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The Economics Of A Professional Sports Team

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Gobears81

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I have been doing some thinking lately (though haven't actually researched it further) regarding the economics of NFL, NBA, and perhaps MLB teams, though I don't know the ins and outs of baseball as well.

The stadiums are often in areas that have the highest real estate prices, and in the case of NFL stadiums, not used extremely frequently, unless they are able to modify for alternative uses, such as Oakland's baseball/ football crossover stadium. So not only are there huge operating costs and exorbitant development costs, but it is often underutilized space.

What got me thinking about this recently was the contracts being handed out in the NBA after they had a salary cap jump. Middling players are getting over $10,000,000 per year, yet pro sports teams are being more selective of the stadiums which they play in and in some cases moving to a locality that is willing to subsidize stadium development. I recognize that pro sports are a great draw for tourism revenue, but nonetheless I can't help but wonder-if the pro sports owners were forced to construct and maintain stadiums on their own dime, how would the economics of pro sports be impacted? My guess is that the role players would not be getting $10,000,000 per year, but perhaps $60,000? How about the LeBron James' of the bunch? Perhaps the size of the league/ number of teams would be different?

I recognize that our society places athletes on a pedestal and cares more about their feelings than the average citizen, but one would think that they could continue doing so without taxpayer subsidies and billion dollar stadiums? As my screen name implies, I am a sports fan, but my appreciation of the NBA and NFL is more from a talent standpoint and I am just as happy watching a game on the bleachers of a smaller college such as my alma mater that lacks much of the corporate influence.

Thoughts?
 

Mark K

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When the whiny Colts organization and their drug and alcohol addled owner, Jim Irsay, started moaning about wanting a new stadium or hinted that they might move the team, the VAST majority of residents were ready to tell them to hit the road. Hell, most average families can't afford tickets anyway so who cares if they leave?

However, the politicians, especially the Mayor (at that time) all said in unison that the Colts wouldn't leave town on their watch. The Colts got a new $900M stadium, the house that Manning built. Streets are falling apart, schools need money, etc. but they found $900M for billionaire Junkie Jim and the Colts.

And the Pacers... they haven't been worth watching since Reggie Miller left, but that hasn't stopped the city from pouring millions into the Simon family pockets (I guess the Simon Property Group doesn't pay well enough).

Other than the 'studies' generated by the NFL/NBA/etc. there's not an independent study that supports a positive economic return from a team compared to the expense of having one. But hey, what's $30-$50 Million/year for bragging rights for the politicians and the Chamber of Commerce? I wish the taxpayers had something to brag about.
 

Gobears81

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The Colts got a new $900M stadium, the house that Manning built.
That stadium does stick out like a sore thumb on 465...

Other than the 'studies' generated by the NFL/NBA/etc. there's not an independent study that supports a positive economic return from a team compared to the expense of having one.
That's exactly my thoughts. Unfortunately, it seems to line the players and owners pockets at the taxpayers expense. Personally, I don't see that much intangible value in the city's retaining a team in many cases- when I went to a Rams game in St Louis several years ago, the contingent of Seahawks fans who made the trip actually were louder than the (somewhat) larger group of Rams fans. Without governmental subsidies, I could easily see some of the fringe teams like the Rams go under, much less pay their athletes great salaries.
 

reviewbe

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Bragging rights for the Pacers?

My favorite, newest boondoggle is how the Raiders are moving to a new stadium in Las Vegas to be financed in part by a $750M increase in the bed tax. Yes, that money could have gone to schools, streets, and infrastructure, but when there's a chance at an NFL team.............................

Oh, and the team name is going to be changed from 'Oakland Raiders' to 'Las Vegas Showgirls'.
 

Mark K

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Bragging rights for the Pacers?

LOL, you know what I mean.

The pols trying to lure businesses here and part of the dog and pony show is '...we also have an NBA and a NFL team'.

But c'mon man, the Pacers used to be fun to watch in the Reggie days. Unfortunately, the path to the championship always ran thru the Chicago Michael Jordans. :(

"That stadium does stick out like a sore thumb on 465..." Its actually on I-70 downtown but you're right; its like a large brick tumor on the city IMO.
 

Michael S

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I'm not a sports fan by any means. I went to some college football and basketball games and a few minor league baseball games over the years. I think it's reprehensible how local governments subsidize the construction of stadiums and arenas for professional sports teams. I've written a lot about this in some other venues as the City of Albuquerque has considered trying to build an arena a couple of times over the last decade or so. These things are the definition of crony capitalism and their net economic impact comes nowhere close to offsetting the massive theft of taxpayer funds used to build them.

The bottom line is that the thousands or tens of thousands of people who would go spend $50-100 to watch a professional sports team in a new arena would do so in an old arena. Or would do so if there was no arena. Whether they spend that money going to the movies and a restaurant or a minor league/college/high school game the money going into that arena would probably have been spent in the local economy anyways. It now just gets concentrated in that arena and the surrounding restaurants, bars, etc. instead of being dispersed throughout the city. Sure you get some outside money from tourists and there are construction jobs and some new jobs in the arena but the retail spending dollars in the local economy don't magically expand. They just get redistributed and concentrated in an around that arena on game days.

