The Economic Impact of Sports Facilities
In the past twenty years, there has been a dramatic increase in construction of new sports facilities. From professional leagues to colleges to city recreation facilities, it appears that the trend will continue. Much of the cost of new construction or renovation is subsidized. Those in support of subsidies believe that these new facilities will provide a substantial economic impact. They argue that the construction of these facilities will inject new spending into the local economy through fan support (ticket and other product revenues), job creation and tax revenues. Opponents, however, argue that a modest factory or a small research facility has as much or more economic impact. This paper will discuss the basic aspects of sports facility planning and the arguments for and against the construction of new sports facilities.
With popular sporting events, such as the Super Bowl, collegiate football bowls, NASCAR and Major League Baseball playoffs, sport has grown to a multibillion dollar industry in the United States (Hall, 2006). In fact, almost forty-nine million people attended college football games in 2007, according to NCAA records (Official NCAA Football Records Book, 2008). Professional athletes are earning millions of dollars playing games in unbelievable facilities. Some of these new facilities are built to resemble mini-malls and in return, offer other amenities in addition to the sporting event taking place (Rich, 2000). A sports arena may be used to host a soccer tournament on night and the very next day it may be used to host a hockey game. As a result of the current demands, these structures are being built larger and fancier each year.
There has been a dramatic increase in sports facilities in the past few years. In fact, between 1991 and 2006, sixty-four new major league facilities were built (Feng and Humphreys, 2008). One high profile construction deal is Yankee Stadium, which was originally built in 1923 for $2 million. In 1973, the stadium was refurbished at a cost of $100 million (Fried, Shapiro & DeSchriver, 2008). In June 2005, the Yankees officially announced plans to construct a new Yankee Stadium. The construction cost is expected to be around $1.3 billion, which the Yankees will pay for. New York City is expected to spend $220 million on infrastructure and various other improvements across the area. The Yankees are slated to play their first game in the new facility on April 16, 2009 (Ballparks of Baseball, 2008).
After several years of negotiations, the New York Mets announced plans for a new ballpark in April 2006. They received approval for $632.1 million in bonds to be used for the construction of a new facility that will be built adjacent to Shea Stadium. The naming rights of the new facility were purchased by Citigroup, Inc. for $20 million per year over the next twenty years. In return, the new stadium will be famously called Citi Field (Ballparks of Baseball, 2008).
With the new Yankee stadium and the Mets’ Citi Field both expected to open in 2009, the construction trends continue to expand to greater capacities. Combined, these two facilities will host 125 luxury suites, costing upwards of $2,500 per person per game. Each suite will have a capacity of up to approximately thirty fans. The New York Red Bulls, a Major League Soccer team, are also in the midst of constructing a new facility. This facility will have 20,000 seats, with the first row being just twenty-one feet from the field. A translucent roof will be constructed to cover all 20,000 seats. According to a Red Bulls spokesman, “it will be the benchmark stadium by which all other soccer stadiums in North America are measured” (Riper, 2008).
Another highly visible new construction site is that of the Dallas Cowboys stadium. The planned structure is enormous, with approximately 80,000 seats and a retractable roof. This amazing facility is set to be constructed on 2.3 million square feet. To understand the enormity of this building, the American Airlines Center in Dallas could easily be placed inside the new stadium. It will host 200 luxury suites on five different levels of the facility. Perhaps the most amazing feature is the retractable roof. When the roof is retracted, there will be an open area of approximately 256 feet wide and 410 feet long. At each end zone, a five-leaf clear glass retractable door can be opened in only 18 minutes. Each glass door will measure 120 feet high and 180 feet wide, setting a record as the tallest moving glass wall in the world. There will be 14 different ways to enter the stadium from surrounding highways. With 286 different concession areas and over 1,600 toilets, this facility is sure to attract fans from all areas of the nation (Dallas Cowboys, n.d.).
