a few years back to build and operate the Sears Centre Arena in Hoffman Estates, Ill., a suburb of Chicago. The city provided "about $55 million in bonds" to finance the project. Here are some of the facts, as reported in the Minneapolis Business Journal:
Under the development agreement, MadKatStep was required to repay the bonds and interest at a rate of about $3.9 million a year over a period of 26 years. Ryan, which built the arena and holds a majority stake in MadKatStep, guaranteed the first four years and has made all of the necessary payments...

Hoffman Estates officials said the sides remain far apart. MadKatStep wants the city to take on about $7 million in loan obligations and operating debt, in addition to the roughly $89 million in bond payments remaining over the next 22 years, they said...

Since opening in October 2006, Sears Centre has fallen short of financial projections and failed to turn a profit. It had an operating loss of $512,635 in 2008.

The arena hosted 84 events last year, including eight concerts. A 2005 feasibility study projected the facility would host 140 events a year, about 20 of which would be concerts.

The venue has two small anchor tenants: the Continental Indoor Football League’s Chicago Slaughter and the Lingerie Football League’s Chicago Bliss. It used to be home to minor league hockey, indoor lacrosse and indoor soccer, but those teams have since folded.
That's a pretty big operating loss. The arena's construction costs are sunk, so someone might be able to make a go of it when the economy gets better. The report notes that city is negotiating with AEG and others to take over operations of the arena, but how far they can wiggle off the financial hook remains to be seen.

An interesting project for an undergrad or masters student might be to look into the financing agreements that were put in place in 2005, prior to the opening of the arena, and the politics of how this was sold to the community.

Here's another piece from last month, which suggests the tendency to overstate when selling public projects was at work:
[A]n official from the firm brought in to operate the arena on an interim basis after MadKatStep leaves says the Ryan Companies inflated the 11,000-seat venue's moneymaking potential when it convinced the village to give it a $55 million construction loan.

"I think they were caught up in the (potential) success of the arena," said Joseph Briglia, vice president for International Facilities Group.

But Smith noted the projections from 2005 were based on two reports, one commissioned by Ryan and the other by the village.

He acknowledged those studies "were wrong."

A feasibility called for the Sears Centre to book 140 dates per year. But it's averaged less than 100 annually.
40% off, eh? If I were a taxpayer in Hoffman Estates, I might be asking questions of my elected officials.** The stories in the press suggest that they're putting the blame on the developer, but it takes two parties to sign an agreement.

**Update: some did, from the outset (see here, near the end).

Thanks to James Blakey for the link!

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Wednesday, September 09, 2009

Sports stimulus? 

Here's a report from McHenry County, Illinois, on plans to apply for Federal Stimulus funding to support construction of a minor league ballpark. The county has received authority to issue $27.5m in bonds to fund "private" projects. Equity One Sports Development is applying for $15 million of the bonds, with the owner declaring that, indeed "this is a totally private project." (He would appear to be addressing the issue of whether direct public subsidy is involved, apart from the financing). Here are the essential details of the financing subsidy:
McHenry County received the bonding authority under the $789 billion American Reinvestment and Recovery Act. The bonds are supposed to encourage lending by giving investors a 45 percent refund of the federal taxes payable on them. Because the bonds are federally backed, the county is not liable if the borrower defaults.
The project qualifies as "shovel-ready," in the sense that the owner is ready to begin construction in March 2010, because it was part of a proposal for a "Health, Wellness and Athletics" complex at the local community college a few years back. That proposal was rejected, probably because local taxpayers would have been on the hook if revenues were not sufficient to pay off the bonds. If I'm not mistaken, then thanks to the American Reinvestment and Recovery Act, a project which was not deemed worth the risk by the locals who would benefit, may yet be built simply because the default risk has been shifted from local taxpayers to yours truly, a non-local, Federal taxpayer. Sports stimulus, humbug!! As Ray Keating might say, it's more like sports pork.

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Tuesday, June 16, 2009

The NFL and Gambling 

In the WSJ here. The article suggests that the NFL's stance in opposition to gambling is hypocritical and motivated by its appetite for public subsidy. John Vrooman of Vanderbilt states that $17b in public subsidy for NFL stadiums has been obtained in the past two decades. Makes sense to me.

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Wednesday, May 06, 2009

Phoenix Coyotes Declare Bankruptcy 

The Phoenix Coyotes (the old Winnipeg Jets) have declared bankruptcy. From the Arizona Republic (HT Warren Meyer):

Less than an hour before the National Hockey League commissioner planned to broker a deal to sell the Phoenix Coyotes and strip team owner Jerry Moyes of his duties Tuesday, Moyes filed for bankruptcy to sell to his own buyer.

Moyes, as part of a Chapter 11 reorganization filing, agreed to sell the team for $212.5 million to a BlackBerry wireless magnate who plans to move the team to a yet-to-be determined location in southern Ontario, Canada.

The move is not a certainty. Already, the NHL and Glendale, which leases Jobing.com Arena to the Coyotes, have objected to Moyes' tactics. And other investors could outbid BlackBerry executive Jim Balsillie's PSE Sports & Entertainment LP.

