CBC- Letter to Mayor Rudolph Guiliani (Background Information on Stadium Committee's Concerns)

TO:	Members, Stadium Committee: Brian T. Horey, Co-Chair, Steven M. Polan, Co-Chair, Kenneth W. Bond, Lawrence B. Buttenwieser, Barbara Meister Cummins, Stephen F. DeGroat, Bud H. Gibbs, Kenneth D. Gibbs, James F. Haddon, Leonard M. Harlan, H. Dale Hemmerdinger, David B. Jones, Peter C. Kornman, Richard A. Levine, Hector P. Prud'homme, Todd R. Stimmel, Michael I. Zinder, Eugene J. Keilin, ex-officio
FROM:	Chuck Brecher and Elise Caplan
DATE:	APRIL 15, 1999
RE:	BACKGROUND INFORMATION ON COMMITTEE'S CONCERNS

This memorandum has been prepared in response to issues identified at the Committee's meetings. The Committee seeks to provide advice to the Mayor and other interested public officials on the most appropriate role for municipal government in the financing of stadiums for professional sports teams.

The context for the Committee's deliberations has been a set of proposals by Mayor Rudolph Giuliani, by Bronx Borough President Fernando Ferrer, and by the owners of the city's two major league baseball teams. The owners of the New York Mets, whose lease at Shea Stadium expires in 2004, have proposed that a new stadium with a retractable roof be built for them with significant (but not total) public financing at a site adjacent to the existing Shea Stadium. The owners of the New York Yankees, whose lease at Yankee Stadium expires in 2002, have indicated they also would like an upgraded home, but have not yet made a specific request publicly. Borough President Ferrer has proposed extensive renovation to Yankee Stadium and related investments in the surrounding neighborhood. Mayor Giuliani, in his January 1999 "State of the City" speech, proposed a domed stadium on the West Side of Manhattan in which to attract a professional football team and draw additional events to the adjacent Jacob Javits Convention Center.

The costs of these facilities are substantial. The Mets estimate the cost of their proposed new stadium at $500 million; the proposal for upgrading Yankee Stadium by Borough President Ferrer has an estimated cost of $535 million, and the cost of a new West Side stadium has been placed at near $1 billion. The Mayor's January 1999 Preliminary Financial Plan for Fiscal Years 2000-2003 earmarks $882 million of the commercial rent tax for stadium projects over that period.[1]

In order to advocate for wise use of any public funds devoted to stadium projects, the Committee asked the staff to assemble information relating to three issues:

What are the economic benefits to city residents of being home to a major league baseball team? Can these economic benefits be used to establish a guideline for the scale of any municipal investment in a new stadium or stadiums for the Mets and Yankees?
How have other cities negotiated arrangements with major league baseball teams for new stadiums? Are there any applicable lessons for the forthcoming negotiations between the City of New York and the Mets and the Yankees?
What would be the economic benefits to city residents of attracting a professional football team and any other events that might take place in a domed stadium adjacent to the Convention Center? Can these economic benefits establish a guideline for the scale of any municipal investment in a West Side stadium?

This memorandum addresses those three issues. The information presented is intended to help the Committee provide constructive advice to municipal officials regarding any future public investment in sports stadiums.

ECONOMIC BENEFITS OF A BASEBALL TEAM

This section presents an estimate of the economic benefits to New York City from a major league baseball team playing at a stadium in the city. The estimated benefits can be used to establish the maximum amount of a subsidy for a stadium that can be justified on economic grounds.

The local economic benefits from a baseball team derive from four sources: (1) spending for attendance (tickets and parking) at the games, (2) spending for concession items sold at the games such as hot dogs and baseball caps, (3) spending before and after the events for other consumption items such as meals, and (4) taxes paid to local government on spending for the previous three categories. In addition, the first three types of benefits have a "multiplier" effect; that is, these types of spending generate additional spending by the direct recipients of the initial expenditures.

In estimating these benefits two important qualifications must be considered. First, only that portion of the spending which stays in the local economy can be counted as providing a local benefit. That is, a considerable portion of spending received as revenue by teams and by vendors is not retained in the local economy. Instead some portion of this expenditure is directed to recipients outside New York City; for example, some team revenues are spent on spring training in another state and much revenue goes to player salaries which are spent by nonresident players in areas outside the city.

Second, spending generated by a team is a local economic benefit only if the spending would not have taken place within the locality in the absence of a team. For example, if a team were to relocate, then some portion of the spending on tickets and concessions by local residents would shift to other local spending for attendance at other sports events or other recreational activities. The amount of spending in the economy that would be lost, rather than the total current spending, is the valid measure of a team's local economic benefit.

