Tuesday, November 17, 2009
This is a common claim made by teams, but I'm skeptical.
According to economic theory, the value of any given player/coach/trainer on a profit-maximizing team is what that person contributes at the margin to the team and what fans are willing to pay for that marginal contribution. If, for example, Adrian Peterson contributes 1.5 wins to the Vikings and Viking fans are willing to pay $3,000,000 for each extra win, then AP is worth $4,500,000 to the Vikings.
In a profit-maximizing world, the only reason a team would use "money generated by the stadium" on the team is if the stadium enhanced the team's talent or if it increased fans' willingness to pay for the product on the field.
I think that it's likely that a new stadium would enhance fans' willingness to pay overall, but it's not clear that they are willing to pay more to see the action on the field per-se. They may be willing to pay more to enter a new stadium to experience the "newness" of the facility, to sample new concession items, or to experience something else that has little or nothing to do with the action on the field (like a huge scoreboard (like in Arlington, Tx), a giant pirate ship (as in Tampa), or nice views of the surrounding city/geography (as in so many facilities around the country)).
Consider a simplified numerical example. Suppose that the average fan, in an old stadium, is willing to pay $50 to watch the game and an additional $25 for stadium amenities. This fan would be willing to pay as much as $75 for a ticket to the game.
Now suppose that the same fan is willing to pay $50 to watch a game per-se in a new stadium and an additional $50 to experience the new stadium's amenities. This person would be willing to pay as much as $100 for a ticket to a game, a $25 increase. But his/her willingness to pay for the action on the field is unchanged, so the team has no incentive to spend the additional $25 it receives on "competitiveness."
The interesting question from my perspective is "are stadiums and talent complementary?" I think stadiums can be designed to impact the action on the field to improve the chance the home team will win. Here's a blog post I wrote over at The Sports Economist a year and a half ago on this subject. In that post I cite one paper in a professional economic journal that has looked at this question (this one). The paper finds little evidence that a new stadium improves the performance of the home team on average.
That's my response (edited for typos that I found later and with links embedded in the text) to a question posed to me by a reporter writing a story on the Vikings' quest for a new stadium. What I was referring to in the first sentence above was the common claim that because of the small size of the Vikes' market, money generated by a new stadium has to go towards investing in the team.I touched on the question of whether stadiums and talent are complementary, but there is one other facet that I feel I should point out, and that's the question of do owners of professional teams (or AD's at colleges) maximize profits. I think that the answer is a resounding "yes" in American sports, but I do not doubt that some owners have run their teams as philanthropic organizations to some extent (Ewing Kaufmann, late owner of the Kansas City Royals, comes to mind) and some owners simply enjoy owning teams, much like I enjoy watching a college football game.
Cross-posted at Market Power
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!
Wednesday, September 16, 2009
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...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.
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.
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.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.
"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.
**Update: some did, from the outset (see here, near the end).
Thanks to James Blakey for the link!
Saturday, April 11, 2009
Myself, speaking for students of baseball, I'm sorry, but in constructing some things, the trick is not to run away from nostalgia, but simply to monkey around with it and try to gussy it up a bit. Architecturally, baseball parks are like mousetraps. No one has found a way to build a better one than the Orioles did in 1992, when they gave Camden Yards to a grateful world. All of the 18 major league fields and scores of minor league parks built since then have been wise enough to follow that pretty model.Part of it is because in football, basketball, and hockey, the dimensions of the entire playing surface are standardized. Sure, you can paint your basketball courts all sorts of colors. You can paint your football field blue if you want. You can choose between grass, fieldturf, and Astroturf in football. You can put a pirate ship in the stands. But the playing dimensions are standardized, and that leaves no room for little nooks and crannies.
...People simply feel more affectionately about ballyards than they do other sports' stadiums and arenas. Madison Square Garden, for all its fame, is merely an address, not a home. And a place like Gillette Stadium may be a cathedral to New England Patriot fans, just as Old Trafford is to Manchester United fans, but linear football stadiums -- of both varieties -- and the cereal boxes that accommodate basketball and ice hockey are pretty much just so many efficient people containers. Ballyards are quirky and idiocyncratic, living things because the architecture is part and parcel of the outfield itself -- all the better that that's in utter counterpoint to the infield, that diamond of inviolate geometry.
