Experts agree that cities wooing professional sports teams with lucrative arena deals makes little financial sense. So what is the value of such arrangements? Call it the ...
By Mark Kreidler - Bee Staff Writer
Last Updated 12:32 am PDT Sunday, October 15, 2006
http://www.sacbee.com/100/story/39796.html
In New Orleans, the song remains the same. Barely half of the city's 485,000 residents have returned to the area full time, the post-Hurricane Katrina devastation is still visible from almost every angle, thousands of homes remain uninhabitable, and officials acknowledge a major decrease in the tax base.
But when the NFL's Saints played their first home game of the season last month, they did so in a Louisiana Superdome that had undergone a comparatively speedy $185 million restoration despite the region's financial woes -- and nary a complaint was heard.
Why?
"Just the positive energy that it sent out to everybody here," said Pat Henry of the French Market Corp., which operates businesses in New Orleans' historic French Quarter.
"Everybody is looking forward to things someday being back to normal," Henry said. "Seeing the Superdome was like saying: 'We're open for business. We want you here.' It's a big boost."
The New Orleans situation represents an extreme case study in one of the most ethereal discussions related to Sacramento's arena issue: the presumption of a positive energy -- a good feeling, for lack of a better way to describe it -- that accompanies the presence of major professional sports in a city.
Increasingly, sports economists have seized upon this "feel-good" concept to explain what otherwise appears to make little sense: why cities continue to pursue pro franchises and enter into arena- or stadium-building agreements, historically a money-losing venture for them.
"What is widely agreed among economists is that sports infrastructure development does not pay off financially for communities," said John Siegfried, an economist at Vanderbilt University in Nashville, Tenn. "The puzzle, then, is why the argument usually is made in favor of the subsidies."
Academic study after study has led to the same conclusion: In general, public subsidies of sports facilities for privately owned teams don't pan out. From giving favorable rents to the teams to surrendering such lucrative income as parking, concessions and luxury-box fees, cities usually wind up with the short end of the financial stick.
Beyond that, the idea that a new arena will kick-start development has been found wanting. As economist Andrew Zimbalist notes, "Independent work on the economic impact of stadiums and arenas has uniformly found that there is no statistically significant positive correlation between sports facility construction and economic development."
San Diego's Petco Park, a public-private partnership, is a notable exception, with development valued at more than $1.4 billion having sprung up around its Gaslamp Quarter since the baseball stadium was approved in 1998 (a new funding bond was approved in 2001). Far more commonly, though, studies have found cities routinely losing millions of dollars annually from their facility agreements with the local pro teams.
Yet Seattle contributed hundreds of millions of dollars over the past decade to fund new NFL and Major League Baseball venues, Charlotte built a basketball arena on taxpayer money, Oklahoma City and Kansas City spent for new basketball venues without yet having the pro tenants to anchor them, and Orlando just agreed to commit public money to a new arena for the NBA's Magic. What gives?
In each case, both public officials and private citizens at some point touched on the feel-good factor in explaining their decisions to go forward, often citing either in the pride they derive from having a team in town or the national exposure that accompanies it.
With increasing interest, economists are tracking such comments in an effort to quantify sports' intangible effects on communities. If having a team in town is a good thing, either spiritually or motivationally, how much is that worth?
"It's not an issue of whether these values exist. Clearly, they do," said Rod Fort, an economist at Washington State University. "(But) if it's really true that a place has these values, then people should be willing to pay to live there."
A 2004 report nibbled at that question. Studying NFL cities between 1993 and 1999, Gerald Carlino and Edward Coulson found that the presence of an NFL team, on average, raised annual rents in those cities by 8 percent. Wages in cities that hosted NFL teams were an average of 2 percent lower than in comparably sized non-NFL cities, a figure that is statistically insignificant but supports the notion that people will pay more -- and perhaps be willing to earn slightly less -- in a city with pro football than in one without it.
Carlino and Coulson argued that if people like having pro sports in their communities, they are presumably willing to pay for it, "if not directly through the purchase of season tickets, then indirectly through an increased willingness to pay for housing in the area and an increased willingness to accept marginally lower wages."
Their report has been criticized by other economists as too vague to be useful. But a 2005 study conducted by urban affairs expert Mark Rosentraub, to be reported in the upcoming International Journal of Sports Finance, found that "the intangible benefits received by Indiana residents more than offset the public's investment in a new facility to retain the Indianapolis Colts."
And in 2000, three researchers surveyed Pittsburgh residents to determine how much they'd be willing to pay in higher taxes to keep the Penguins of the NHL from leaving town. The average response: $5.57 per household, which, when multiplied by Pittsburgh's 960,000 households, came to around $5.2 million per year -- or $66 million overall, assuming 8 percent interest and a stadium life of 30 years. The study suggested that, under certain circumstances and within limitations, the public investment in a facility may be economically justified, not merely a vanity purchase.