The calculation of such "lost" spending requires a clear assumption about the alternative to having a team playing within the city. The lost spending varies depending on whether the assumption is that the team relocates to another region or that it relocates to a suburb within the New York region. In estimating benefits in this memorandum, the assumption is that the team would relocate to a suburban site within the New York region. This is both the alternative most discussed and the most plausible one.[2] In addition, if a team relocated to another region, then it is reasonable to assume that within a reasonable time period a new team might be created (or an existing franchise would relocate to New York City), because the region represents a market large enough to support two major league baseball teams profitably.

Table 1 summarizes the estimated economic benefits of retaining a major league baseball team in New York City when the assumed alternative is the team's relocation to a suburban site within the region. The calculations suggest the annual local economic benefits are $29.5 million. Explanations of the calculations follow.

Stadium Attendance

What would be the likely attendance at a new or renovated stadium? A reasonable estimate can be made by examining past attendance and making some adjustment for the likely positive impact of an improved facility.

Table 2 presents attendance figures for baseball games at Yankee Stadium and Shea Stadium for the 1989-1998 period. The 1994 season was unusual because labor relations difficulties led to a shortened season. Excluding that year, for the Yankees, attendance ranged from a low of 1,705,257 in 1995 to a high of 2,949,734 in 1998; for the Mets, the range is from 1,273,183 in 1995 to 2,287,948 in 1998. The annual average for the Mets and Yankees over this period (excluding 1994) is 2,105,384.

The attendance is divided between those in designated "luxury" seating and those in the "regular" seats. Luxury seating at Yankee Stadium includes 29 suites, of which 12 hold 30 people and 17 hold 16 people; at Shea Stadium luxury seating includes 46 suites, of which 42 hold 15 people and four hold 30 people.[3] The other component of luxury seating is club seats; Yankee Stadium has 6,600 club seats and Shea Stadium has 3,885.

It is very likely that a new stadium would contain a greater number of luxury seating arrangements. Stadiums built in the last 10 years have an average of 81 luxury suites and 3,518 club seats.[4] It is therefore assumed that a new stadium would contain the same number of club seats as the current Yankee Stadium and 81 suites, including twelve 30-person suites, and 69 suites for 15 people.

Attendance at a new stadium is assumed to be 12 percent above the average for New York teams in the past decade. This reflects 100 percent occupancy of the expanded luxury seating capacity and a 5 percent increase in "regular" attendance.[5]

The revenue from this attendance is estimated at $59.7 million annually. This assumes a price for regular tickets of $14.87, based on the 1997 weighted average for the Mets and Yankees.[6] It also assumes that the price for club seats and 30-person suites would be the same as the current prices at Yankee Stadium, and that the 15-person suites would be priced at the average for equivalent suites in stadiums built during the last ten years.[7]

Stadium attendance expenditures also include spending for automobile parking at the facilities. At both Yankee Stadium and Shea Stadium the parking service is provided as a part of the stadium operations. The estimated parking revenue is the average of the actual parking revenue from the Yankees for 1997[8] and the Mets for 1996.[9]

The estimated combined annual ticket and parking revenue is $62 million. These gross expenditure figures can be converted to estimates of local economic benefits by estimating (a) the share of the spending retained within the New York City economy, and (b) the share of the spending that would be lost to the local economy if the team relocated.

Only limited data are available on the share of revenue received by teams from game attendance that is actually spent within the city. Since it is not possible to distinguish the nature of spending of stadium revenue from that of total team revenue, the estimates are based on how teams spend their total revenue. A study by a consultant for the City and the Yankees assembled data indicating 25 percent of team expenditures were in the local economy;[10] recent literature from sports economists estimates that about 15 percent of the expenditures are local;[11] the Independent Budget Office's analysis provides data suggesting 21 percent of the Yankees' revenues are spent locally and the figure is 30 percent for the Mets.[12] Based on these studies, the estimates in Table 1 use a figure of 20 percent.

In calculating the share of the attendance spending that would be lost due to a relocation, a reliable point of departure is a recent survey of fans at Yankee Stadium and Shea Stadium by the Independent Budget Office.[13] The fans can be divided into three relevant groups -- New York City residents, residents of the other parts of the tri-state region, and visitors from outside the region including international visitors. The proportions of fans at the two stadiums in the respective groups are 36 percent, 53 percent and 11 percent.[14]

If the team relocates to a suburban part of the region, then the fans can be expected to respond in the following ways: (a) Some New York City residents would be drawn to suburban games. Accordingly, the calculations in Table 1 assume that one-third of the current 36 percent of city-resident fans would attend suburban games and their spending would be a lost benefit. (b) Most non-city tri-state region fans now attending games at Shea or Yankee Stadium would follow the team to the new suburban location, but some would go to other recreational activities in the city instead. The calculations in Table 1 assume that one-fifth of these fans continue to go to events in the city, while four-fifths follow the team. (c) Most of the more distant visitors would continue to attend events in the city rather than go to a game in the suburbs. The calculations in Table 1 assume that about one of every eleven out-of-the-region visitors would go to a suburban game and that the rest would attend other events in the city.