Baseball field dimensions, on the other hand, are not so much standardized. The dimensions of the diamond portion of the playing surface is standardized. There are 90 feet between the bases. The pitching rubber is 60 feet 6 inches from home plate. But the outfield and the foul territory? That’s libertarian, baby!
As economists might say, the outfield and foul territory characteristics are constrained choice variables. They can have virtually any quirk the team wants as long as the park as a whole fits into it’s geographic corner of the world. Got an old warehouse? No problem. Just build it into the park. Asymmetric outfield? Go for it! A flagpole in dead center field? You got it! You want foul territory big enough to land a jumbo jet? The customer is always right.
We sports economists may turn our noses up at public funding, but teams (and the architect firm HOK that has designed a vast amount of new facilities) have done a nice job incorporating all kinds of things from warehouses to hills to strange corners into the new ballparks.
Thursday, January 08, 2009
Dean Bonham is not the first innovator/entrepreneur to have made and lost a fortune in history, but it's a shame to see it happen in real time.
The 20-year-old company was involved in about 137 discussions around the world involving naming rights on sports stadiums, such as the new, $321 million Consol Energy Center — still under construction — where the Pittsburgh Penguins expect to play their 2010-11 hockey season.
The 21-year naming rights deal between Consol Energy Inc. and the Pittsburgh Penguins was announced in December 2008.
“Dean Bonham is known as one of the forefathers of negotiating naming rights,” said Vic Gregovits, the senior vice president of sales and marketing for the Cleveland Indians.
Wednesday, January 07, 2009
Remember all those claims about the continuing benefits that flow from the lavish sports facilities constructed for mega sporting events for years after the actual event? As example #1, consider the National "Bird's Nest" Stadium in Beijing, host to the opening and closing ceremonies of the 2008 Olympic Games. There were supposed to be a huge number of events there following the Beijing Games. The Wikipedia page even claims: "A shopping mall and a hotel are planned to be constructed to increase use of the stadium, which will host football events after the Olympics."
Ever wonder if they actually materialize? According to a recent article in the Telegraph, the answer is clearly "no, they don't." According to the article:
I am shocked, shocked I say! The stadium is reportedly too big for Beijing's main soccer team. I guess they could not see that coming. According to a stadium employee quoted in the article "There was a primary school athletics contest here, and I've heard they want to arrange a concert for next year." So there you have it. In August, Usain Bolt electrifies the world; in November, pee-wee football. That's the economics of mega events in a nutshell.
Three months after the end of the games, new figures show the "Olympic Effect" has been short-lived and hotels are empty, industrial output has fallen and the streets are quiet.
But even the biggest single symbol of the modern rise of China, the "Bird's Nest" National Stadium, stands forlorn, largely unused except for a shrinking number of tourists.
Tuesday, November 18, 2008
Tuesday, November 11, 2008
It's unclear if the Cowboys will be able to raise that kind of dough in the current credit market conditions. I wonder if they qualify for some of the Federal bailout money? Stay tuned.
Friday, July 25, 2008
Here the reasons offered by Silver [numbered by me] for why downsizing makes sense in MLB:
1) Firstly, although the number of seats has few theoretical constraints—there are soccer stadiums in Latin America and college football stadiums in the United States whose capacities exceed 100,000—the number of desirable seats is limited. Baseball, more so than football or soccer, is a game that loses a lot when viewed at a significant distance, and particularly when the pitcher-batter confrontation cannot be watched adequately. Dodger Stadium is probably fairly close to the theoretical maximum of "good" baseball seats at 56,000, and more modern facilities will eat into that number by using space on luxury boxes and the like.Reasons 4,5, and 6 make the most sense to me, particularly in light of the move back towards the inner city, where land prices are higher. I'd not thought about the issue of spending resources to serve and monitor $5 seats, when more lavish attention to the $50 seats might pay higher dividends. I'm with Silver on the future costs of high current prices though. There is so much televised sport now, that I'm not confident that baseball (or basketball, for that matter) on television will generate the fan base like it did when there were only three channels on the dial.