But the Coyotes, who have played in metro Phoenix since 1996, habitually have lost money in the desert, first when they shared an arena with the Phoenix Suns in downtown Phoenix and most recently in Glendale.

Moyes, who since 2001 has invested more than $310 million in the team, declined to be interviewed. Earl Scudder, his financial and legal adviser, said Moyes had no option but to file for bankruptcy because that was the only way to void the team's lease with Glendale.

"He didn't have a lot of choices," Scudder said. "He had gone through extensive marketing efforts and was unable to get offers for the team that would take care of the creditors." The move shocked Glendale, which contributed $180 million for the $220 million arena that opened in 2003. For the city's hefty investment, the team signed a 30-year agreement with an early-termination penalty of more than $700 million.

I agree with this assessment from Meyer:

Several years ago, Phoenix suburb Glendale paid about $180 million to build a hockey stadium for the Coyotes. The Coyotes had already been in the Valley for several years, losing money all the while, and had shed one ownership team for another fronted by Wayne Gretzky. It was shear madness to build them a stadium, as their chances of financial success were almost non-existant. It was already clear at this point that hockey was not going to be a big draw in Arizona. For this reason, Scottsdale and Phoenix both ended up passing on subsidizing the team before Glendale, out to prove it was a “real” city, stepped up to the plate with a wad of taxpayer money.
This is one of the problems with using other people's money to finance risky projects: investors take risks that they otherwise would not. If the project doesn't pan out, it's the taxpayers who are on the hook.

Addendum: I see that Victor Matheson has posted on the bankruptcy as well. As I mentioned to him in an email, I think it's pretty clear that the Coyotes are not in danger of completely folding. Instead it seems that the bankruptcy filing is strategic - a way for Moyes to at least buy himself a little more time in his attempt to sell the Coyotes to Balsillie.

Another addendum: according to this AP update, the NHL questions whether Moyes has the power to file for bankruptcy.

Another addendum: The Chicago Tribune reports that White Sox owner Jerry Reinsdorf is working with the NHL on a deal to buy the Coyotes and keep them in Glendale.

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Sunday, April 19, 2009

Mixed Use Developments 

The former Richmond Braves have moved into their new place in Gwinnett, Ga. (with a quote by JC Bradbury of The Baseball Economist and Sabernomics).

As Richmond continues to debate its baseball future, Gwinnett County and its residents celebrated the opening of the $64 million stadium that was built in about nine months.

The aggressive schedule contributed to a $19 million cost overrun but was necessary after the Braves announced early last year that 2008 would be the team's 43rd and final season in Richmond. Officials had grown frustrated over a lack of progress on a plan to replace The Diamond on North Boulevard.

"In some regard, it's been a six-year trek that wound up in Gwinnett. It wasn't designed to be that way. It's just the way it worked out," said G-Braves General Manager Bruce Baldwin, who helped pitch the idea of a new stadium in Shockoe Bottom in 2003.

That's left the Richmond politicians trying to figure out plan B.
Richmond Mayor Dwight C. Jones is now considering a different proposal for baseball in Shockoe Bottom. A group of developers led by Highwoods Properties has proposed Shockoe Center, a $318 million mixed-use development that would be anchored by a ballpark near Main Street Station.
These mixed-use developments seem to be the norm now that the cat is out of the bag regarding the economic impact (i.e. job and income creation nature) of subsidizing sports stadium construction. But are these developments catalysts for economic growth or are they little more than attachments to stadiums to get sufficient voter approval*?

The public goods aspect of sports is certainly in play here. To the extent that sports generate public goods, some type of stadium subsidy is warranted. But the non-sports portion of these mixed-use developments is typically used for shops, restaurants, bars, and condos/apartments, stuff that falls squarely under the umbrella of private goods and where subsidies are not warranted. If a private good needs to be subsidized to get produced, it's probably not a good investment.

*
Which came first: the stadium or the attached development - a chicken-or-the-egg problem?

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Sunday, April 05, 2009

"Wild Pitch" 

The New York Times reprints Roger Noll's "Op-Ed Classic", from 1996. The opening line: "Even at a time when major league sports have become a cartoon of financial excess, the proposed new home for the Yankees is breathtaking in its audacity."

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Friday, February 27, 2009

Sports Porkulus 

There has been some speculation around here lately about how much of the stimulus money will go to professional sports. Interestingly, there was an attempt to explicitly prohibit the use of stimulus money for professional sports in the early going. Senator Tom Coburn (R-Okla) introduced an amendment to the stimulus bill
None of the amounts appropriated or otherwise made available by this Act may be used for any casino or other gambling establishment, aquarium, zoo, golf course, swimming pool, stadium, community park, museum, theater, art center, and highway beautification project.
that passed the senate on February 6th. However, this section got changed in the conference committee. The final wording in the stimulus bill is
None of the funds appropriated or otherwise made available in this Act may be used by any State or local government, or any private entity, for any casino or other gambling establishment, aquarium, zoo, golf course, or swimming pool.
The full text of the final stimulus bill can be found here. What remains of Senator Coburn's amendment, Section 1604, (the text above) can be found on page 189.

