Post by TheShadow on Jul 8, 2007 9:12:18 GMT -5
www.sfgate.com
BENEFITS: Different interests for teams, fans and communities
By Roger G. Noll
The Bay Area is on the cusp of a stadium boom.
The Oakland A's have selected a stadium site in Fremont that would allow them to escape the baseball-unfriendly mess that was made of the Coliseum to accommodate the Raiders. The 49ers are considering two football stadium sites, one on the Great America parking lot in Santa Clara and the other a toxic waste site at Hunters Point in San Francisco. A's owner Lewis Wolff wants a new soccer stadium for the Earthquakes in south San Jose. And Cal has plans to renovate its football stadium.
With the San Francisco Giants, Golden State Warriors and Stanford football happily ensconced in upgraded facilities, the Bay Area is on the verge of moving from last to first in sports venues.
But are these new stadium plans really a good fit for the fans, the teams and the cities' taxpayers?
For fans, a new facility is a nicer place to watch a game because the design and technology of sports facilities has improved. These benefits, however, can be offset if a new facility is less convenient, whether that translates into longer travel times to the stadium or more headaches in the
parking lot.
All the proposed facilities involving the 49ers, A's and Earthquakes have fan convenience problems.
Hunters Point, one of the sites under consideration by the 49ers, is farther from Highway 101 than the team's current home, Monster Park. The other proposed site, Great America, is near Highways 101 and 237, but lacks nearby mass transit. More worrisome for the fans, the smaller Great America site would require a parking structure, which is less suited for tailgating and takes longer to enter and exit.
Currently, the 49ers' fan base is centered in San Mateo County, with many from the North Bay. If the 49ers move to Santa Clara, the fan base would shift south, because travel times would increase for fans from San Francisco, Oakland and other points north.
As for the A's, the Fremont site is less convenient than the Coliseum. Both are near highly congested Interstate 880, but the Fremont site is 5 miles from the nearest BART stop. Even with shuttle buses between BART and the stadium, the distance would add significant travel time, especially during rush hour on weeknights. A's fans north of the San Mateo Bridge would find the new facility less convenient by car, while fans from the South Bay and the Pleasanton-Livermore area (who can use Interstate 680) would prefer Fremont.
The proposed Earthquakes facility is near the intersection of Highways 85 and 101 and the terminus of the San Jose light rail, making local access good. But for fans from Oakland and San Francisco, the stadium might as well be in Sacramento. Still, the site is only somewhat more remote and has easier access than the San Jose State football stadium, so old Earthquake fans should find the new site attractive.
The teams themselves look at these stadium proposals from a different perspective. For the sports franchises, a new facility is a good idea only if the team can earn a reasonable return on its share of the investment.
The Bay Area proposals all involve direct or implicit subsidies, but these are relatively small compared with the open-wallet era of stadium construction in the 1990s. And in each case, the local team will be required to make a substantial investment.
In general, sports facilities are not good investments. Owners can add more concessions and high-cost seating such as luxury suites and theater-style reserve seats. But even during the robust early years of the stadium, these features bring in annual profits of only $25 million to $50 million -- not enough to justify an investment of $500 million.
For a stadium investment to make sense, the team needs some free money. One potential source is a subsidy, such as a 49ers proposal in which Santa Clara would donate part of the reserves from its municipally owned utility. Another potential source is personal seat licenses, which amount to a price increase for season tickets that, when tied to a new stadium, seems not to generate as much fan resistance as an ordinary price increase.
But the big innovation in stadium finance is to tie the stadium to a real estate deal.
The original 49ers plan was to replace Candlestick with a stadium, a shopping center and perhaps a gambling casino. The A's and Earthquakes facilities are tied to larger developments that require rezoning large, undeveloped parcels. The expectation of the team is that by making the stadium part of a larger development, the team will earn an adequate overall return on investment.
The 49ers proposals do not include other developments, and so are less attractive to the team. But the 49ers hope to offset this liability by receiving a subsidy from the National Football League. Until recently, the NFL managed a fund to help finance new stadiums, but this program no longer exists. So unless the 49ers have reached an understanding with fellow NFL members, there is some risk that this subsidy will not be forthcoming.
For local governments and their taxpayers, the desirability of a facility depends on two things: the magnitude of the subsidy for the team, and the impact of the stadium on the local economy and local tax revenues.
The Bay Area was the first to express reluctance at giving teams huge subsidies. Despite claims that the failure to provide hundreds of millions of dollars would cause the departure of teams, only the Raiders left -- and then limped back when Los Angeles failed to come up with a highly subsidized new facility.