While there are currently several new construction projects taking place, there are also several proposals that are failing due to the economy. The Tampa Bay Rays, for example, announced in June that they were postponing plans for a new $450 million ballpark. This particular project called for $100 million in tourist tax dollars from the county and an additional $75 million from the city. Both the county and city felt that they were “being rushed to commit millions of public dollars for the controversial project” (Moncada, 2008).
Costs of Construction
The cost of building a new sports facility is always a primary concern. Many sports projects negotiate a variety of funding sources that range from municipal bonds to private contributions. Municipal bonds are basically public funds used to help pay for the new construction. Rose Garden, for example, was constructed with a combination of both public and private funding. $46 million was contributed by Trailblazers owner Paul Allen, $16 million came from bank loans and $155 million came from privately placed bonds. The City of Portland contributed $34.5 million for various improvements such as to surrounding streets (Fried, Shapiro & DeSchriver, 2008).
At the opposite end of the spectrum, the United Center was constructed at a cost of $175 million in 1994. Both the Chicago Bulls and the Blackhawks utilize this facility. Under this deal, twenty percent of the financing came from the owners of the building and the other eighty percent came from private bank loans. Therefore, the entire construction project was privately funded. A strong $1.8 million a year is received from United Airlines for the naming rights to this facility (Fried, Shapiro & DeSchriver, 2008).
There are currently more than 100 sports facilities nationwide. Approximately thirty percent are privately owned and seventy percent are publicly owned (CHAPTER 13: STADIUMS & ARENAS, 2006.). Cities are providing hundreds of millions of dollars of subsidies to professional sports franchises for the construction of new sports facilities. This is being done through the issuance of bonds. Different taxes enacted specifically for this purpose are usually used to pay off these bonds. Sales taxes on certain expenditures can also be used to pay them off (Coats & Humphreys, 2004). One popular example is a hotel tax, where part or all of the tax goes to repay the bonds. The expectation is that these new stadiums and arenas will provide economic benefits in excess of the subsidies. Although this practice becomes more widely debated, cities continue to subsidize new sports facilities with little hesitation.
Many argue that there are numerous benefits to constructing new sports facilities. Opponents, on the other hand, are very quick to point out that the benefits may not outweigh the costs. There have been several economic studies to support both viewpoints. Often overlooked, there are many intangible benefits to the community that should also be considered. A professional baseball team, for example, often encourages a sense of pride and civic duty in the community (Coates & Humphreys, 2004).
The construction of a new facility, or the improvement of an existing facility, serves to satisfy an increased number of participants, improve the condition of surroundings, provide local opportunities for those who currently travel to see sporting events and helps to improve the local economy. Proponents of subsidies argue that the construction of sports facilities results in substantial economic impact. Economic impact studies have been performed by consulting firms to support the argument that new spending is injected into the local economy (Feng & Humphreys, 2008).
One of the noted benefits associated with the construction of a new sport facility is the creation of jobs. Initially, there will be many construction jobs created. Once the construction is complete, individuals will be needed to run the facility, from ticket collectors to concession stand workers to maintenance personnel. Another benefit is when these supporters and employees spend money in the local community. The tourist attraction also serves as a benefit because these tourists bring in outside money and spend it within the community. It is argued that this new spending has a “multiplier effect.” In other words, as income within the community increases, there will continue to be more new spending and, as a result, more jobs created (Feng & Humphreys, 2008).
Most studies have set out to prove the impact on jobs, income and tax revenues, while the intangible effects have been mostly ignored. Sports facilities and teams tend to have an impact on the community’s quality of life. This is an intangible benefit that is often related to civic duty and pride, community visibility and the enhancement of a city’s image. However, intangible benefits are extremely hard to measure and are, therefore, often omitted from these economic studies (Coates & Humphreys, 2004).
Results of Economic Impact Studies
One major study performed by Xia Feng and Brad Humphreys examined the economic impact on residential housing values. The results show that sports facilities have a “significant positive effect on the value of surrounding houses and this positive effect decreases as the distance from the facilities increases” (Feng & Humphreys, 2008). According to these findings, a new sports facility constructed in the core of a large city as part of an urban redevelopment program might possibly cause residential property values within one mile of the facility to increase hundreds of millions of dollars. A new sports facility constructed outside of the center of a large city and unrelated to an urban redevelopment program will cause residential property values around the facility to increase tens of millions of dollars (Feng & Humphreys, 2008). This might help to explain why cities continue to subsidize sports facilities even when much academic research suggests that they result in little or no tangible economic benefits.