So the congress has spoken. No stimulus money for zoos, gambling, or golf courses, but feel free to shower stimulus money on stadiums. My hat is off to Senator Coburn, and shame on whoever eliminated the prohibition against stimulus money for stadiums in the conference committee.

Hat tip to Emily Sparvero.

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Tuesday, February 24, 2009

The economic development pitch ain't sellin' or workin' 

If stadiums were economic stimulus, you'd think the Vikings' pitch for a subsidy would be flying high in Minnesota right now. But it was unceremoniously "brushed aside" in the legislature:
The Minnesota Vikings' already wobbly prospects of getting public financing for a new stadium this year got no firmer Monday at the State Capitol, where legislators said the state's dire financial picture made the project nearly unthinkable.

In doing so, a House panel brushed aside a new study by the Metropolitan Sports Facilities Commission, owners of the Metrodome, that said a new stadium on that site in downtown Minneapolis would generate $734 million in construction spending, create 13,400 jobs during construction and generate $32.2 million in taxes during the first year after a new stadium opened.

"To come in with a two-thirds publicly funded proposal for a brand new stadium here this session would appear to be a nonstarter," said Rep. Frank Hornstein, DFL-Minneapolis.
Can we agree then, Minnesota legislators, that stadium subsidies do not stimulate the economy?

On a related note, "The Sports Museum of America" is closing less than a year after opening for business in New York. The museum was financed by $57 million worth of "Liberty Bonds." These bonds were "part of a $20 billion package Congress granted New York City to assist an economic recovery in lower Manhattan following the September 11, 2001 attacks." Chalk up a stimulus failure on that one.

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Saturday, January 17, 2009

"Sports Mania Is a Poor Substitute for Economic Success" 

Jerry Bower in todays WSJ:
If there ever was a time to crow about the wonders of rebuilding a city around a professional sports team, this would be it. Three of the four teams remaining in the play-offs hail from cities -- Baltimore, Philadelphia and Pittsburgh -- that in recent years spent billions rebuilding their downtowns around pro sports facilities and other community "anchors."

Except that there's a problem. The teams might be competitive, but the cities definitely are not. All three continue to shrink in population, and have stagnant job markets and crumbling public schools.
Bower believes there is a lesson in the experience of these cities for what we can expect from the public works-focused spending forthcoming in Washington. That is, don't expect very much out of it, other than a tax bill in the future. He finishes on a clever note:
When the Steelers were in the Super Bowl in 2006 I was the host of a radio show in Pittsburgh. I argued that the franchise was an exercise in leadership excellence in a city whose politicians were anything but. Numerous callers hammered me. They said there are a lot of "Steelers" bars across the country, and that proved the city still had some national respect. Indeed, there are hundreds of watering holes dispersed across America loaded with fanatical devotes of the Pittsburgh Steelers. "Where are the Seahawks bars?" the callers asked.

In Seattle, of course. That city has gained population while Pittsburgh lost it. Steelers bars are the visible cultural artifact of a kind of economic diaspora. People in those bars are the refugees who looked at high taxes, union dominance and lousy schools and voted with their feet. They can still root for their favorite team -- from Raleigh, North Carolina. You go South or West to get your bread. The circuses can be watched on cable.

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Monday, October 06, 2008

Sports econ potpurri 

NFL ticket prices are up this year, in some venues. The average price is 8% higher.

But the bloom may be off the rose. Along with other bits of anecdotal evidence, David Moulton reports that 10,000 seats are covered with a tarp in Jacksonville. Moreover:
Something strange happened on our radio show this week. We had Miami Dolphins tickets to today’s game against the San Diego Chargers to give away.

No one wanted them! Free tickets to an NFL game and they had less value than a station T-shirt. 2007 Dolphins tickets, I could totally understand, but these guys just drilled the Patriots.

Now, this moment could have been a fluke, but I don’t think so. I think the sports landscape is changing.
The question is whether the change is cyclical or permanent. Here's more on the cyclical worries for franchises.

At Time Magazine, Sean Gregory discusses the new "Jock Market" at OneSeason.com, where you can trade shares in players. Problem is, there is no intrinsic relation between the value of a share at OneSeason and player performance, other than what traders think of it. I refer to it as "the ultimate beauty contest" and state that I expect the market to collapse. Which would be too bad, because the market is based on real money transactions and the price changes would be interesting to study. Stocks and real estate are passe', so perhaps OneSeason is the next bubble ;)

Finally, anyone who has read this far must be a TSE junkie, so here's the obligatory stadium subsidy piece. This installment has facts and figs on the new stadium for Real Salt Lake, which will have its debut on Thursday. The pics are pretty (pdf).