2) The availability of cheaply-priced seats might cannibalize one’s market for premium seats, as fans may purchase the cheapest seats available and attempt to 'upgrade' them later. Although such strategies can be combated by hiring ushers or creating firewalls between different parts of the stadium, this may make the ballpark experience less pleasant for fans going to and from their legitimately-purchased seats.
3) Teams are increasingly able to reap the benefits of price discrimination by introducing tiered pricing schemes, and by participating in the resale market through partners like StubHub. Therefore, they can recoup some of the loss stemming from excess demand by charging higher effective ticket prices, without having to bear the negative public relations impact of higher face values.
4) There are some marginal costs associated with each additional fan that attends the game, such as security and janitorial services. The price of such services is trivial in comparison to premium seats that are booked at $50 or $100 each, but become more tangible as compared to the cheap seats.
5) In addition, higher seating capacities can create additional congestion both in and around the ballpark, making the experience less pleasurable for all those that attend. Indeed, some existing stadiums are not especially well equipped to handle a capacity crowd. Wrigley Field’s bathrooms can require an inning-long trip once everyone has had their fill of Old Style, and it can take 15-20 minutes to exit the ballpark from the upper deck.
6) Larger seating capacities may require a larger ballpark footprint, and therefore higher rents or land-purchase prices.
7) The easiest place to add seats is usually in the outfield, but this may impair aesthetics by blocking views of city skylines or natural landmarks.
8) Stadiums with empty seats look less attractive on television—the importance of which should not be understated.
9) In addition, stadiums with empty seats may create a less intimate experience for people at the ballpark, thereby potentially reducing demand. Baseball tickets may be what is known as a "mob good", in which there are mutually-reinforcing, positive externalities conveyed by crowd behavior. To limit the number of seats is arguably to select out the most intense and passionate fans, who are (within certain boundaries) good fans to have sitting around you.
10) Limiting the supply of tickets may create a greater endowment effect (basically, a sense of ownership) for those fans who do hold seats, thereby increasing the amount of repeat business and encouraging fans to purchase season tickets.
After having articulated all of this, you might conclude that I think teams like the Mets are making the right economic decision by substantially reducing their seating capacities, but I do not. I think it may be the right near-term decision, but I do not know that it is the right long-run decision. By limiting their number of seats, a large fraction of which will be occupied by season ticket holders, corporate clients, or fans that are wealthy enough to pay above-face prices to scalpers and brokers, teams risk shutting out a large fraction of their fan bases from the ballpark experience.
Tuesday, July 01, 2008
Using survey data that followed the lives of thousands of Germans from 1984 to 2006, the German Socio-Economic Panel study, Mr. Lechner found that sports-playing adults saw a boost in income of about 1,200 euros per year over 16 years when compared to their less active peers. That translates into a 5-10% rate of return on sports activities, roughly equal to the benefit of an extra year’s worth of education.Here is the paper.
It turns out, according to Mr. Lechner’s calculations, that only about one-fifth of that increase comes as a result of better health. “Although health and other subjective variables contribute substantially to the effects of sports activity, there remains a large unobserved and unexplained component,” Mr. Lechner writes.
Some of that unexplained component could be chalked up to social networking benefits. In fact, the sports-playing men in Mr. Lechner’s study reported a significantly higher level of “social functioning” than did the less active men.
Also worth noting, Sam Zell's plan to get the state to purchase Wrigley Field is foundering.
Monday, June 02, 2008
Tom Nickens of the St. Petersburg Times looks back on the city's initial approach to wooing a team to the area:
On a hot afternoon in July 1986, the St. Petersburg City Council placed a big bet that would be unimaginable today.Nickens seems to buy the redevelopment myth. This seems odd given the fact that the Trop as a development stimulus must surely be considered a failure. Many cities have made advances in the past quarter century without ballparks surrounded by empty lots, as the picture accompanying Nickens' story depicts:
"It was billed as a once-in-a-lifetime chance," I wrote as a young City Hall reporter for the front page of the next day's St. Petersburg Times. "Thursday, St. Petersburg's City Council took it. The council voted 6-3 to build a domed stadium downtown that is promoted as the cornerstone of a new beginning for the city."
