sports stadium arena finance essay

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Sports stadium arena finance essay cambridge school sriniwaspuri homework

Sports stadium arena finance essay

Owners usually want to move a team because it is worth more elsewhere, either because another city is building a new facility with strong revenue potential or because another city is a better sports market. If the price is the value of the franchise in its present home, the old owner is deprived of his property rights if he cannot sell to the highest bidder.

In practice, these provisions typically specify a right of first refusal at market price, which does not protect against losing a team. Cities trying to hold on to a franchise can also invoke eminent domain, as did Oakland when the Raiders moved to Los Angeles in and Baltimore when the Colts moved to Indianapolis in In the Oakland case, the California Court of Appeals ruled that condemning a football franchise violates the commerce clause of the U. District Court ruled that Maryland lacked jurisdiction because the team had left the state by the time the condemnation was declared.

Eminent domain, even if constitutionally feasible, is not a promising vehicle for cities to retain sports teams. Whatever the costs and benefits to a city of attracting a professional sports team, there is no rationale whatsoever for the federal government to subsidize the financial tug-of-war among the cities to host teams.

In , Congress apparently became convinced of the irrationality of granting tax exemptions for interest on municipal bonds that financed projects primarily benefiting private interests. The Tax Reform Act denies federal subsidies for sports facilities if more than 10 percent of the debt service is covered by revenues from the stadium. If Congress intended that this would reduce sports subsidies, it was sadly mistaken. If anything, the law increased local subsidies by cutting rents below 10 percent of debt service.

Although cities might respond this way, they would still compete among each other for scarce franchises, so to some extent the likely effect of the bill is to pass higher interest charges on to cities, not teams. Congress has considered several proposals to regulate team movement and league expansion.

The first came in the early s, when the Washington Senators left for Texas. Unhappy baseball fans on Capitol Hill commissioned an inquiry into professional sports. Another round of ineffectual inquiry came in , following the relocations of the Oakland Raiders and Baltimore Colts. As before, nothing came of the congressional interest. This bill, too, never came to a vote. The relevance of antitrust to the problem of stadium subsidies is indirect but important.

Private antitrust actions have significantly limited the ability of leagues to prevent teams from relocating. Teams relocate to improve their financial performance, which in turn improves their ability to compete with other teams for players and coaches. Hence, a team has an incentive to prevent competitors from relocating. Baseball, because it enjoys an antitrust exemption, is freer to limit team movements than the other sports.

Relocation rules can affect competition for teams because, by making relocation more difficult, they can limit the number of teams usually to one that a city is allowed to bid for. In addition, competition among cities for teams is further intensified because leagues create scarcity in the number of teams. Legal and legislative actions that change relocation rules affect which cities get existing teams and how much they pay for them, but do not directly affect the disparity between the number of cities that are viable locations for a team and the number of teams.

Thus, expansion policy raises a different but important antitrust issue. As witnessed by the nearly simultaneous consideration of creating an antitrust exemption for football but denying one for baseball on precisely the same issue of franchise relocation, congressional initiatives have been plagued by geographical chauvinism and myopia.

Except for representatives of the region affected, members of Congress have proven reluctant to risk the ire of sports leagues. Even legislation that is not hampered by blatant regional self-interest, such as the Tax Reform Act, typically is sufficiently riddled with loopholes to make effective implementation improbable. While arguably net global welfare is higher when a team relocates to a better market, public policy should focus on balancing the supply and demand for sports franchises so that all economically viable cities can have a team.

Congress could mandate league expansion, but that is probably impossible politically. Even if such legislation were passed, deciding which city deserves a team is an administrative nightmare. A better approach would be to use antitrust to break up existing leagues into competing business entities.

The entities could collaborate on playing rules and interleague and postseason play, but they would not be able to divvy up metropolitan areas, establish common drafts or player market restrictions, or collude on broadcasting and licensing policy.

