1	Public Finance & Stadium Subsidies The Franchise Monopoly Game Trends in Stadium Financing Politics of Stadium Subsidies
2	The Franchise Monopoly Game Long History of Franchise Relocation 3 periods in MLB to 1903: clubs changed cities in attempt to remain viable Buffalo Bisons - > Boston Red Sox (AL) Balt. Orioles #3 -> NY Highlanders -> NY Yankees) 1903-1953: no relocations, no new teams 1953 to present: profit driven relocation & threats to relocate
3	Footloose in the 50s Early to mid 50's: Teams in cities w/ 2 or 3 clubs seek own towns Boston Braves -> Milwaukee Philadelphia A’s -> Kansas City St. Louis Browns -> (new) Baltimore Orioles NY Giants -> San Francisco Brooklyn Dodgers -> Los Angeles much ink spilled over this one -- why? a particularly informative book is ,,,,,,,,,,,
4	........The Dodgers Move West Encapsulates franchise issues of next 50 years Team was very profitable but had old stadium w/ difficult transport issues Dodgers & Brooklyn could not get NYC to provide transport &/or site for new Stadium Post-War demographics shifted to west coast LA City fathers promised voters major league team LA offered land and road to stadium Odd consequence: it made economic sense for owner to relocate baseball's most profitable team!
5	Recent Moves & Threats 1966: Braves (again) Milwaukee -> Atlanta 1968: A's (again) Kansas City -> Oakland 1972: Washington Senators -> Texas Rangers Chi White Sox and Seattle threaten to move to Tampa results: Comiskey Park II; Safeco Field built with public funds Me too! -- Montreal, Minnesota, Houston threaten moves Only Houston gets a new stadium MLB’s response? Owners voted to contract 2 teams - puts teeth in next threat! Forestalled by CBA of 2002
6	NFL Relocation Early years: move from small to large cities Green Bay is legacy from small town era Recent years: move for the best deal Giants move across Hudson to NJ Owners let that go, so Raiders move across Cal to LA Baltimore to Indianapolis – the secret midnight moving van Cleveland becomes Baltimore Ravens No stadium for Modell, unlike Indians & Cavs Houston becomes Tennessee Titans (ditto re Bud Adams) NFL response to Houston & Cleveland? Replacement franchises for several hundred million $, thanks! Is there a pattern here? A Merry-go-round perhaps?
7	Trends In Stadium Financing Table 5.3 of Leeds & von Allmen 3 periods are clearly evident in table 1) private finance 2) public finance (multipurpose monsters) 3) corporate sponsorship & naming rights
8	New Stadium Boom of the 90s New Stadiums Very Profitable -- For Teams Extensive public construction/lease subsidies non-shared revenue streams (luxury boxes) New venues: revenue increments of $30-$40m ticket prices increase 50%-100% attendance increases as well How? Why? "throwback" vs. multi-purpose stadiums "mistake by the lake" increase in proportion of "premium" seats
9	How They Play the Game The Franchise Monopoly Game, that is managed (artificial) scarcity..... keep # franchises below free entry level ensures significant # of wannabe cities w/ demand growth, "auction" off new franchises plus relocation threats existing cities held up for stadium "ransom" multi-hundred million $ franchise fees and stadium deals bordering on extortion are feasible only if a sufficient number of demanders exist for teams
10	Politics of Stadium Subsidies Forms of public subsidies What is the case for public funding? How strong is the case? Why $100s of millions in subsidies?