Applying the estimated share of attendance revenue retained in the city (20 percent) and the above assumptions about attendance lost to the suburbs yields an estimated economic benefit to the city of $6.8 million from retaining a team.

Stadium Concessions

The estimates of spending on items during the game are based on per attendee estimates presented in the consultant study prepared for the City and the Yankees.[15] These estimates, in turn, were based on data from national surveys of teams. The estimates per attendee for 1996 for food and beverages were $8 for regular attendees, $10 for those in club seats, and $20 for those in luxury suites. Another $1.47 per attendee was estimated to be spent on concession merchandise. These 1996 figures were increased to 1998 dollars by applying the change in the regional Consumer Price Index. These calculations produce an estimate of gross concession spending of $26 million.

The gross concession spending was related to local economic benefits by applying the "lost" shares of the stadium attendance spending described above, and a 40 percent share of spending retained locally. This estimate is the midpoint of an Independent Budget Office estimate of 50 percent and a consultant's estimate of 30 percent.[16] This yields an estimated local economic benefit from concession spending of $5.4 million.

Game-Related Spending

The estimates of game-related spending outside the stadium also draw on the consultant study for the Yankees and the City. They provide separate estimates for hotel spending and for other food and retail spending. The hotel estimate is that 1 percent of attendees stay overnight for one night with 1.75 people sharing a room. The 1997 average room rate was $193 per night.[17] The other food and retail spending assumption is that 38 percent of attendees have some such spending and that it averaged $12 in 1996.[18] The estimate in Table 1 applies these assumptions to the attendance estimate and inflates the food and retail spending from 1996 to 1998 based on the regional Consumer Price Index. The resulting gross expenditure estimate is $13.9 million.

An additional type of game-related spending is purchases of team-related items from retailers outside the stadium by people not attending games. No systematic data are available for this type of spending; based on informal consultation with individuals doing similar economic analyses, an estimate is that such spending equals 10 percent of the retail component of the food and retail spending described above. (The retail component is 11.5 percent of the food and retail total.) Adding this type of spending to the previous estimate brings the new total to $14 million.

These gross spending estimates are adjusted to subtract the share of the spending which is accounted for by taxes incorporated in the sellers' prices. The estimate uses a figure of 3 percent of spending consumed by such taxes based on data in the study. This reduces the gross game-related spending estimates to $13.8 million.

Finally, this revised amount of game-related spending is adjusted to estimate the benefits that would be lost if the team relocated. As noted above, it is assumed that one-third of the city-resident fans would attend suburban games. However, in such cases it is reasonable to assume that their before or after-game spending would take place in the city. Hence there is no game-related spending loss from this shift in attendance. Among other tri-state area residents, it was assumed that 80 percent would follow the team to the suburbs, and their game-related spending would be a lost economic benefit. Most of the more distant visitors to the city were assumed not to attend suburban games; accordingly, the calculations in Table 1 reflect a lost benefit due to relocation of only 9 percent of this group's game-related spending. These assumptions yield a total local economic benefit from game-related spending of $7.4 million.

Multiplier Effects

The economic benefits described above generate a multiplier impact as they flow through the local economy. The magnitude of this multiplier effect is the subject of considerable debate in the literature of urban economics. The calculation in Table 1 uses a multiplier of 1.3 based on a summary of this literature and detailed analyses of regional multipliers for specific industries by the Independent Budget Office.[19]

Using the multiplier significantly increases the local economic benefits. The resulting benefits, including the multiplier, from the three types of spending are $25.9 million.

Local Tax Benefits

In addition to the private spending, the team's presence also brings into the city new tax revenues for local government that are attributable to the private spending. The components of this benefit are primarily the additional sales tax revenues and hotel tax revenues, but also include some indirect taxes generated by the previously identified expenditures. These tax benefits are estimated using the applicable local sales tax and hotel tax rates and using indirect tax collections based on a model presented in the consultant study.

This approach yields total local tax benefits of $3.6 million.

Total Benefits

Adding each of the above types of benefits provides an estimate for the total economic benefits to the city from a baseball team of $29.5 million.