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Monday, September 22, 2008

New York PILOT Decision, Part II 

I was in Washington DC last Thursday testifying in a hearing that is part of the ongoing investigation by the House Committee on Government Reform, Subcommittee on Domestic Policy into the financing of the New Yankee Stadium in the Bronx. For those who have not been following this controversy, here's a brief summary:
  • 1986: Congress passes a law (the Tax Reform Act) that says sports facility construction projects can only be financed with tax exempt bonds if the principal and interest are paid using tax revenues.
  • 2006: The IRS issues Private Letter Rulings that allow New York City and the Yankees (and later the Mets) to finance the construction of two new baseball stadiums using tax exempt bonds and pay off the principal and interest on these bonds using payment in lieu of taxes (PILOTs), and not tax revenues collected by New York City or the State of New York. This ruling effectively guts the 1986 Tax Reform Act. The rationale for this decision was that these stadiums would generate significant positive economic impact in the community, and thus serve the public interest.
The Subcommittee web page has a lot of information on this issue, including video of the hearing and the written statements of all the witnesses. A lot of interesting information came to light in this hearing, including the fact that the justification given by the City of New York for pursuing this course of action was that both teams threatened to leave the city if they didn't get what they wanted, and that the City fudged the assessed value of the New Yankee Stadium significantly in order to make the project qualify for PILOTs.

The PILOT issue is interesting for several reasons: it's a clear example of the tensions that arise between the people who make the laws (Congress) and the people who implement the policies that are dictated by those laws (the IRS in this case); it makes for great political theatre, as the parties involved are high profile organizations; and as Dennis Zimmerman pointed out in his testimony at the March 29th 2007 hearing, the PILOT decision has a desirable, although probably unintended consequence of forcing the one group of taxpayes who benefit most from the new stadium (sports fans) to pay for the majority of the financing.

Somewhat predictably, the Yankees and NYC have stuck to their orginal claim that the tangible economic benefits justify the ruling, rather than the more creative position that, despite the bad intentions surrounding the PILOT decision, it actually results in almost good economic policy. I say almost good because the lower interest rates on those tax exempt bonds represent an implicit subsidy from every taxpayer in the United States to baseball fans in New York City.

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Thursday, September 11, 2008

584 fans? 

The Marlins want a new, subsidized stadium built where the Orange Bowl once sat. But demand for baseball in Miami (despite two recent World Series titles) does not seem to warrant a stadium subsidy:
For the 455th consecutive time last Wednesday afternoon, 96-year-old Fenway Park in Boston sold every seat for a Red Sox game, tying baseball's record.
At the same time that Boston's Daisuke Matsuzaka was throwing his first pitch before 37,373 paid customers, Florida Marlins pitcher Chris Volstad was throwing one at 21-year-old Dolphin Stadium before 584 fans — counted by the players themselves.
That's all you need to know to understand why government's frenzy to waste half a billion dollars to build a Marlins stadium is off base.
As auto dealer Norman Braman plays his hand in court as the only public figure willing to buck the giveaway, the Marlins play to the smallest attendance in baseball, by thousands, day after day.
Even the Marlins' pitiful average of 16,576 paid through last Wednesday's game is suspect, because while players were counting 584, the Marlins were reporting an "official" 11,211 — though that's still far less than a third of capacity. Whether almost nobody bothered to use their tickets to see a team fighting for a title or the Marlins were fudging numbers, who knows?
What is perfectly clear is that few show up. No new stadium would change that.
That's the start of an informative editorial at Miami Today. Thanks to John J. for the link.

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Thursday, July 24, 2008

$1 billion and counting for the Cubs 

From Danielle Sessa at Bloomberg:

The Cubs' sale price is likely to exceed Dan Snyder's 1999 purchase of the Washington Redskins of the National Football League for $800 million, the most paid for an American sports team. John Henry's $700 million purchase in 2002 of the Boston Red Sox, Fenway Park and the majority of a regional-sports network is the most spent for a baseball team.

England's Manchester United soccer club was sold to Malcolm Glazer in 2005 for $1.45 billion and is the most ever paid for a sports team.

Cuban Among Bidders

Billionaire Mark Cuban, owner of the Dallas Mavericks who made his fortune by selling his Broadcast.com to Yahoo! Inc., will continue in the bidding process, though the identities of the four other groups weren't known, the Sun-Times reported. John Canning, chairman of Madison Dearborn Partners LLC, considered a favorite because of his friendship with baseball Commissioner Bud Selig, was not among the groups advancing to the next round because his offer fell short of the $1 billion mark, according to the newspaper.

...The Cubs may not be worth as much money if the team doesn't come with the ballpark, said Andrew Zimbalist, an economics professor at Smith College in Northampton, Massachusetts. The club owner may not be able to make improvements to Wrigley that will boost revenue, or the owner might have to share that money with the landlord.

I agree with Zimbalist. Bi-lateral monopoly (the Cubs away from Wrigley are just another team, Wrigley without the Cubs is hard to fathom) creates contractual problems which reduce the wealth of both parties. Hence, absent political considerations, the stadium and the team should be jointly owned and managed. (I'll wager Zimbalist said something like this, but it is too dry for the regular media).