Downtown St. Petersburg became a more vibrant place over the years, and it eventually got a baseball franchise after the dome marked time hosting its share of flea markets, monster truck rallies and rock concerts. Now the city finds itself in the midst of another stadium debate. The Tampa Bay Rays are making a pitch for an iconic downtown waterfront stadium that would open the door for redevelopment on the Tropicana Field site that city leaders a generation ago would have instantly embraced.
...Fast-forward 22 years.
The Rays are in their 11th season, hold a long-term lease and own one of the best records in baseball after years of having one of the worst. The relatively new team owners have spent millions to refurbish the Trop, and they have followed through on promises to invest in the franchise. They are not publicly threatening to leave, but they want a new $450-million stadium to boost attendance that ranks at the bottom of the major leagues. They promise to invest $150-million and are seeking no tax increases or new public money to pay for it, only the extension of about $11-million a year in city tax dollars and county resort taxes being spent on the dome now. It would be a public-private partnership, and St. Petersburg would get an enormous redevelopment project as well.
But now the Rays are showing the effects of new (and clever) ownership on the field of play - first place, in June !! - and their stadium proposal must be considered state of the art in every dimension, including the magnitude of the requested subsidy. An important vote will be held this week at the City Council, to initiate the process which would put a stadium referendum on the ballot in November.
Coverage of the issue in the St. Petersburg Times has been excellent, and balanced, the best I've seen. Their recent poll indicates that the public are not yet on board with the plan (but see this interpretation from a thoughtful stadium supporter). Last month the paper asked Matheson, de Mause, Rosentraub, and Zimbalist for detailed commentary (rather than a selective quote or two) on the stadium financing plan. Reporter Aaron Sharockman has been put on the stadium beat full time. His blog Ballpark Frankness has links and commentary on the numerous stories on the issue over the last six weeks.
The team's new digs would certainly be in a nice spot, the site of Al Lang Stadium, where spring training has been held since 1916.
The new home plate would be where right field of the old ballpark currently resides.
Monday, April 21, 2008
A couple of weeks ago, Skip had a post on the lack of development beyond the left-field wall at St. Louis' Busch stadium. The vacant field, seen clearly in this picture and in this image from Google maps, was to become a ballpark village. But that plan has at least been temporarily scuttled by Centene's plans not to relocate to new office space there.
A recent St. Louis Post-Dispatch article notes how difficult it has been for new development projects to get up and running in downtown St. Louis, even with a brand new stadium. The author notes a kind of multiplier effect: when one project fails, several other unconnected projects may also fail.
Business owners usually revel in vanquishing their competition. But when Steve Roberts wears his hat as a downtown St. Louis developer, he roots for competitors.Frequent readers of TSE know that we here generally (generally?) do not support public funding for stadiums. Although the a-priori studies claim stadiums are magnets for development and economic activity, the ex-post studies tell a much different story.
Indeed, Roberts, a principal in St. Louis-based Roberts Brothers Properties, is concerned about the broader impact of projects stalling or dying.
If the adage that success breeds success, then the reverse could be true: Failure is contagious.
"When you have projects or developers failing it raises suspicions in the minds of potential investors, retailers and even residents," Roberts said. "I don't think one particular project can take down the whole downtown renovation effort, but if you have multiple ones for different reasons, it hurts those of us who have been sowing our fields for many years."
Tuesday, June 05, 2007
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
Monday, May 21, 2007
Here's some bits from Keating's column today:
Part of the allure of the recent retro parks has been asymmetrical playing fields. In place of the bland,As I recall from the excellent book Dodgers Move West, the willingness to use eminent domain was instrumental in the Dodgers leaving Brooklyn for L.A. The powerful Robert Moses blocked every move that WalterO'Malley and the Dodgers could make in Brooklyn (apparently preferring a location in Queens). Meanwhile, the L.A. city fathers gave O'Malley Chavez Ravine, easy freeway access, etc. in order to lure the team to the west coast. It seems clear that restrictions on the number of franchises (in contrast to the open systems of Europe) raise the stakes in the stadium game, and make the use of eminent domain more likely.
uniform dimensions that came with multipurpose stadiums from the 1960s to the 1980s, the new fields have varying outfield distances, walls of differing heights and assorted peculiar angles. It certainly provides these new ballparks with added character.
But a little history shows that this is a manufactured character, as opposed to the organic kind that sprang from the original ballparks of yesteryear.