Implications for Local Public Subsidies

The total benefits identified above can be the basis for suggesting a justifiable local public subsidy for a new stadium. If the annual subsidy is more than the economic benefits, then the local economy is suffering as a result of the subsidy. Therefore, the subsidy should be no greater than the estimated economic benefits.

However, there is a loss to the local economy if the subsidy equals the estimated benefits. This loss is due to the fact that the public resources devoted to the subsidy have an opportunity cost; they could be spent on something else that might yield some return on the investment. Therefore, the public subsidy should be no more than the benefits less some minimum alternative rate of return. Assuming this rate of return for public economic development projects is 10 percent, then the annual subsidy for a baseball stadium should be no more than $26.8 million.

An annual municipal subsidy is likely to consist of two parts�construction or renovation costs and annual maintenance and other recurring operating costs. The recurring costs include "day of game costs" to the City such as extra police and sanitation services. Based on recent experience, these recurring annual costs are likely to be about $3.7 million.[20] If allowance is made for these recurring expenses, then $23.1 million would remain for debt service. Assuming a bond issue bearing interest of 5.2 percent over 25 years, then the maximum construction or renovation subsidy justifiable for a new stadium would be $318 million. This should include all relevant municipal capital expenses including infrastructure improvements needed to achieve the economic benefits attributed to the new or renovated stadium.

EXPERIENCE IN OTHER CITIES[21]

The 30 major league baseball teams play in 28 different cities (New York and Chicago each have two teams), 26 of which are in the United States (Toronto and Montreal also have teams). Since 1990 major capital commitments have been made for 20 different team facilities.[22] Of these 20 projects, four are renovations of existing stadiums, eight are new facilities that are now open, and eight are facilities planned or under construction.[23]

The four renovation projects each can be described briefly.

Florida Marlins. The Marlins are an expansion team created in 1991 and owned by H. Wayne Huizenga and partners. In 1994 Huizenga purchased an 85 percent share of the Miami Dolphins, a football team, and a 50 percent share of the stadium in which the Dolphins play. That stadium had been built in 1987 at a cost of $125 million with 90 percent private funding. In 1995 Huizenga made a $10 million private investment in the stadium to renovate it to accommodate baseball. In 1996 the owners received $20 million from Pro Player (the sports apparel division of Fruit of the Loom) for 10-year naming rights. The stadium remains privately owned and operated, but the owners claim operating losses. Any new team owners are expected to seek a new, baseball-only facility.
Oakland Athletics. The A's play in Oakland-Alameda County Coliseum, a publicly-owned facility built in 1966 at a cost of $30 million. In 1995 public officials renegotiated the lease to allow the Raiders football team (then in Los Angeles) also to use the stadium. As part of that deal, the city and county issued $197 million in bonds, of which $100 million was for renovations of the stadium and the rest was for payments to the Raiders to cover relocation costs and $11 million to the A's for losses during the renovations. The A's have been unhappy with the impact of the renovations and are suing the city and county for $48 million in damages. The lease permits them to relocate after the 1998 season, and they are reported to be exploring moving to San Jose for the 2000 season.
San Diego Padres. The Padres play in a stadium owned by the City of San Diego and built in 1968 at a cost of $27 million. The San Diego Chargers, a football team, also use the stadium, and $78 million was invested in renovations in 1997 as part of a deal to keep the Chargers in San Diego. Of the total, $60 million was provided through the sale of municipal bonds and $18 million from the sale of naming rights to Qualcomm Corp. The baseball team, whose lease expires in 2000, is unhappy with sharing the facility, and has negotiated an agreement for a new baseball-only stadium that is described below.
Anaheim Angels. The Angels play in a stadium owned by the City of Anaheim and built in 1966 at a cost of $24 million. In 1996 the Walt Disney Company purchased a major share of the team, and as a part of that deal the City of Anaheim agreed to major renovations of the stadium. The renovations, completed in 1998, cost $100 million, of which $70 million was provided by Disney and $30 million by the City of Anaheim. Disney has a 33-year lease which gives it control of the operations of the stadium. Exercising its rights, Disney sold naming rights in 1997 to Edison International (a California-based utility) for $50 million paid over 20 years.

The eight new stadiums completed to date are described briefly below.