This position creates a puzzle though. If the Cubs are worth more with the stadium, why are they not jointly owned & sold? Must be the subsidy angle. But that suggests a welfare reducing distortion - issues related to the improvements mentioned above - which is not much discussed, if at all, in the literature on stadium subsidies.

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Thursday, July 17, 2008

Stadium discussion 

There's more from this piece in the WSJ, but most of the details focus on the Nationals' new digs in D.C. The conclusion:
In defending the city's decision, Councilman Brown points out that on the same day the City Council approved funding for the stadium, it also earmarked $1 billion to upgrade D.C. schools, including $58 million for a new high school for construction trades and architectural design. And under terms of the deal, the city expects to see about $40 million a year in revenue. The smallest portion will come from the team, which is supposed to pay $5.5 million a year in rent. But just this week the Nationals began withholding payments, saying the city had failed to "complete" the stadium.

The vast majority of income is expected to come from the same people who financed the stadium: the taxpayers. An estimated $14 million a year is projected from taxes on tickets, concessions and merchandise. Another $24 million will come from a new stadium tax on D.C. businesses with gross revenues of $3 million or more. Indeed, with the exception of some housing and small businesses that have moved into the neighborhood, the vast majority of the "development" in Southeast is nothing more than taxpayer-funded public works projects.

So in the end, what did the taxpayers get other than a bill for $611 million? The Washington National's Web site advertises jobs for elevator operators, fan ambassadors and security guards. The pay is $7.50-$8.50 an hour.
One quibble with the accounting: the $38 million in ticket taxes and the stadium tax on big businesses is, for the most part, paid by baseball consumers and beneficiaries. It is not obvious to me why taxes are viewed as preferable to higher ticket and luxury box prices, but this is a substitution in form and not substance.

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Thursday, May 29, 2008

Six grand a seat 

D.C. is in the stadium subsidy discussion business again. This time it's for Major League Soccer's D.C. United: a 150 million dollar public subsidy, for a 25,000 seat stadium.

Lets break out the pencil. $150,000,000 / 25,000 = $6,000 per seat. Hmmm... Is a seat at a soccer stadium worth $6,000 to the taxpayers of D.C.? Columnist Marc Fisher, who's displayed a curious and perhaps studious approach to stadium subsidies in the past, doesn't think so.

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Monday, May 12, 2008

Some data on Glendale's Super Bowl 

Super Bowl wasn't a windfall
Glendale spent more on game than it made

Carrie Watters
The Arizona Republic
May. 12, 2008 12:00 AM
Glendale did not recoup what it spent to host Super Bowl XLII, according to a new study that showed out-of-towners here for the game added an estimated $1.2 million to the city's tax coffers.

The city laid out $3.4 million preparing for and hosting the Feb. 3 game.

Bottom line: The city spent $2.2 million more than its estimated take in connection with the game.

That deficit could be lessened by NFL spending or local visitors' spending, which were not part of the study by Scottsdale-based Elliott D. Pollack & Company.

City leaders have long said they did not anticipate that the city would immediately recoup its expenditures.

"You can look at it from getting the actual dollar back," Councilman David Goulet said. "But I think there is a bigger picture to look at than just the pure law of numbers."

He foresees a return on the investment over time as the game bolstered the city's image as a destination.

In two weeks leading up to the game, the city was mentioned in more than 5,000 broadcast stories, a publicity value that Cision, a media-monitoring company, pegs at nearly $27 million.
Worth what to whom? There is no way in hell that the citizens of Glendale would view $27 million of broadcast spending as an investment with positive returns.

There's much more in the story, including economic impact projections which might, if true, be worth cheering about. But the comment section suggests there are plenty of skeptical readers.

Thanks to Brent Stoddard for the link.

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Wednesday, May 07, 2008

Why has Canada not subsidized the CFL? 

This article claims that the Canadian Football League is "could be on the verge of a construction boom."
Five CFL teams – the Montreal Alouettes, Winnipeg Blue Bombers, Hamilton Tiger-Cats, Saskatchewan Roughriders and the ownership of a conditional Ottawa franchise – are aggressively pushing plans to build new stadiums or drastically alter and refurbish old ones.

Factor in the anticipated makeover of Vancouver's B.C. Place Stadium, which could add a retractable roof to the facility, and a potential redesign of Toronto's BMO Field to accommodate the Argonauts, and the CFL could be looking at well over a half-billion dollars invested in stadium infrastructure during the next five years.

Many would suggest it's long overdue.
It's the overdue question that intrigues me. The article notes that no stadium has been built for football since the 1960s, although some teams play in venues built for another purpose. Some are dilapidated.

Why the lack of public investment? The CFL, like other prominent North American leagues, is a closed set of teams that controls entry. The incentive to obtain a stadium subsidy that derives from the league structure and the relocation threat thus exists. The view of Canadian government as fairly liberal with the checkbook would imply public-private "cooperation" on stadium ventures.