Under these circumstances no league would be likely to vacate an economically viable city, and, if one did, a competing league would probably jump in. Other consumer-friendly consequences would ow from such an arrangement.

Competition would force ineffective owners to sell or go belly up in their struggle with better managed teams. Taxpayers would pay lower local, state, and federal subsidies. Teams would have lower revenues, but because most of the costs of a team are driven by revenues, most teams would remain solvent. Player salaries and team profits would fall, but the number of teams and player jobs would rise.

So sports leagues remain unregulated monopolies with de facto immunity from federal antitrust prosecution. Others launch and win antitrust complaints against sports leagues, but usually their aim is membership in the cartel, not divestiture, so the problem of too few teams remains unsolved. The final potential source of reform is grassroots disgruntlement that leads to a political reaction against sports subsidies.

Stadium politics has proven to be quite controversial in some cities. Some citizens apparently know that teams do little for the local economy and are concerned about using regressive sales taxes and lottery revenues to subsidize wealthy players, owners, and executives. Voters rejected public support for stadiums on ballot initiatives in Milwaukee, San Francisco, San Jose, and Seattle, although no team has failed to obtain a new stadium.

Still, more guarded, conditional support from constituents can cause political leaders to be more careful in negotiating a stadium deal. Initiatives that place more of the financial burden on facility users—via revenues from luxury or club boxes, personal seat licenses PSLs , naming rights, and ticket taxes—are likely to be more popular. Unfortunately, citizen resistance notwithstanding, most stadiums probably cannot be financed primarily from private sources. In the first place, the use of money from PSLs, naming rights, pouring rights, and other private sources is a matter to be negotiated among teams, cities, and leagues.

Louis, respectively, were an attempt by the league to capture some of this unshared revenue, rather than have it pay for the stadium. Second, revenue from private sources is not likely to be enough to avoid large public subsidies. And the Charlotte case is unique. No other stadium project has raised as much private revenue. Third, despite greater citizen awareness, voters still must cope with a scarcity of teams. Fans may realize that subsidized stadiums regressively redistribute income and do not promote growth, but they want local teams.

Alas, it is usually better to pay a monopoly an exorbitant price than to give up its product. Prospects for cutting sports subsidies are not good. While citizen opposition has had some success, without more effective intercity organizing or more active federal antitrust policy, cities will continue to compete against each other to attract or keep artificially scarce sports franchises.

Given the profound penetration and popularity of sports in American culture, it is hard to see an end to rising public subsidies of sports facilities. Related Books. Beyond Lending By Guillermo Perry. Andrew Zimbalist. Roger G. Economy U. This analysis is a clear indication that stadiums might not have sustainable or long-term economic benefits on local populations. A study conducted by Zimbalist indicated that stadiums and sporting facilities did have very little desirable effect on the economic position of a given neighborhood or city In this study, the researcher analyzed data from over 37 metropolitan areas that supported basketball, baseball, and football teams Zimbalist This analysis indicated that most of the cities that hosted a wide range of sporting activities continued to record reduced per capita earnings.

Schwarz et al. Although those working in lodgings and hotels near stadiums have been observed to record increased wages, Zimbalist observes that the income per year is usually low This analysis is a clear indication that sports facilities might not have feasible long-term or sustainable benefits. The collection of taxes is a practice that has been observed to improve the living standards of many people since the earnings are used to deliver a wide range of services.

In regions with many facilities, concessions, ticket sales, and parking fees have not been adequate to meet the needs of different people Cunningham This issue is complicated further by the fact that most of the targeted stadiums operate periodically, thereby affecting the economic welfare of different people.

This kind of information explains why analysts have concluded that many lobbyists rely on flawed economic impact assessment research studies to propose new facilities see Figure 2. The outcome is that governments spend huge sums of money to support the construction of sporting venues that might not be sustainable.