The Albuquerque suburb of Rio Rancho got sold a bill of goods back before the recession and built a mid-sized arena (6-7,000 per capacity) in the new city center at a cost of about $50 million. The city center just so happens to be surrounded by miles of desert on every side as the city has about 50% of the land area as Albuquerque with about 15% of the population, most of which is concentrated close to Albuquerque where all the jobs are. So you have an arena that's a 30+ minute drive for most of the city located out in the desert that's too small for most sports teams. I think they had a minor league hockey team out there, a minor league basketball team, and an indoor football team in addition to various concerts. But the arena has been a massive money-loser since day one and absorbs something like 5% of the total city budget just to cover the bond payments.
 

Restrain

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On the flip side is Jerry Jones who financed the bulk of the Dallas Cowvoys Stadium out of his own pocket, about 2/3-3/4 of it. Now, the stadium makes money for the city of Arlington, but not for surrounding cities. When the Super Bowl was played at Cowboys stadium, after it was all over, there was ZERO uptick in sales tax receipts showing there was no economic uptick to having the Super Bowl.

However, Texas Motor Speedway shows an increase in sales tax revenues every year because so much of the attendance is from both out of the DFW area and from out of state. And the facility was paid for by Bruton Smith. The only cost to the city of Fort Worth was land acquisition.

These two examples show that these facilities do not have to be built on the backs of the taxpayers.
 

Michigan CG

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I am shocked that any city spends any money building sports arenas. It is proven that most of the people attending are local who would spend their entertainment dollars elsewhere, within the immediate area. But tourism is the selling point.

The number of people coming from out of town spending money at restaurants and hotels is not nearly enough to finance the new stadium being built in Las Vegas. The cost of this new stadium is estimated to be almost $2 Billion dollars. Let us say that a tax just on motel rooms is to pay for this at a 10% rate (which is completely unrealistic). That would require an additional $20 Billion in hotel room revenue. Let us say that an average room has a fee of $150/night. $150 would generate a tax of $15 (which is completely unrealistic). There would need to be 133 million new motel rentals to pay for the stadium. The problem with that is there are only 8 home games per year (preseason games draw very low crowds).

To pay for the stadium with just a 10% tax on motels (will never happen) could happen in ten years if there were 25 million visitors to the city over a 10 year period. That would be 2.5 million visitors per year or 312,500 people going to the game every week. Oops, the stadium will not hold nearly that many people.

I really thought that the future of stadiums would be the city says build your stadium and there will be no property taxes on the stadium ever. That would be fair as a professional team does add value but the citizens should not have to pay for the construction of it.
 

Gobears81

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I really thought that the future of stadiums would be the city says build your stadium and there will be no property taxes on the stadium ever. That would be fair as a professional team does add value but the citizens should not have to pay for the construction of it.
This is getting a little off-topic, but I don't believe that governments shouldn't make individual deals with companies anymore (which certainly involves tax exemptions or subsidies for pro sports teams) - it is a slippery slope. You have companies looking for massive handouts from the government to build or renovate in their town under the guise of bringing in jobs or real estate tax dollars, which seems to be much larger of a trend than it used to be. It creates a haves and have-nots situation, and RE tax rates in this region have gone up every year since 2008, so while that isn't solely correlated to this trend, I believe it plays a factor. You have some companies that haven't built/ renovated but steadily employ workers in said town or state that don't get handouts...until they threaten to go elsewhere and suddenly get a break of some sorts. You have towns "competing" to bring a company in by offering the sweetest deal: until someone steps in and says that this is going entirely too far, I anticipate it only happening more frequently.
 
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Michael S

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This is getting a little off-topic, but I don't believe that governments shouldn't make individual deals with companies anymore (which certainly involves tax exemptions or subsidies for pro sports teams) - it is a slippery slope. You have companies looking for massive handouts from the government to build or renovate in their town under the guise of bringing in jobs or real estate tax dollars, which seems to be much larger of a trend than it used to be. It creates a haves and have-nots situation, and RE tax rates in this region have gone up every year since 2008, so while that isn't solely correlated to this trend, I believe it plays a factor. You have some companies that haven't built/ renovated but steadily employ workers in said town or state that don't get handouts...until they threaten to go elsewhere and suddenly get a break of some sorts. You have towns "competing" to bring a company in by offering the sweetest deal: until someone steps in and says that this is going entirely too far, I anticipate it only happening more frequently.

I went to school at WSU in Washington and aside from the university the largest employer is Schweitzer Engineering Laboratories, a company that manufactures products for electrical utilities. It was started by a professor there in the 80s and has grown to employ 4,600 people all over the world with about half still there in little Pullman, WA - population about 30,000. One of my classes we got to meet with the founder and tour some of their facilities including where they were manufacturing a lot of these electronic products. The owner said he got calls basically every week from cities and states trying to get him to move his company and offering all sort of “economic incentives” i.e. bribes. He was adamant that he would not be moving the company and was basically disgusted with the idea of some city paying him to move his company. It would be nice if more people had that mindset and instead of playing the game of who can offer the biggest bribe to get a company to relocate or build a new facility economic development focused on growing businesses in place.
 
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