The article suggests at one point that "local and provincial governments are wary about investing in pro sports facilities of any kind," but that doesn't wash with me. Brad knows all about the current subsidy issue over a hockey arena in Alberta, for instance ;)

I can see two possibilities.

It is possible that the CFL makes so little money and has such a small impact that the relocation threat is not operative. There is in fact relatively little demand for football stadiums, public or privately financed.

Second, the political distribution of power differs in Canada from the U.S. This renders the execution of a relocation threat pointless, since (by assumption) there is not a significant source of local public revenue. [bleg: Anyone know the facts?]

I lean towards the first. But the second is testable: hockey arenas should have a greater fraction of public funding south of the U.S. border, despite the fact that hockey is Canada's national sport.

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Monday, January 28, 2008

Public Finance, OKC Style 

There are lots of ways to pay for an arena, but Mayor Mick Cornett said city leaders thought the choice was obvious in Oklahoma City.

The Ford Center was built with money from the original MAPS sales tax.

It just made sense to continue the temporary 1-cent sales tax, which was already extended to pay for MAPS for Kids, Cornett said.

If voters approve the Ford Center tax, it will go into effect Jan. 1, 2009, the day the MAPS for Kids tax is set to expire.

"Our citizens seem to prefer a sales tax initiative to other concepts,” Cornett said. "This is following the model that was created by MAPS. MAPS is a proven entity to our voters.”

No other NBA arena was funded exclusively by sales tax money, according to the National Sports Law Institute of Marquette University Law School.
Clever trick, to schedule the arrival of the Sonics right about when the sales tax would otherwise expire, don't you think? That fella Brad Humphreys is working for some pretty sharp cookies (inside joke -- see the comments here).

Mayor Cornett goes on to give a doozy of a tutorial on public finance, in case you want a snide chuckle or two. But the real story to me is the timing of this surreptitious little tax - very clever indeed. Thanks to Steve Winkler for the link.

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Thursday, December 06, 2007

Threat Point - The Vikes 

This week in Sports Economics I talked about the effect sports teams and sports stadiums have on their local economies (not much). That doesn't keep owners from trying to get public subsidies. The Star Tribune notes that Vikings owner Zigi Wilf seems to be publicly turning up the heat to get public funding for a new Vikes stadium.

"The Vikings and the NFL understand and respect the priorities and pressing issues facing the state, but at the same time, the stadium issue needs to be resolved in the near future," Wilf said. "Construction costs are rising significantly each year that we delay and there is an urgency to reach a solution."

Given the subprime mortgage crisis, might this not lower the rate of inflation of construction costs? But I digress.

The state's answer puts the project — a retractable roof stadium along with housing and business development on the Metrodome site — up against a tight deadline.

Sports economists agree: sports stadiums are not the boon of economic development that they are often portrayed to be and, thankfully, public money has not been as easy to come by in many instances. That's why some recent public financing packages include plans to have ballpark villages developed as a part of an agreement for public financing. Otherwise the secondary development is not likely to happen.

The development is unlikely to occur because the returns for the development do not justify private investment. Otherwise we'd see a lot more "spontaneous" economic development surrounding stadiums. In other words, the people who frequent stadiums don't really care all that much about shopping/bars/restaurants/condos etc. around ballparks. They want to go to the event, do what they do there (get their private benefits), get in their cars, and go home. So politicians are seemingly more resistant, thankfully, to giving subsidies just for stadiums by themselves. But package in some secondary development (which, if it draws any extra economic activity to the site, will probably draw it from elsewhere in the region) with the subsidy request and see if you can get the necessary votes.

But if private financing isn't forthcoming for the housing and business development, is it really that good of an investment for the government? In other words, what are the public goods associated with the ballpark villages?

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Wednesday, August 22, 2007

An odd bird takes flight 

I am speaking of a privately funded sports arena, to be built in Las Vegas. From CNNMoney.com:
Harrah's Entertainment, Inc. and AEG today unveiled plans for of an approximately 20,000-seat, privately financed, state-of-the-art arena. This arena is envisioned to be Las Vegas' new home for the most popular and important sports and entertainment events. The site of the venue will be one block east of the world famous Las Vegas Strip on approximately 10 acres of land that is part of the current Harrah's land holdings.

As managing partner, AEG will be responsible for developing, operating and programming a full range of live sports and entertainment events including concerts, boxing matches, special events and awards presentations, as well as sporting events, tournaments and exhibitions. The arena will be constructed and configured in a manner that will make it capable of housing an NBA or NHL franchise.

What, no public subsidy? Heavens to Mergatroid!

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Friday, July 06, 2007

Downsizing while going upscale 

In his review of the career of MLB's Bud Selig, Tim Marchman closes with the "milking the cow, but not feeding it" theme:
Across the nation, virtually every ballpark in the game has been replaced or scheduled for demolition over the last 15 years; those few that haven't, like Fenway Park and Wrigley Field, have been carefully renovated. The purpose of this new construction has always been the same: To build smaller, more intimate parks specializing in providing more high-end service to businessmen. Money isn't made these days from the family out to take the annual trip to the local park; it's made from clients who spend hundreds of thousands of dollars on luxury suites in which they entertain clients.