Last November, voters in Pasadena, Sacramento and Seattle rejected proposals for new pro sports facilities by overwhelming margins. As a result, local teams are not likely to receive a huge subsidy to move elsewhere.
All the Bay Area proposals reflect the new political reality of stadium financing. None involves subsidies of as much as half the total cost. But the question remains: Can cities expect a significant financial benefit that will offset their investment?
The economic benefits of a sports team are the most contentious issue surrounding new stadiums. Economic consultants working for teams typically claim annual benefits to a city of hundreds of millions of dollars, thereby implicitly offsetting even a 100 percent subsidy in a few years. If true, these returns would make sports facilities a terrific investment -- sort of like getting stock options from Google just before its initial public offering.
But these studies vastly overstate the economic returns of sports facilities. Before-and-after studies of new stadiums show no statistically significant effect on local employment, income and retail sales, and more often than not the effect can be slightly negative. These results make sense. Sports teams employ few people in relation to the revenue they generate. To the extent that fans reduce spending on other entertainment and recreation to attend sports events, the effect is to reduce employment. Moreover, many professional athletes do not live where their team plays, so less of their high salaries are spent in the local economy.
For local governments, sports facilities generate only a limited amount of new tax revenue. Typically, stadiums are exempted from property taxes. Facilities do generate sales tax from tickets and concessions, but most of this goes to the state. Local governments are not likely to collect more than a few million dollars per year in new revenue, which is not sufficient to justify an investment of $100 million or more.
When stadiums are part of larger developments, the local economic impact can be more favorable. Residential development generally is not exempt from property tax. Shopping centers provide sales taxes. Yet the tax return would be even larger if the stadium were not part of the package.
Notwithstanding the limited local economic benefit of a sports team, citizens still may regard a public subsidy as worthwhile. But the basis for this conclusion must lie in the consumption value of having a local team, rather than the return on public investment. Cities invest in many cultural and recreational facilities that do not earn much return on investment, such as libraries, playgrounds and high school sports facilities. Whether stadiums for pro teams fall in this category is up to citizens to decide for themselves.
Roger G. Noll is professor emeritus of economics at Stanford University, and is the co-author of "Sports, Jobs and Taxes," a study of the economic impact of sports facilities.
BENEFITS: Different interests for teams, fans and communities
By Roger G. Noll
The Bay Area is on the cusp of a stadium boom.
The Oakland A's have selected a stadium site in Fremont that would allow them to escape the baseball-unfriendly mess that was made of the Coliseum to accommodate the Raiders. The 49ers are considering two football stadium sites, one on the Great America parking lot in Santa Clara and the other a toxic waste site at Hunters Point in San Francisco. A's owner Lewis Wolff wants a new soccer stadium for the Earthquakes in south San Jose. And Cal has plans to renovate its football stadium.
With the San Francisco Giants, Golden State Warriors and Stanford football happily ensconced in upgraded facilities, the Bay Area is on the verge of moving from last to first in sports venues.
But are these new stadium plans really a good fit for the fans, the teams and the cities' taxpayers?
For fans, a new facility is a nicer place to watch a game because the design and technology of sports facilities has improved. These benefits, however, can be offset if a new facility is less convenient, whether that translates into longer travel times to the stadium or more headaches in the
parking lot.
All the proposed facilities involving the 49ers, A's and Earthquakes have fan convenience problems.
Hunters Point, one of the sites under consideration by the 49ers, is farther from Highway 101 than the team's current home, Monster Park. The other proposed site, Great America, is near Highways 101 and 237, but lacks nearby mass transit. More worrisome for the fans, the smaller Great America site would require a parking structure, which is less suited for tailgating and takes longer to enter and exit.
Currently, the 49ers' fan base is centered in San Mateo County, with many from the North Bay. If the 49ers move to Santa Clara, the fan base would shift south, because travel times would increase for fans from San Francisco, Oakland and other points north.
As for the A's, the Fremont site is less convenient than the Coliseum. Both are near highly congested Interstate 880, but the Fremont site is 5 miles from the nearest BART stop. Even with shuttle buses between BART and the stadium, the distance would add significant travel time, especially during rush hour on weeknights. A's fans north of the San Mateo Bridge would find the new facility less convenient by car, while fans from the South Bay and the Pleasanton-Livermore area (who can use Interstate 680) would prefer Fremont.