With Arco Arena just cresting at 20 years old, information presuming a 30-year shelf life may be considered tangential to the local debate. But Sanjay Varshney, business school dean at Sacramento State, said the value of national exposure -- a side benefit to having a pro team in town -- is not to be dismissed lightly.
"Clearly, right now Sacramento is on the national map because of the Kings," Varshney said. "We're not on the map because people know us as the capital of California, or because Intel or HP" have divisions in the region.
"There is an intrinsic value in Sacramento being on the map. With the Kings, Sacramento has made national headlines for the right reasons, not the wrong reasons."
Vanderbilt's Siegfried said he has seen that perspective take shape in other cities, and it raises several issues. One is the difficult-to-track psychological benefit, "such as residents of Jacksonville and Nashville believing they are in a major-league city because they have NFL franchises, but people living in Los Angeles (with no NFL team) are in a backwater hick town," Siegfried said.
"Should these views count even if only the people in Jacksonville and Nashville believe it, and the rest of the country is mocking them?" Siegfried asked. "If we say no, then we are on a slippery slope to saying that consumer preferences are not the best way to decide the relative value of things, and that is a death blow to capitalism.
"If we say yes, we feel silly because hardly anyone outside of Jacksonville thinks it is more of a major-league city than Los Angeles. Tough issue. No right answers."
In the end, Siegfried suggests, what matter most are likely a community's own sense of its team's worth and how the team's leaving would affect the local psyche and profile.
"Unless the Kings would really leave in the absence of a new arena, there are very few benefits (to building a new one)," Siegfried said. "The Kings are already there, and so Sacramento is a big-league town."
Washington State's Fort notes that cities routinely fund museums and the arts "because we consider them an important part of what we want a community to be. ... To deny that sports is a part of our culture is to deny a large part of American life."
In New Orleans, meanwhile, the questions clearly outnumber the answers, including the Saints' long-term viability in a market that has suffered heavy corporate losses. But as for the stadium's quick remodeling, much of which was paid for by Federal Emergency Management Agency funds, its short-term value has not been in dispute.
"Everybody knows that the next day (after a game), they'll be back doing what they've been doing, which is trying to recover and get things going again," Henry said. "But the city did need a lift, and the Superdome is the larger picture. You've got to start somewhere."
The Bee's Mark Kreidler can be reached at (916) 321-1149 or mkreidler@sacbee.com
By Mark Kreidler - Bee Staff Writer
Last Updated 12:32 am PDT Sunday, October 15, 2006
http://www.sacbee.com/100/story/39796.html
In New Orleans, the song remains the same. Barely half of the city's 485,000 residents have returned to the area full time, the post-Hurricane Katrina devastation is still visible from almost every angle, thousands of homes remain uninhabitable, and officials acknowledge a major decrease in the tax base.
But when the NFL's Saints played their first home game of the season last month, they did so in a Louisiana Superdome that had undergone a comparatively speedy $185 million restoration despite the region's financial woes -- and nary a complaint was heard.
Why?
"Just the positive energy that it sent out to everybody here," said Pat Henry of the French Market Corp., which operates businesses in New Orleans' historic French Quarter.
"Everybody is looking forward to things someday being back to normal," Henry said. "Seeing the Superdome was like saying: 'We're open for business. We want you here.' It's a big boost."
The New Orleans situation represents an extreme case study in one of the most ethereal discussions related to Sacramento's arena issue: the presumption of a positive energy -- a good feeling, for lack of a better way to describe it -- that accompanies the presence of major professional sports in a city.
Increasingly, sports economists have seized upon this "feel-good" concept to explain what otherwise appears to make little sense: why cities continue to pursue pro franchises and enter into arena- or stadium-building agreements, historically a money-losing venture for them.
"What is widely agreed among economists is that sports infrastructure development does not pay off financially for communities," said John Siegfried, an economist at Vanderbilt University in Nashville, Tenn. "The puzzle, then, is why the argument usually is made in favor of the subsidies."
Academic study after study has led to the same conclusion: In general, public subsidies of sports facilities for privately owned teams don't pan out. From giving favorable rents to the teams to surrendering such lucrative income as parking, concessions and luxury-box fees, cities usually wind up with the short end of the financial stick.
Beyond that, the idea that a new arena will kick-start development has been found wanting. As economist Andrew Zimbalist notes, "Independent work on the economic impact of stadiums and arenas has uniformly found that there is no statistically significant positive correlation between sports facility construction and economic development."
San Diego's Petco Park, a public-private partnership, is a notable exception, with development valued at more than $1.4 billion having sprung up around its Gaslamp Quarter since the baseball stadium was approved in 1998 (a new funding bond was approved in 2001). Far more commonly, though, studies have found cities routinely losing millions of dollars annually from their facility agreements with the local pro teams.