This is a broad conceptual shift, and I don't think it was inevitable. There is a great tension in marketing a mass entertainment as a boutique product, and a different commissioner would have made different choices, handling that tension differently. Selig has come down on one side, firmly and consistently.

You can see the ultimate example of this in California, where the Athletics are moving from a football field in relatively low-rent Oakland to a 35,000-seat park in Fremont, which isn't, by baseball's historical standards, even a definable place. It's the most extreme manifestation of the shift the sport has made toward valuing quality over quantity — to cater to the relatively few at the expense of the many. It was inevitable that baseball would move in this direction, but under Selig the sport has become totally committed to it. Even in New York, a city with enough passionate fans to support five successful teams, the new stadiums are limiting supply to increase demand and better serve the wealthiest patrons — the Mets' new field, for instance, will have 10,000 fewer seats than Shea Stadium does, and that's not because they have a problem moving tickets.

Only the years will tell, but I think this could prove to be a catastrophic choice.
I'm obviously sympathetic to Marchman's point. But while the risks of catastrophe are notoriously difficult to quantify, they must be quite small, at least over the next two decades. For the time being, electronic media will supply the product to the masses and generate future demand.

Despite Marchman's critique of downsizing, his review [part one, part two] credits Selig for successfully steering baseball through significant periods of economic change. It's a savvy account too, as shown by his take on the public subsidy game. "Blame the city councils, not Selig, for the waste of your money."

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Tuesday, June 05, 2007

Hey, honey, I have options 

While the Minnesota Legislature seemed willing to spend money like Michael Jordan, one thing it didn't buy was the new plan for a Vikings stadium. Perhaps it's due to a lousy plan, but remember this is the last team to get a deal in a town that has handed them around freely of late. This leads Mark Yost (subscribers link) to wonder aloud if the Vikings are the newest temptation of the City of the Angels.

So as you look around the NFL for the franchise that’s most unhappy with its stadium deal, the Vikings quickly jump to the top of the list. Their lease at the Metrodome runs through 2011, but as any contract lawyer will tell you, everything’s negotiable. So get used to the sound of “the Los Angeles Vikings.” It only makes sense.

But does it? Yost casts some uncertainty whether adding a franchise in LA adds or subtracts from TV revenue (since now everyone there can watch six games, you have a lot of Angeleno eyeballs to sell with that contract.) Maybe they're a major-league city or maybe they're not ... or maybe they just prefer college football.

Yet every team uses Los Angeles for football like Tampa was used in baseball in the past. The bigger reason for there being no LA professional football is probably more strategic.
Pro football is dead in L.A. because the owners have put it on the back burner for years, more interested in using the threat of it to extorttaxpayer money from cities and playing potential stadium owners and sites against each other. A rise in TV ratings this year, and the fact that NFL games get a decent share in L.A. even without a local team, have also reduced the urgency level.
Likewise, Aaron Schatz:
Despite the fact that a team in Los Angeles would help the NFL in broadcast negotiations, the city also has some value to the league without a team. Every time a football team is unhappy in its current city, it gets to threaten to move to Los Angeles in an effort to get a better stadium deal and more tax breaks. (The fact that Mayor Hahn appears uninterested in such sweetheart deals doesn't seem to have diminished the effectiveness of a general threat to decamp to L.A.) San Diego, Indianapolis, Minnesota, and New Orleans have all pulled this stunt recently. So letting Los Angeles go without football has allowed the NFL to extort more money from taxpayers across the country.
This latter article is from 2004, and note that the three other cities mentioned have gotten their tax booty from their cities (though for New Orleans, Katrina and Reggie Bush played a role, as Yost points out), and that now-Mayor Antonio Villaraigosa seems warmer to giving away a sweetheart deal.

I expect the result is that there will be a stadium deal in 2008, not that the Vikings will move, unless Governor Tim Pawlenty has gotten religion on this, too.

Cross-posted at SCSU Scholars.

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19 Years Old, 100% Publicly Financed and Owned, and a Pile of Rubble 

The Charlotte Coliseum, the site of 19 years of sporting excellence, has been imploded. This arena was opened in 1988 and was built with 100% of public funds.

Why was it imploded at such a young age? It was imploded in part because it was too big and had too few* luxury boxes. It was also obsolete. Why was it obsolete? Because politicians built the Charlotte Arena for $265 million dollars in part to lure an NBA franchise back to Charlotte. The Hornets left Charlotte in part because a new publicly-funded arena was not forthcoming quickly enough.

In some Utopian sports society, where the separation of sports and state are clear, would the Coliseum have been torn down at 19 years of age and would it have been built so big in the first place?

This seems to be one of the things Milton Friedman had in mind when he warned us about spending other people's money on other people.

*Thanks to commenter Frank for noting that I had written the arena had too many luxury boxes when I originally wrote the post

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Friday, March 09, 2007

Is New Orelans still a Big League City? 