...[W]here did the special dimensions come from? Well, teams had to make their
stadiums fit on a particular piece of urban land, often within a set of city streets and having to accommodate many neighbors.
For example, Griffith Stadium in Washington, D.C., which was home to the
Senators, had a center-field wall that jutted in towards the playing field. Why? Because, PhilipLowry reported in "Green Cathedrals," there were five houses and a large tree on the other side.
...What a difference a century makes. Developers, sports team owners and players now reap rewards not only from taxpayer-subsidized stadiums, but also from the government's muscling homeowners and small businesses off their properties to enrich the politically connected.
That's what looms with Mayor Michael Bloomberg's Willets Point proposal to move some 100 small businesses and one resident to alter the area near the new Mets home to fit his political vision. Eminent domain also is a weapon to grab property provided by government to Bruce Ratner for his multibillion-dollar Brooklyn residential, office and retail project, including an arena for the Nets.
Thursday, March 08, 2007
Teams seeking public subsidies commonly claim that building a new stadium will improve the team's revenue flow, allowing it to acquire more talent and improve the quality of the team. No doubt building a new stadium improves team cash flow, but the important question is "what is this cash being spent on?"
If fans are spending the extra cash on amenities at new stadiums, then there is no reason for teams to invest more in team quality. In other words, players have no claims to these revenues. The critical question is whether capital augments labor: do new stadiums improve the marginal product of players and, thus, improve their contribution to team revenue? If so, then teams have an incentive to increase spending on players.
Quinn, Bursik, Borick, and Raethz (2003) find that a new stadium may be complementary to on-field production, but only for baseball. But a recent Wall Street Journal article (reproduced here) provides an example how capital augments labor in sports in general:
In a separate study published this past summer, a Ph.D. candidate in Canada took saliva samples from 14 players on a minor-league hockey team before and after games. The key finding: Levels of testosterone, which have been found to facilitate assertive and aggressive behavior, were 25% to 30% higher before home games, suggesting the home arena triggered players' elemental instinct to protect their territory. "It has the potential to go a long way in developing techniques to create the ideal physiological profile prior to playing," says Justin Carre, the doctoral candidate at Brock University in St. Catharines, Ontario, who co-authored the study.
...Mr. Poulson made his name in the 1990s, overseeing construction of the Portland Trail Blazers' arena for owner and Microsoft co-founder Paul Allen. Mr. Allen, an avid fan of both music and sports, wanted the new venue to draw top bands for concerts but not if that meant using materials that would deaden crowd noise during basketball games. Ellerbe Becket came up with a novel although expensive solution: rotating ceiling panels with a soft, absorptive side for concerts and a hard side that reflects crowd noise back to the court during games.
...At other schools, it's more than just musical chairs that's going on. When Oklahoma State University expanded its Gallagher-Iba Arena -- already one of the loudest venues around -- it went overboard to make sure that those deafening noise levels didn't drop. After taking sound readings and measuring reverberation times throughout the building, architect Gary Sparks came up with a strategy: Instead of building the extra 7,300 seats outward, he stacked them on top of the existing seats on a steep slope. He also added a flat ceiling stripped of almost all absorptive materials. The goal was to give every sound wave a direct path to a hard surface that would send it ping-ponging around for as long as four seconds.
The author of the article also notes that visiting teams and referees are adversely affected by home team crowd noise. He also notes that in the interest of fairness, some leagues are looking at ways to control noise.
The push for fan power is ratcheting up a cat-and-mouse game between teams looking for an edge and league officials charged with keeping things fair. A number of college-basketball conferences, including the ACC and the Big East, are cracking down on the practice of seating pep bands directly behind visitors' benches to make it harder for coaches to talk to their teams during timeouts. Last year, Major League Baseball instituted new rules governing stadiums with retractable roofs, which can be closed to keep out the elements -- but also to keep in the noise. Teams now have to tell the league by May their criteria for deciding when to open or close their roofs during the season, and in the postseason the final decision is up to MLB.
Seemingly this is another way that leagues standardize the effect of capital across teams. Leagues do this with standardization of playing field dimensions and equipment. While they may try to legislate against some ways to distract players, let's hope they don't go too far. We wouldn't want to be deprived of wonderful scenes like this.