11	Forms of Public Subsidies Infrastructure (ancient) roads, public transportation land (often land no-one wants) Flushing Meadows (Shea Stadium) The Meadowlands (Giants Stadium) Operating Costs w/ Public Stadiums (recent) sweetheart leases parking & luxury box revenue, etc opportunity cost of property tax revenues tax-free municipal financing
12	The Tale of Safeco Field Seattle Kingdome: the worst of the multi-purpose facilities Claim: new park necessary to keep team in Seattle 1995 stadium referendum rejected by voters ‘97: Sen Gorton & Gov. Locke craft deal & legislature passes Deal: $414m retractable roof stadium Team to pay $45m of the cost, rest floated by state bonds Lease: Team pays rent of $700,000 per year 5% admissions tax to pay for parking construction Gets right to sell sponsorship (Safeco, $30m) 10% of team profits (if any) goes to public stadium authority Authority can’t challenge books if they satisfy Gen Acct Principles
13	Safeco Field: Bottom Line Only real cost for stadium: $5m capital cost Annual $700k rent 5% admissions tax Contributes ~10% of full cost of stadium Benefits to owners: great stadium -> greater attendance Even with ticket prices doubled! -> greater concession revenue
14	The Case for Public Subsidies (1) Jobs & economic development investment will "pay off" creates jobs -- direct & indirect employment & spending will have multiplier effects major league team necessary to be a major league city attracts firms that would otherwise go elsewhere
15	Spending Multipliers Simplisitic Keynesian Multiplier New spending is someone’s income & is thus re-spent, re-spent: M = 1/(1-MPC) Textbook MPC = .9 -> M = 10 But how much stays in the city/region? Let f = fraction of new spending that increases local income M_local = 1/(1-MPCf) Much of the spending is received by wealthy owners & players, who have low MPCs, say .67 f is typically not large, say .5 M_local = 1/(1-.67.5) = 1/.67 = 1.5
16	“Billboard Economics” Many regional economic models such multipliers M_local= 1.5 implies 50% income boost from add’l spending (∆X) This may be overstated as well ∆Income = ∆X*M_local Some money may be spent anyway (football vs. baseball) What is true incremental spending? Example: Price Waterhouse Study of Staples Center ∆Income = $111 million annually Used M_local = 2.36 Assumes Staples injects $47m of new spending per year How? All it did was replace the LA Forum! No reputable study has found significant econ impact of stadiums
17	How Strong is this Case? Not Very Most payroll is to athletes athletes live in Florida..... .....(why?) Most indirect jobs are low wage hot dog vendors & parking attendants Little or no evidence of economic development effects from teams net "multiplier" effects are small since people will spend $ on other forms of entertainment anyway
18	The Case for Public Subsidies (2) Stadiums have positive externalities profit-max owner not be compensated for external benefits provided by stadium many follow team but don't buy tickets “Water cooler talk” e.g. "civic pride" (new firms?) newspapers sell w/ sports section but don't pay owners External benefits can be significant Surveys indicate significant “willingness to pay” to have major league team in town Problem: incentive to overstate value Reverse the bias: upside down: how much in extra taxes? Two survey methods put upper & lower bounds on true value
19	Why $100s of Millions in Subsidies? Polls: 80% of Americans opposed to public funding of sports stadiums Facts: 4/5 new stadiums built with public funds? Why?
20	Politics of Public Subsidies Three Key Factors Rational Ignorance Special Interests Agenda Control
21	Rational Ignorance 1) becoming informed is costly Its more fun to read comics than policy analysis 2) even when informed, the chances your vote affects the outcome are small W_A & W_B: be the welfare of policy options A & B Let Policy A be the subsidy; B be no subsidy p: the probability that one’s vote affects outcome Value of Voting is = p(W_A - W_B) This will generally be very small for the typical voter
22	Rational Ignorance Consider a taxpayer who could care less about the team W_A = -$100 : subsidy raises taxes $100 W_B = 0 (no subsidy involves no benefit or cost) W_A – W_B = - $100 If p < .01 (usual case) Casting a vote is not worth $1 Keep reading the comics and don’t bother to vote
23	Special Interests Owners & developers: millions at stake Typical person is affected in modest way Advantage: special interest influence intensive lobbying and campaigning pitch is appealing: team vs. no-team sports are perfect marriage for pols & owners politicians crave public attention; sports have it
24	Special Interests: Example Paul Allen (co-founder of Microsoft) Owns Seahawks Wanted new stadium for Seahawks Single Issue Referendum in June 1997 Campaign Spending by Allen: $6m Spending by opposition: $160,000 How does participation vary between such a referendum and a general election? Referendum passed w/ 51.1% of vote
25	Agenda Control (1) Consider the following options A - no team (leaves for another city) B - current stadium C - “no frills” $40m update D – $400m sports palace The special interests want the sports palace The typical citizen wants B or C Hence B or C is the socially optimal choice But how is the voting issue cast? No team or sports palace, take your pick!
26	Agenda Control (2) Many referendums fail by narrow margins These are re-designed and often pass on the second or third attempt stadium bill attachments: parks, environmental improvement, share of lease to improve libraries agenda is incrementally advanced to get vote share to reach 50% it is costly to make the referendum a slam dunk, because goodies are promised to other interests