Stadium Construction New Sports Facilities

Stadium Construction

New sports facilities do not stimulate local economies.

The purpose of this study is to examine: (1) the lack of benefits to the local community as a result of new stadium construction, (2) the lack of economic improvement in areas where new stadiums have been constructed, and (3) how the costs of building a new stadium outweigh the benefits. The essay will be written with the average tax paying citizen in mind and intended to dissuade those who have a vote in such referendums.

New stadium construction is a contentious issue at best with proponents stating the many reasons that can be found to support construction of a new stadium while opponents state the unrealistic view of many of the supporting reasons provided by those who desire that a stadium be constructed in their community, town or city.

FACTORS AFFECTING NEW STADIUM CONSTRUCTION

The work of Marcheck (2004) entitled: "Minor Baseball Stadium Construction" states that the process of constructing "a new sports facility is much more complicated than the physical act of building the venue." There are stated to be four primary factors that must be managed in construction of a stadium including:

public and political support; land acquisition; physical stadium construction; and financing issues. (Marchek, 2004)

Key findings in Marchek's report on new sports facility construction include the following:

Political support is essential to secure funding - a well reasoned business plan, and logical finance plan, are, alone not sufficient to garner public funding. To be successful, a team or development group must work to gain the support of key public officials, especially the ones that have influence over budgeting matters.

Political support is hard to predict - for a myriad of reasons, stadium construction projects can easily fall to the bottom of the priority list for civic leaders. Thus, in order to attract attention and support for the project, a strong PR and/or advocacy campaign aimed at generating support at the grassroots level can be very important;

Downtown Model - hot trend in stadium construction over past 10+ years - for reasons of accessibility, urban revitalization, and additional revenue generating opportunities, the construction of new stadiums in urban areas, as opposed to suburban areas has become the dominant trend in stadium construction over the past decade;

Municipal bonds are primary financing vehicle for publicly funded stadiums - low interest, long-term municipal bonds are responsible for up to 85% of the capital structure of stadium projects that are financed with public funds. Often the team use concessions, parking revenue, and special taxes to generate the revenues for debt service on these obligations. In addition, stadium-naming rights have become an expected source of revenue generation related to debt service. (Marchek, 2004)

In the event that the stadium project is not supported by the public then public funding will not be available and will be reliant on:

1) Grassroots support; and 2) Political support. (Marchek, 2004)

Marchek states that this distinction is "important to make, because although Grassroots support can lead to political support, political support does not always lead to grassroots support, political support does not always lead to grassroots support." (2004) This is a complicated process in and of itself as political support is one of the most "unpredictable - variable facing a group that is trying to coordinate a stadium construction project. Even the best-laid plans can fail to garner the support of civic leaders for a myriad of reasons, many of which have nothing to do with the project itself." (Marchek, 2004) Marchek states that this is due to many factors but may include those as follows:

Timing of an election;

Issues of an Upcoming Election;

The State of the Local Economy;

Pecking order of proposed projects; and Public Support for the Project. (Marchek, 2004)

Another key issue is that relating to land acquisition which involves careful selection of the site for the construction. For example, traditionally there have been two stadium models:

1) the downtown model; and 2) the suburban model both of which has advantages and disadvantages. There are also serious issues relating to the stadium design and construction and the financing issues are quite complicated in nature.

The work of Jimmy Nesbitt (2008) entitled: "Two Measures of Stadium Reveal Different Results" states that Whataburger Field, home of the Houston Astros double a affiliate Corpus Christi Hooks, "opened in 2005 after voters approve a one-eighth cent sales tax increase to pay for the $27.7 million stadium..." The report states that the stadium had been "projected top make money or break even" however it is reported that "if you were to include the cost for all insurance and everything it truly costs us to operate, it loses money. The city subsidizes around $800,000 a year for insurance expenses, management fees and computers and other equipment used for arena operations." (Nesbitt, 2008)

Ronald a. Wirtz (2001) reports in the work entitled: "Stadium and Convention Centers as Community Loss Leaders" that it has been indicated by current research findings that stadiums "have a particularly bad track record when it comes to delivery on promises of community economic windfalls." Additionally stated is that Mark Rosentraub and Mark Swindell, university researchers state findings following three decades of study that "lead to the inescapable conclusion that the direct and indirect economic impacts of sports teams and the facilities are quite small and do not create much in the way of new jobs or economic development." (Wirtz, 2001) According to Rosentraub "Given the relatively small to nonexistent benefits from teams sports at the higher levels, one should not expect anything or very, very little from minor league activities." (Wirtz, 2001)

Also reported is the statement of Brookings Institution's book of sports teams and stadiums which "noted the economic impact of a minor league baseball team is "equivalent to a large pet shop" in terms of revenue. A 1994 report investigated the impact of a $6 million stadium for a minor league baseball team in La Crosse, Wis. The report estimated total new annual spending at about $500,000, noting the impact was "substantially smaller" than claimed by stadium proponents. It suggested that public subsidies for such projects "should be carefully studied." (Wirtz, 2001)

Wirtz states that there is a problem in the position taken by advocates who rely on "models and assumptions that are very wrong..." since these models are "simply unrealistic." (2001) the greatest part of analysis is inclusive of "average spending estimates for local and nonlocal event goers. These figures are usually provided by local or national associations..." (Wirtz, 2001)

Additionally "...compounding any errors in average spending are estimates on the ratio of out-of-town attendees, who are assumed to spend significantly more on meals and lodging than local event goers. And the trifecta for some reports on economic impact is the inclusion of spending multipliers -- the number of times a dollar will be spent or turned over once it is brought to a community. Kaatz said he's seen reports with multipliers as high as six; he believed a more reliable multiplier was about two on the high end." (Wirtz, 2001) These factors can lead to "significantly different" and often deceptive conclusions.

Wirtz reports "Fargo, N.D., recently proposed building a new multiuse arena to host college hockey and other events. A study of the proposal by Maxfield Research estimated the direct economic impact of the facility at between $3.8 million to $4.4 million; a second analysis by a local university economist tagged the impact at $8.8 million to $15.3 million. Much of the gap stemmed from differing assumptions regarding out-of-town attendees and their spending habits. Voters apparently were unimpressed by the conclusions of either study, as a $48 million referendum on the facility last year "got thumped pretty bad," according Pat Zavoral, Fargo city administrator." (2001) Wirtz states that often the impact reports fail to consider other important issues or factors and specifically those referred to by economists as "substitution effects - where spending for one activity merely replaces spending on other previous activities." (Wirtz, 2001) in other words, spending on games and concerts was spending previously claimed by other businesses in town such as bowling alleys and movie theaters therefore the spending is simply a shift in spending rather than additional spending or revenue realized by the city or town in which the stadium is located.