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STADIUM ECONOMICS: SHOW ME THE MONEY!!

• Stadium Trends

• Arguments for Public Funding of Stadiums

• Arguments against Public Funding of Stadiums

• The Dollar Value of Purple Pride– Who should pay? Fans Vs. Non-fans

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Stadium Characteristics in 1950

• In 1950, most pro-sports teams played in privately owned stadiums or arenas

• Most pro-football teams were the tenants of pro-baseball teams & played football games around the baseball schedule

• All pro-hockey teams played in private arenas• Many pro-basketball teams played in college

arenas & played their games around the collegiate schedule

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Public Ownership & Stadium Size 1950 Vs. 1991

30.5026.09

43.51

77.67

0.00

10.00

20.00

30.00

40.00

50.00

60.00

70.00

80.00

90.00

% Public Vs. Private Ownership Median Capacity (in Thousands)

1950

1991

19501991

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Stadiums in the 90’s• In the 1990’s U.S. cities spent $5,298m on 57 new

venues in the four major pro sports (NFL, NBA, NHL, MLB).- Depken (2003)

• Public contribution averaged $218m each (approx. 66% of

cost)- Depken (2003)– Average capacity of all new arenas: 35,727

– Average total cost per seat: $6,613

– Average public cost per seat: $4,534

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New Super-Stadiums of the NFL

Reliant Field (Houston)• Capacity: 69,500• Cost: $449 Mil• Public Money: $309

Mil

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New Super-Stadiums of the NFL

Ford Field (Detroit)• Capacity: 64,355• Cost: $500 Mil• Public Money: $125

Mil

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New Super-Stadiums of the NFL

Gillette Stadium (New England)

• Capacity: 68,800• Cost: $397 Mil• Public Money: $72

Mil

8

New Super-Stadiums of the NFL

Seahawk Stadium (Seattle)• Capacity: 67,000• Cost: $360 Mil• Public Money: $300 Mil

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Arguments for Public FundingIndirect Benefits (Benefits not accruing to the team)

• The Multiplier Effect – Job creation in the stadium/downtown area due

to team & stadium related activities

• A pro-team will attract more corporations to the area because of the “Major League” image of the city

• Community service by players

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Arguments for Public Funding

Direct Benefits (Benefits to the team & the fans)• Team can afford better players & contend for a

championship• Enhances civic pride from living in a major league city• Entertainment value for the fans

– Consumer Surplus of fans that attend

– Public Good aspects of telecasts

• Team Relocation as a last resort.

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Arguments against Public FundingAcademic studies find that:• The multiplier effect is overestimated in studies

by consultants hired by teams seeking new stadiums. – These studies fail to account for the substitution effect

• Stadiums are not a significant factor in explaining Income in the SMSA

• The $ value of satisfaction that fans derive net of ticket prices is not large enough to generate public subsidies for stadiums.

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Arguments against Public Funding

• Stadium moves not only increase revenues through higher prices and attendance but lower costs through favorable rental agreements.

• Most rental agreements provide attendance based rents. This shifts the risk to the landlord.

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Baseball Stadiums

• The typical pattern in baseball stadiums is one in which the stadium gets most or all of the revenue from parking.

• Teams get most or all of the revenue from the sale of programs & novelties and food and drink revenues are split between 1/3 and ½ with the rest going to the team.– TWINS RENT $0.

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New MLB Stadiums & Attendance 1990-2000(Depken, 2003)

2.18 3.01 2.04

00.5

11.5

22.5

33.5

Average Annual Attendance

Mil

lion

s

MLB Average New Stadiums Old Stadiums

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New MLB Stadiums & Win% 1990-2000 (Depken, 2003)

500 543.52 492.51

350

400

450

500

550

600

650

Team Win PercentagesMLB Average New Stadiums Old Stadiums

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New MLB Stadiums & Ticket Prices 1990-2000 (Depken, 2003)

41.058 53.088 38.987

0

10

20

30

40

50

60

Team Payrolls

Mill

ions

200

0 D

olla

rs

MLB Average New Stadiums Old Stadiums

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New MLB Stadiums & Profits 1990-2000 (Depken, 2003)

3.803

13.343

2.16102468

10121416

Team Profit

Mill

ion

s 20

00 D

olla

rs

MLB Average New Stadiums Old Stadiums

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Why do we keep building new stadiums with Public Funds?

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What fuels the stadium debate?

• The average willingness to pay for a new stadium from a random sample of 1400 Minnesotans which includes a valuation of civic pride and indirect benefits was $22.26.

• This implies a statewide total WTP of approximately $111 million.

• The new Vikings stadium will cost about $550 million

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Why do we keep building new stadiums with Public Funds?

• Different people place different values on stadiums & sports.

• The average willingness to pay for a new stadium from a sample of Vikings fans that attend games was $312.52

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Who should pay for the new stadium?

• It is economically inefficient to tax citizens that do not use the stadium or follow the team on T.V.

• Fans can finance a large part of the cost of new stadiums through tradable seat licenses because they value the team at a much higher amount than non-fans.

• Cities should form a buyers action group that can negotiate with cartels like the NFL, NBA etc.