The proposed Earthquakes facility is near the intersection of Highways 85 and 101 and the terminus of the San Jose light rail, making local access good. But for fans from Oakland and San Francisco, the stadium might as well be in Sacramento. Still, the site is only somewhat more remote and has easier access than the San Jose State football stadium, so old Earthquake fans should find the new site attractive.
The teams themselves look at these stadium proposals from a different perspective. For the sports franchises, a new facility is a good idea only if the team can earn a reasonable return on its share of the investment.
The Bay Area proposals all involve direct or implicit subsidies, but these are relatively small compared with the open-wallet era of stadium construction in the 1990s. And in each case, the local team will be required to make a substantial investment.
In general, sports facilities are not good investments. Owners can add more concessions and high-cost seating such as luxury suites and theater-style reserve seats. But even during the robust early years of the stadium, these features bring in annual profits of only $25 million to $50 million -- not enough to justify an investment of $500 million.
For a stadium investment to make sense, the team needs some free money. One potential source is a subsidy, such as a 49ers proposal in which Santa Clara would donate part of the reserves from its municipally owned utility. Another potential source is personal seat licenses, which amount to a price increase for season tickets that, when tied to a new stadium, seems not to generate as much fan resistance as an ordinary price increase.
But the big innovation in stadium finance is to tie the stadium to a real estate deal.
The original 49ers plan was to replace Candlestick with a stadium, a shopping center and perhaps a gambling casino. The A's and Earthquakes facilities are tied to larger developments that require rezoning large, undeveloped parcels. The expectation of the team is that by making the stadium part of a larger development, the team will earn an adequate overall return on investment.
The 49ers proposals do not include other developments, and so are less attractive to the team. But the 49ers hope to offset this liability by receiving a subsidy from the National Football League. Until recently, the NFL managed a fund to help finance new stadiums, but this program no longer exists. So unless the 49ers have reached an understanding with fellow NFL members, there is some risk that this subsidy will not be forthcoming.
For local governments and their taxpayers, the desirability of a facility depends on two things: the magnitude of the subsidy for the team, and the impact of the stadium on the local economy and local tax revenues.
The Bay Area was the first to express reluctance at giving teams huge subsidies. Despite claims that the failure to provide hundreds of millions of dollars would cause the departure of teams, only the Raiders left -- and then limped back when Los Angeles failed to come up with a highly subsidized new facility.
Last November, voters in Pasadena, Sacramento and Seattle rejected proposals for new pro sports facilities by overwhelming margins. As a result, local teams are not likely to receive a huge subsidy to move elsewhere.
All the Bay Area proposals reflect the new political reality of stadium financing. None involves subsidies of as much as half the total cost. But the question remains: Can cities expect a significant financial benefit that will offset their investment?
The economic benefits of a sports team are the most contentious issue surrounding new stadiums. Economic consultants working for teams typically claim annual benefits to a city of hundreds of millions of dollars, thereby implicitly offsetting even a 100 percent subsidy in a few years. If true, these returns would make sports facilities a terrific investment -- sort of like getting stock options from Google just before its initial public offering.
But these studies vastly overstate the economic returns of sports facilities. Before-and-after studies of new stadiums show no statistically significant effect on local employment, income and retail sales, and more often than not the effect can be slightly negative. These results make sense. Sports teams employ few people in relation to the revenue they generate. To the extent that fans reduce spending on other entertainment and recreation to attend sports events, the effect is to reduce employment. Moreover, many professional athletes do not live where their team plays, so less of their high salaries are spent in the local economy.
For local governments, sports facilities generate only a limited amount of new tax revenue. Typically, stadiums are exempted from property taxes. Facilities do generate sales tax from tickets and concessions, but most of this goes to the state. Local governments are not likely to collect more than a few million dollars per year in new revenue, which is not sufficient to justify an investment of $100 million or more.
When stadiums are part of larger developments, the local economic impact can be more favorable. Residential development generally is not exempt from property tax. Shopping centers provide sales taxes. Yet the tax return would be even larger if the stadium were not part of the package.
Notwithstanding the limited local economic benefit of a sports team, citizens still may regard a public subsidy as worthwhile. But the basis for this conclusion must lie in the consumption value of having a local team, rather than the return on public investment. Cities invest in many cultural and recreational facilities that do not earn much return on investment, such as libraries, playgrounds and high school sports facilities. Whether stadiums for pro teams fall in this category is up to citizens to decide for themselves.
Roger G. Noll is professor emeritus of economics at Stanford University, and is the co-author of "Sports, Jobs and Taxes," a study of the economic impact of sports facilities.