This article in today's NY Sun, "Pro Sports Far From Easy in New Orleans," points out the difficulties facing New Orleans' two big sports teams.

It would certainly look bad for either the NBA or NFL to abandon New Orleans in the wake of Hurricane Katrina, but New Orleans is far from an optimal location for either franchise at this point. Even prior to 2005's disaster, New Orleans was among the smallest and poorest metropolitan areas in the country hosting a team from one of the Big Four leagues. The city was only able to keep its teams through public subsidies that were among the most generous in the country.

While current population statistics are still a bit unreliable, post-Katrina New Orleans appears to be the smallest metro area (outside of Green Bay) in the big leagues. At least 7 other cities around the country (Austin, Virginia Beach/Norfolk, Las Vegas, Hartford, Louisville, Grand Rapids, and Greensboro/Winston/Salem) without major league teams are larger than the downsized New Orleans. So, it may not be good politics to let the teams leave, but it's probably good economics.

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Saturday, February 24, 2007

Items of interest 

--Fulham FC charged £25 for a ticket for their match with Manchester City, and £45 for today's match with league leaders Manchester United. Varying ticket prices in response to the quality of the visiting team is now common in the U.S. This story at BBC Sport suggests the practice is catching on in England, as the price for the United game has increased by £20 in the past two years. Man Utd fans are claiming that they're being "ripped off" and are protesting (again). Cry me a river...

--A Florida legislator is proposing that the state hand out tax breaks of $2m per year to infra-marginal teams, provided that they "pledge" to remain in Florida for 15 years. The bill does require that they spend the money on stadium improvements, but the teams would presumably extract that value in the price of tickets, leaving fan welfare unchanged. Thanks for the millions!

--Backyard ultimate fighting, blood lust, and the demand for regulation, discussed here.

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Wednesday, February 21, 2007

Silly season in Olympia 

International Speedway Corp. wants to build a NASCAR
oval in Washington
, and for the state to pay for half of the estimated $368m cost. The proposal is getting mixed reviews at the state capitol. There are locals opposed to the setting up an attraction for "hordes of out-of-state race fans," and politicians who argue that "state-funded debt should never be used to pay for private projects."

Ok by me.

Then there is Lt. Governor Brad Owen, who apparently referred to the state's investment in the track as "the best economic-development opportunity he has seen during his 30 years in state politics."

Ahem.

Governor Owen should tour Darlington, S.C., which has a famous racetrack that's played host to "hordes of out-of-state race fans" for decades. You do need labor to pick up beer cans when the hordes leave for the next town. But the idea that racetracks are a meaningful tool for "economic development" is balderdash, plain and simple.

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Sunday, February 18, 2007

Real Salt Lake Subsidy 

The following account is from an editorial in the Daily Herald Newspaper, (from the Provo area south of Salt Lake City). It sketches the timeline of negotiations between the MLS soccer club and various government entities in Utah. The subsidy is rather small at $35m, but the sequence of events is fairly typical in the subsidy negotiation game:
Dave Checketts, owner of Real Salt Lake, threatened to move the professional soccer franchise to St. Louis if he didn't receive public funding to build a 20,000-seat stadium in Sandy.

Real Salt Lake is playing at the University of Utah until it can get a permanent venue, a dream that was momentarily placed in doubt when Salt Lake County Mayor Peter Corroon withdrew the county's promise of $30 million to help Real relocate to Sandy. Corroon had been warned by financial advisers that it was a risky investment.

An alternative proposal from Utah County was snubbed. Anderson Development offered to buy the team and base it at the former Geneva Steel site in Vineyard. Checketts insinuated that we're second-class citizens down here and rejected the deal.

In the eleventh hour, the Utah Legislature, goosed by Gov. Jon Huntsman Jr., came through, pledging $35 million in public money. The cash is supposed to come from taxes on hotel rooms and rental cars.

House Minority Whip Brad King, D-Price, called it a chance to promote Utah to the world. "This is worth millions and millions of dollars we will never commit from state coffers to promote us," King said.

Checketts is not the first sports team owner to get help from state government. Utah Jazz owner Larry H. Miller leases the land under the former Delta Center for $1 a year until 2040. Salt Lake City is also using taxes to pay off the center's $25 million bond.

There may be times when it's proper for government to help a business get started, but we are not convinced this is it. A soccer stadium hardly qualifies as an economic kick-start.

This is a subsidy for a special interest, in our view.

We console ourselves with the fact that $35 million is a small amount compared to other stadium deals. But that doesn't change the principle.

Salt Lake County's financial advisers said that revenue projections by Checketts were "too optimistic." Likewise, economists Roger Noll of Stanford University and Andrew Zimbalist of Smith College -- co-editors of the book "Sports, Jobs and Taxes" -- say that stadiums are more of a consumption expense than an economic booster.
Yes indeed. One might argue that the consumption expense is worth it to Utah's public. But equally valid is the claim that this expense is inflated by league restrictions on the number of franchises, and imperfections in the political process.

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