As stadium-related functions and activities emerge, many people decide to focus on other issues that might disorient the benefits generated by different facilities. This analysis shows that any sporting facility should be pursued with the aim of delivering different social gains instead of using them as engines for promoting economic growth. The above study supports the argument that sports facilities and stadiums might not have significant economic impacts on local economies.

The truth is that professionals and policymakers ignore or are unaware of this reality. Many people also support the construction of sports facilities in their localities hoping that they might transform their lives for the better. Cunningham, George B. Routledge Handbook of Theory in Sport Management. Routledge, Hong, Sung I. McLeod, Christopher M. Richardson, Samuel A. Schwarz, Eric C. Zimbalist, Andrew.

The Brookings Institution, Stadiums' Economic Impact on Local Economies. This paper was written and submitted to our database by a student to assist your with your own studies. You are free to use it to write your own assignment, however you must reference it properly.

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Owners pressure cities to fund stadiums by threatening to move the team. Is it fair that sports are powerful enough and have enough leverage to do this? What are the benefits and costs of cities building new stadiums? Stadium subsidies are a hot topic and a controversial issue not just in sports but also in society.

The cost of building new stadiums is astounding and continues to rise. Since , costs are still on the upswing. The "old" facilities function properly and hol Continue reading this essay Continue reading. Toggle navigation MegaEssays. Saved Essays. Topics in Paper. Example Essays. This leads us to my primary question: is the economic impact of stadiums in local communities significant enough to warrant the entire community paying for it?

The reasoning behind public financing of stadiums is predicated upon a belief that new stadiums will create a significant impact on the local community through increased jobs in the short-run and increased spending through tourism over the long-run. Another important reason why so many teams succeed in receiving public funding for stadiums is the threat of leaving and the corresponding dissatisfaction that residents have with the city after a team moves.

For example, when Seattle refused to pay for a basketball stadium in the city, owner Clay Bennett decided to move the team to Oklahoma City, renaming his team from the Seattle Supersonics to the Oklahoma City Thunder. On that account, the idea of public financing is nuanced, but it is rooted on questionable economic ideals and intimidation of local residents.

Unfortunately, the subsidies have not created the local impact that they promised. While proponents may talk about a multiplier effect, several theoretical and empirical studies of local economic impact of stadiums have shown that beliefs that stadiums have an impact that matches the amount of money that residents pay are largely unfounded. Further, a study by Noll and Zimbalist on newly constructed subsidized stadiums shows that they have a very limited and possibly even negative local impact.

This is because of the opportunity cost that goes into allocating a significant amount of money into a service like a stadium, rather than infrastructure or other community projects that would benefit locals. Additionally, it is important to consider that public financing is largely helping billionaires pay less for a service that they can afford. This dangerous precedent is an unnecessary privilege rather than a necessity.

These sports teams are supported by successful owners who are capable of funding stadiums themselves. The owners will be compensated handsomely through the profits received through ticket sales, corporate advertising, and concessions over the next several decades.

Public subsidies are an unfortunate power play used by these influential teams on local communities that are emotionally attached to sports teams, and a shift to making these projects private is going to be important moving forward. Furthermore, stadium construction in college sports is indicative of the precedent in professional sports. College sports, especially in historic, blue-blood programs, can affect communities just as strongly as professional sports teams can. However, Alabama was funded entirely by the school, carefully racking up profits before deciding to invest in a new stadium.

Starting something similar in professional sports could lead to a system of self-sustenance and owners considering stadium costs when deciding to purchase a new team. Over the last thirty years, building sports stadiums has served as a profitable undertaking for large sports teams, at the expense of the general public. While there are some short-term benefits, the inescapable truth is that the economic impact of these projects on their communities is minimal, while they can be an obstacle to real development in local neighborhoods.

Disclaimer: The views published in this journal are those of the individual authors or speakers and do not necessarily reflect the position or policy of Berkeley Economic Review staff, the Undergraduate Economics Association, the UC Berkeley Economics Department and faculty, or the University of California, Berkeley in general.

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