Transcript Taxpayer-financed stadiums

Taxpayer-financed stadiums
(revised 4-Dec.-2008)
Ballparks and team revenues
• A team’s ballpark affects its revenues.
– Attractive, comfortable, conveniently located parks draw more
fans.
– Luxury suites and skyboxes raise venue revenues a lot (and are
easier to build in new parks).
– If the increased revenue is used to improve the team, the improved
team quality will keep revenues high.
• Most teams do not pay for their own ballparks.
– Team’s costs are less if they can get someone else to pay for it.
• Most parks are publicly financed (taxpayer financed).
– Team’s costs may be less if they can lease it from the city or state.
• “SWEETHEART LEASE”
– team gets most of the park’s revenues, bears little of its costs.
Ballparks and team revenues (cont’d)
• The stadium directly affects:
– GATE REVENUES (ticket-sale revenues)
• Gate revenues vary wildly from team to team. 2007:
– Red Sox , Yankees ~$170 M
– Rays, Marlins, Royals < $25 M
• Stadium not the only factor, but a significant one.
– Both prices and attendance usually shoot up when team moves
into new stadium.
– VENUE REVENUES (non-ticket $ from stadium)
• $ from luxury suite rentals, personal seat licenses; concessions
and parking revenue (depends on terms of lease); naming
rights; advertising in stadium.
• Venue revenues vary even more wildly than gate revenues.
Ballparks and team revenues (cont’d)
• Forbes estimated venue revenues for 1997 season
–
–
–
–
Ranged from $34.9 M (Yankees) to $1.5 M (Reds).
Five teams had $21-27 M, 3 teams had < $2 M.
All but one (Yankees) of top six were in new parks.
Bottom seven teams ranged from $1.5 M to $3.7 M.
• Five got new stadiums (Reds, Brewers, Tigers,
Pirates, Mariners)
• One made major renovations (Angels)
• One was slated for elimination (Twins) and now has
a new stadium in the works
Ballparks and team revenues (cont’d)
• A glut of new ballparks? The revenue boost from a new
ballpark often wears off quickly.
– Two months into 2003 season:
• Attendance drop from 2002 was most severe (nearly 16%) for
teams who moved into new parks in 1991-2002.
• Team with brand-new park (Reds) had mediocre attendance.
• “The bloom is off the rose a little bit regarding new stadiums” - Bob DuPuy, president of MLB
– The Pittsburgh Pirates’ PNC Park
• Opened 2001, considered one of the best in MLB.
• In 2008 Forbes estimated the park’s contribution to the team’s
value at just $48 million (16% of team’s total value).
– Fourth-lowest in MLB.
– ~ Same as two small-market teams looking for new
stadiums (Tampa Bay, Minnesota).
A good ballpark can help a team a lot . . .
• Forbes estimated parks’ contributions to team values:
– Median in 2008 was ~ $100 M, ~25% of total team value
• Typically the park contributed 20-25% of total team value.
• Teams with the most valuable parks:
– Yankees ($237 M, but only 18% of team value)
– Red Sox ($177 M)
– L.A. Dodgers ($176 M)
• Teams with the least valuable parks:
–
–
–
–
Marlins ($26 M, 10% of team value)
Twins ($47 M, 14% ")
Royals (50 M, 16% ")
Pirates
. . . but how much does it help the city it’s in?
-- Time to review two economic concepts.
Opportunity cost
• A resource is SCARCE if there’s less of it than we would
like.
– Most resources have more than one use.
• The OPPORTUNITY COST of using a scarce resource is
the (forgone) value of its best alternative use.
• Ex.: coming to class vs. catching up on sleep
– TRADEOFFS
• If you want more of one thing, you must settle for less of
another.
– The opportunity cost of using scarce taxpayer dollars to
build a new baseball stadium is …
The multiplier
• Recall: GDP is the sum of various types of
spending (C + I + G + NX)
• An initial increase in spending can have a ripple
effect and raise total spending by a multiplied
amount
– chain of spending, as money gets spent and re-spent
• MULTIPLIER = the total increase in GDP caused
by a $1 initial increase in spending
– Very important, if government is trying to raise GDP
through fiscal stimulus (new spending).
The multiplier (cont’d)
• The multiplier is smaller than one might
think because of leakages from the
spending stream.
– Income and sales taxes, imports, inflation…
– Real-world multiplier for U.S. = 1.5 (approx.)
– Real-world multiplier for cities = much less
• Import leakages are much greater for cities
• For a city, expect the multiplier to be < 1.
“Field of Schemes”:
Ballparks and Local Economies
• How much do ballparks help a local economy? Is a new
stadium a good public investment for a city?
– Economists agree: Not much. NO.
– Independent empirical studies consistently find little
positive impact.
• Stadiums and sports teams create very little new
spending. They divert spending from other forms of
entertainment (opportunity cost).
• The multiplier associated with building a new
ballpark is very small -- most of the income
generated is re-spent outside the city.
Ballparks and Local Economies (cont’d)
• Components of a team’s effect on local GDP:
– (1) injection of new consumer spending
• From local market, this is about $0 – people have a ~fixed
entertainment budget (more for sports means less for dining,
etc.)
• From neighboring markets, will tend to be more (esp. for small
localities); typically small, though.
– (2) multiplier effect, as money gets re-spent
• Very small for sports teams – leakages are very large.
– Leakages are especially large in small localities.
–  Net impact of a sports team on local GDP is small.
Ballparks and Local Economies (cont’d)
• Payoffs from alternative projects (e.g., roads, hospitals,
schools) typically much higher.
• Dennis Coates & Brad Humphreys (2000): study of 37
cities with pro sports teams.
– Average net impact of getting a team was to lower local
income slightly. In per-capita terms:
• + $67 in new spending
• - $73 in higher taxes, decreased services
• = - $6 (net loss)
Why do cities subsidize pro sports stadiums?
• (1) Team owners tend to be politically powerful (main
reason).
– They typically threaten to leave the city if they don’t get a publicly-financed
stadium.
– Cities tend to be in a weak position to counter threats to leave.
• Sports-league monopolies do not make it easy for cities to attract
another team. (Ex.: Los Angeles and NFL.)
• (2) Mayors and other local politicians often envision a team
and/or stadium as part of their legacy.
– Because voters frequently reject referendums for tax-financed stadiums,
politicians often do not put it up for a public vote.
• (3) Social or psychological value attached to having a pro
sports team
• (4) Many people mistakenly think that sports stadiums do
make a big contribution to the local economy.