Sports Finance: The Professional Sports

Sports Finance:

The professional sports facilities can have attributes that are regarded as public goods by economists since they provide economic incentives to the entire society or community and not just to the athletes, franchise owners, and fans. The main goal of the development of the professional sports facilities is to enable a franchise and its owners to be practical i.e. To assist private investors in the franchise to make money. In relation to the construction of these professional sports facilities such as a facility that would house a major soccer league professional sport team, the main issue has been who should pay for the new sports facilities. This question or issue has been a major concern since the sport facility would be used by professional athletes and teams and the potential benefits it can bring to the entire society. Most of the debates surrounding the topic have focused on whether, how, and when the government should pay for the construction of a sports facility. While the issue has financial, economic, and socio-political dimensions, it has also included another concern on whether a community should institute a tax or levy on the general public to pay for bonds for a sport facility.

Financing a Sport Facility:

Since the costs of constructing new sporting facilities have increased to approximately $300 million, the process requires huge financial investments. As a result, there are various options for financing the construction of such facilities that include both private and public investments and arrangements (United States Sports Academy, 2001). Therefore, funding for the construction of a new sport facility that would house a major league professional sport team can be divided into two distinct groups i.e. private funding and public funding.

Private funding can be considered as a means of financing a new sport facility without a tax increase and minimal risk to taxpayers. In an ideal world, private funding has been commonly used to finance the construction of professional sports facilities and franchises that become profitable. The main reason attributed to the increased use of private funding investments is the fact that the main goal of developing a new sports facility is to enable the franchise and its owners to enable the private investors to generate money through the facility. However, the option of private funding is selected following an economic evaluation of the conditions that such financing would be positive and profitable.

Notably, private funding has advantages and disadvantages that make it viable and profitable to certain situations and unsuitable to others. The advantages of private funding include the fact that it does not include a tax increase, provides minimal risks to taxpayers, and enables private investors to make profits from the construction and operation of the sport facility. On the contrary, the main disadvantage of this financing option is that it may not be suitable for all communities since not every community has comparable strength in terms of private financial capacity for developing and operating a professional sports facility (Hodgson & Lefebvre, 2011).

Public funding is a means of financing the construction of a professional sports facility through the involvement of the general public in the process. This financing option include imposing luxury taxes, cash donations and contributions, sponsorships, lease agreements, advertising, naming rights, concessionaire, and bonds. Since they are a means of a city government to raise the needed money for constructing a sport facility, these bonds are usually referred to as municipal bonds. Public funding through taxes involves the enforcement of a levy or tax on the general public to pay for bonds for a sport facility. The advantages of public funding include the fact that it's appropriate for all market sizes and does not have limits to risk-taking and financial capacity. However, the disadvantages include the fact that it does not create positive net economic benefits to the community and enhances tax risks to the general public.

Imposing a Tax or Levy to Build a Sport Facility:

As previously mentioned, one of the major concerns that have emerged in the recent past is whether or not a community should impose a levy or tax to pay for bonds for a sport facility that would house a major league professional sport team. Historically, many taxation avenues have been used to pay for the development of a new sport facility. Since these avenues have included the federal, state, and local governments, they have effectively subsidized the professional sport franchises. Nonetheless, the arguments that have been raised in support of the existing tax policies have lost real credibility because actual studies have discredited exacerbated economic claims (Jensen, 2000, p.460).

In determining the most appropriate answer to this concern, several factors should be considered including the socio-political, economic, and finance dimensions as well as the current trends in financing the construction of a sport facility that would house a major league professional team. One of the recent cases that have raised huge concerns among the general public is the current situation in Miami where a major league baseball team, Miami Marlins, had a stadium built with taxpayers' money. This facility was developed on the promise that the team owner would take every measure to put a championship team in the new stadium within one year of the completion of construction. According to claims by ESPN radio, tax payers were hood winked by the owner to pay for the stadium since he is having a firesale of sorts that has forced him to unload all the high-salaried players in attempts to put out a competitive team.

From an economic perspective, the existing economic literature has indicated that public funding of sport facilities does not create positive net economic benefits for the community. These economists have argued that what really happens is that sport facility projects simply divert economic resources from other geographical regions or parts of the city instead of generating economic growth to the community. Therefore, the construction of a new sport facility does not increase the local revenue pie, but simply changes the division and allocation of the pie. From this perspective or dimension, a tax or levy should not be instituted by the community to the general public to pay for the construction of a sport facility that would house a major league professional team.