Transcript Trends in Sport Facility Investment

FACILITY FINANCING
CHAPTER 9
TERMS
Subsidies
Subsidizing construction
Infrastructure Subsidies
Operational subsidies
Gestation Era
Public Subsidies Era
Transitional Era Subsidies
Fully Loaded Era
MLB (A58)
Tax Reform Act 1986
Deficit Reduction Act Of 1984
Sport Facility Investments
• There are three types of investment:
• A. Subsidizing Sport Facility Construction
• This is the amount given toward building a sport facility.
Types of Investments
B.Infrastructure
Subsidies:
This is the amount
that government
acquires site and/or
services (water,
electricity, security,
and etc.)
• C. Operational Subsidies:
• The lease agreement between
government and the teams who
play in the venues.
The Four Eras of Stadium Subsidies
• A. Gestation Era 1961-1969
• B. Public Subsidies Era 1970-1984
• C. Transitional Era 1985-1994
• D. Fully Loaded Era 1995-2003
(Era of subsidies continued)
• Gestation Era 1961-1969
• During this era, it was common
for the government to finance
and construct facilities for the
franchise team.
• This is done through a lease
agreement in which the
government is the landlord.
• During this time, this occurred
in the Midwest and East coast.
• Public Subsidies Era 1970-1984
• Popularity of sports grew
tremendously. Funding was
perceived to be the exclusive
responsibility of public
entities.
• They used bonds or revenue
bonds redeemed by sales tax
Era of subsidies continued)
• Transitional Era 1985-1994
• Fully Loaded Era 1995-2003
• This era saw the government
assumed less of the proportion of
financing new sport facilities.
• This era saw 47 new major new
facilities were built.
• The Deficit Reduction Act of 1984
which prohibit the use of taxexempt bonds to finance luxury
boxes. The Tax Reform Act of
1986 prohibit use for new sport
facilities.
• Most facilities were financed by
private-public
• partnership.
FINANCING SOURCE OF BUILDING STADIUM
Stadium Funding Sources
Trends in the Minor Leagues
• There has been a resurgence of interest
in minor league games, attendance at
minor league games exceeded 38.8
million.
• The attendance increases have urged for
bigger and better stadiums.
• MLB incorporated Attachment A58 to the
Professional Baseball Agreement. It
specifies standards for minor league
stadiums.
• Non-compliance of A58 means minor
franchise would lose their major league
affiliation and player development
contracts.
GREER STADIUM
BENEFITS
• Positive externalities:
Sports teams and owners
Leagues
Fans/patrons
Cities/municipalities
• Public good
• Psychic impact
• Controversies
• Franchise free agency
Positive externalities –
overflow effects like the
creation of new jobs,
growth in related
businesses.
Can help justify public
investment in a private
business.
In the sport industry, this
includes local businesses
like bars, restaurants,
hotels, and retail stores.
Radio and newspapers also
benefit from sport
Historical Changes in Financing
Phase 1 – private
sources of revenue
Phase 2 – general
obligation bonds
(GOBs)
•Phase 3 – changing
array of complex and
creative financing
methods:
GOBs – Debt and interest
paid out of local
government general funds
Modern period
•Initial public funding sources sales taxes, property taxes, and
stadium rent, but increasingly
came from hotel and rental car
taxes and others.
•Private sources - capitalizing
revenue streams from the
facility (e.g., naming rights,
premium seating, and
sponsorships) and borrowing
against those to pay for
construction.
Laws of Interest in Building Facilities
• 1984 Act – Prevented tax
exempt bonds for financing
luxury suites
• 1986 Act – Prohibited tax
exempt bonds for facility
where a single organization
was responsible for 10% of
more of revenues generated in
facility (Private Use Test)
• Changes caused interest rates
in bonds to increase.
Public Financing―
Direct Revenue Sources
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Sales tax
Tourism / food &
beverage taxes
Sin taxes
Sale of government
assets
State appropriations
Sales Tax Funding
for Facility Construction
Facility Funding Through Tourism and Food
and Beverage Taxes
COORS FIELD & LUCAS OIL STADIUM
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Public Financing―
Direct Revenue Sources
Ticket or parking taxes /
surcharges
Lotteries / gaming revenues
Player income taxes
Utility and business taxes
Reallocation of existing budget
Public Financing―
Indirect Sources
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Land donations
Infrastructure
improvements
Tax abatements
• Land – Brooklyn Nets, St. Louis
Blues
• Infrastructure – St. Louis
Cardinals
Parking Taxes
Trends in Colleges
• There has been an increase the number of college stadiums either
renovated or expanded.
• 1. The best student athletes and the best coaches are attracted to
institutions that have the best facilities.
• 2. The football pot is lucrative with bowl payouts, football T.V.,
and NCAA College Basketball Championships.
• 3. Division I schools are using the sale of premium seating as the
basis for financing major facility improvements.
COLLEGE FOOTBALL STADIUMS
Observations:
• 1.Americans spend three times as much money on flowers, seeds,
and potted plants as they do on spectator sports.
• 2. A major university is not only larger than any sports team, but
may exceed the size of an entire league.
• 3. Teams are cultural icons which people identify with and are
willing to pay for.
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Factors Contributing to Enhanced Private
Sector Investment in Professional Facilities
• 1. Opportunity Costs
• 2. The Equity Issue
• 3.Owner Leverage
• 4. The Community Power Structure
• 5. The Increasing Costs Stimulus
• Students are to add these words to your terms. Turn them in with
the other term on or before the 19th.