There are also an overwhelming number of academic studies that show little or no economic benefits of sport facility subsidization. Many of these studies point to the substitution effect. The substitution effect argues that “as sport- and stadium-related activities increase, other spending declines because people substitute spending on sports for other spending” (Coats & Humphreys, 2004). Therefore, not all of the spending resulting from the construction of the new facility is new spending. When ignoring the substitution effect, many believe that the economic value of the facility is vastly overstated (Coats & Humphreys, 2004).
Opponents also argue that the multiplier for sports spending is often substantially less than the multiplier on other entertainment spending. Most of the revenues generated from sports are used to pay players, managers, coaches and trainers. Unlike the employees of local restaurants, theaters and stores, many of these players, managers, coaches and trainers do not even live in the city full time. Therefore, these large salaries are spread into other city and state economies (Coats & Humphreys, 2003)
With the economic crisis facing America today, the sporting industry is not immune. Brett Yormark, chief executive of the New Jersey Nets, put it plainly when he said, “We’re not just competing for people’s entertainment dollars anymore. We’re going up against milk and orange juice” (Futterman, 2008). Recently, NBA Commissioner David Stern announced the lay off of approximately eighty league employees, which accounts for 9% of the total. For many years, television contracts have helped to insulate professional sports from the volatility of the economy. But the changing economy has caused teams to rely more and more on ticket revenue. With the rising cost of everyday needs, many families are opting to stay at home and watch their favorite sporting event on television. This is causing a major blow to the sporting industry (Futterman, 2008).
As mentioned, the construction of some stadiums is greatly being affected by today’s economy. Construction of a new baseball park for the Florida Marlins was set to begin this fall, but it looks like the project may get delayed. According to Katy Sorensen, a Miami-Dade County commissioner, said that “it’s going to be a tough sell to the public to approve something like this” (Futterman, 2008). This particular project is expected to cost $515 million, which is planned to get financed partly by hotel and tourism taxes (Futterman, 2008).
Others are taking a more upbeat approach to these difficult times, looking to be visionaries rather than those that sit back and wait on the economy to rebound. The Mayor of Edmonton, Stephen Mandel, recently created a special committee to study the pros and cons of the construction of a new sports and entertainment facility. The report findings clearly state that this new facility is practical. “It provides a unique opportunity to develop an urban sports entertainment district downtown to the benefit of citizens in the city, region and primary catchment areas” (Gilbert, 2008.) The committee suggests that this not be a stand-alone facility surrounded by parking lots, but rather a multipurpose facility that also serves to meet the needs of the local Edmonton Oilers (a National Hockey League team) (Gilbert, 2008).
The economy has not seemed to affect ticket sales for the Dallas Cowboys. It was recently announced that the team has sold almost 85 percent of the season tickets for the upcoming first year in the new stadium. These figures are astounding considering the record-high seat prices, which are potentially as much as $150,000. These high ticket prices were almost inevitable considering this project cost reached $1.1 billion. It was also announced that 240 of the 300 luxury suites have been sold. These suites range from $100,000 to $500,000 annually. They also typically require a 20-year contract (Mosier, 2008.)
Does it make sense to use public funds to attract and retain sports franchises? Many studies say no if the only benefits are increases in economic activity and tax revenues. However, when considering the quality-of-life benefits, one can often justify the large public spending. These quality-of-life benefits are not always included in the debate on subsidizing sports facilities because it is so difficult to measure these types of benefits. It is hard to argue, though, that one main benefit of a new sports facility comes from the improved quality of life of the surrounding community. One thing for sure is that this debate will continue to be a hot topic of discussion worldwide, especially with the crisis facing our economy today.
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