Yet Seattle contributed hundreds of millions of dollars over the past decade to fund new NFL and Major League Baseball venues, Charlotte built a basketball arena on taxpayer money, Oklahoma City and Kansas City spent for new basketball venues without yet having the pro tenants to anchor them, and Orlando just agreed to commit public money to a new arena for the NBA's Magic. What gives?
In each case, both public officials and private citizens at some point touched on the feel-good factor in explaining their decisions to go forward, often citing either in the pride they derive from having a team in town or the national exposure that accompanies it.
With increasing interest, economists are tracking such comments in an effort to quantify sports' intangible effects on communities. If having a team in town is a good thing, either spiritually or motivationally, how much is that worth?
"It's not an issue of whether these values exist. Clearly, they do," said Rod Fort, an economist at Washington State University. "(But) if it's really true that a place has these values, then people should be willing to pay to live there."
A 2004 report nibbled at that question. Studying NFL cities between 1993 and 1999, Gerald Carlino and Edward Coulson found that the presence of an NFL team, on average, raised annual rents in those cities by 8 percent. Wages in cities that hosted NFL teams were an average of 2 percent lower than in comparably sized non-NFL cities, a figure that is statistically insignificant but supports the notion that people will pay more -- and perhaps be willing to earn slightly less -- in a city with pro football than in one without it.
Carlino and Coulson argued that if people like having pro sports in their communities, they are presumably willing to pay for it, "if not directly through the purchase of season tickets, then indirectly through an increased willingness to pay for housing in the area and an increased willingness to accept marginally lower wages."
Their report has been criticized by other economists as too vague to be useful. But a 2005 study conducted by urban affairs expert Mark Rosentraub, to be reported in the upcoming International Journal of Sports Finance, found that "the intangible benefits received by Indiana residents more than offset the public's investment in a new facility to retain the Indianapolis Colts."
And in 2000, three researchers surveyed Pittsburgh residents to determine how much they'd be willing to pay in higher taxes to keep the Penguins of the NHL from leaving town. The average response: $5.57 per household, which, when multiplied by Pittsburgh's 960,000 households, came to around $5.2 million per year -- or $66 million overall, assuming 8 percent interest and a stadium life of 30 years. The study suggested that, under certain circumstances and within limitations, the public investment in a facility may be economically justified, not merely a vanity purchase.
With Arco Arena just cresting at 20 years old, information presuming a 30-year shelf life may be considered tangential to the local debate. But Sanjay Varshney, business school dean at Sacramento State, said the value of national exposure -- a side benefit to having a pro team in town -- is not to be dismissed lightly.
"Clearly, right now Sacramento is on the national map because of the Kings," Varshney said. "We're not on the map because people know us as the capital of California, or because Intel or HP" have divisions in the region.
"There is an intrinsic value in Sacramento being on the map. With the Kings, Sacramento has made national headlines for the right reasons, not the wrong reasons."
Vanderbilt's Siegfried said he has seen that perspective take shape in other cities, and it raises several issues. One is the difficult-to-track psychological benefit, "such as residents of Jacksonville and Nashville believing they are in a major-league city because they have NFL franchises, but people living in Los Angeles (with no NFL team) are in a backwater hick town," Siegfried said.
"Should these views count even if only the people in Jacksonville and Nashville believe it, and the rest of the country is mocking them?" Siegfried asked. "If we say no, then we are on a slippery slope to saying that consumer preferences are not the best way to decide the relative value of things, and that is a death blow to capitalism.
"If we say yes, we feel silly because hardly anyone outside of Jacksonville thinks it is more of a major-league city than Los Angeles. Tough issue. No right answers."
In the end, Siegfried suggests, what matter most are likely a community's own sense of its team's worth and how the team's leaving would affect the local psyche and profile.
"Unless the Kings would really leave in the absence of a new arena, there are very few benefits (to building a new one)," Siegfried said. "The Kings are already there, and so Sacramento is a big-league town."
Washington State's Fort notes that cities routinely fund museums and the arts "because we consider them an important part of what we want a community to be. ... To deny that sports is a part of our culture is to deny a large part of American life."
In New Orleans, meanwhile, the questions clearly outnumber the answers, including the Saints' long-term viability in a market that has suffered heavy corporate losses. But as for the stadium's quick remodeling, much of which was paid for by Federal Emergency Management Agency funds, its short-term value has not been in dispute.
"Everybody knows that the next day (after a game), they'll be back doing what they've been doing, which is trying to recover and get things going again," Henry said. "But the city did need a lift, and the Superdome is the larger picture. You've got to start somewhere."
The Bee's Mark Kreidler can be reached at (916) 321-1149 or mkreidler@sacbee.com
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You think that one up all by yourself?