Tampa Bay Devil Rays. The City of St. Petersburg began construction of a stadium in the 1980s, before it had a major league team. The stadium was publicly financed with city bonds. It was not until March 1998 that the Devil Rays, an expansion team that was granted a Major League Baseball franchise in 1995, began to play in the stadium. As a part of this deal, the City agreed to major new renovations. The renovations were completed in 1998 at a cost of $72 million. The initial cost estimate was $65 million, of which the City was to provide $53 million and the team the remainder. Costs rose to $72 million, and the City and the team split the overruns to bring the City's contribution to $68 million. Under a lease extending to 2027 the team operates the stadium and can sell naming rights, with about 15 percent of the price to be paid to the City. In 1996 Tropicana purchased 30-year naming rights for $46 million.
Chicago White Sox. In 1989 the team owners threatened to move to St. Petersburg if they could not play in a new stadium. Public officials agreed to build a New Comisky Park, which was completed in 1991. The initial cost was estimated at $150 million and rose to $167 million. The financing was provided entirely from public borrowing through the Illinois Sports Facilities Authority with repayment from local tax sources.
Baltimore Orioles. Oriole Park at Camden Yards was completed in 1992 as part of a broader urban redevelopment project. It cost $235 million, of which $226 million was provided from bonds issued by the Maryland Stadium Authority. The bonds are repaid from State government revenues, primarily the lottery. Another $9 million was provided by the team for construction of luxury suites.
Cleveland Indians. In 1994 the Indians began playing in a new stadium constructed and operated by the Gateway Economic Development Corporation. Gateway is a corporate entity with public officials on its board, and is responsible for economic development projects. It built the new baseball stadium along with a new facility (Gund Arena) for the local basketball team, the Cleveland Cavaliers. The entire Gateway Project was designed to be financed equally by private funds and by public funds raised through bonds to be repaid by new local taxes on alcohol and tobacco. The actual financing arrangements are more complex, but about $84 million did come from Cuyahoga County bonds issued for the project and backed by new taxes. Another $91 million came from the team owner, Richard Jacobs, including a $13.9 million payment for 20-year naming rights.
Texas Rangers. The City of Arlington built a new stadium, The Ballpark at Arlington, for the Rangers in 1994. The total cost was $191 million of which $135 million came from bonds issued by the County of Arlington and $56 million from the team. The bonds are partly paid by an increased county sales tax and partly by stadium revenues.
Colorado Rockies. The Rockies are an expansion team established in 1991. They played until 1995 in an existing stadium in Denver (Mile High Stadium), but part of the initial arrangement for the team was to construct a new stadium. A 1990 referendum established a six-county Denver Metropolitan Major League Baseball Stadium District. The District built the $215 million stadium with a total public contribution of $168 million and $47 million provided by the team. The public funds included $100 million raised from a combination of tax-exempt and nonexempt bonds issued by the District, backed by a sales tax increase of 0.1 percent. The new sales tax revenue also provided some pay-as-you-go financing. Coors Brewing Company pays $1.5 million annually for 10 years in exchange for indefinite naming rights.
Atlanta Braves. The Braves began playing in a new stadium in 1997. It is owned by the City of Atlanta and the Fulton County Recreation Authority, but was initially built and financed by the Atlanta Center for the Olympic Games (ACOG) for the 1996 Summer Olympics. In 1997 it was retrofitted for baseball-only use. The total cost of construction is estimated at $235 million with the Braves paying $23 million (or one-half) toward the post-Olympics modifications. The ACOG relied on private sources for its financing.
Arizona Diamondbacks. The Diamondbacks are an expansion team created in 1995. As part of the initial arrangement Maricopa County agreed to build a new stadium to be owned by its Maricopa County Stadium District. This stadium opened in 1998. Financing for the stadium was divided between the County and the team, with the public share limited to $238 million and the team paying all additional costs (now estimated at $116 million for a total cost of $354 million). The County raised its share by levying a temporary increase in the sales tax; sufficient funds were raised in the April 1995 to November 1997 period, so the tax has been dropped. Bank One paid $66 million for 30-year naming rights, which are paid in annual installments beginning at $1 million and increased 5 percent annually. The County receives approximately one-third of the naming rights payments.

The eight new stadiums still in the works are described below.

Seattle Mariners. The Mariners currently play in the Kingdome, a facility owned by King County and built in 1976 for $69 million. The lease runs through the 1999 season. In 1996, after a three-year negotiation process, an agreement was reached to build a new, retractable dome stadium for the team, and it is expected to open some time in 1999. The facility is being developed by the Washington State Public Facilities District with a combination of funding sources, including increased county taxes, state lottery revenues and the sale of commemorative state license plates. Of the estimated total cost of $498 million, the public contribution is capped at $342 million. The remainder is from the team. Safeco Insurance Company purchased the naming rights for $1.8 million annually.
San Francisco Giants. The Giants play in 3Com Park at Candlestick Point, which was initially built in 1960 for $25 million by the City of San Francisco. Although the lease runs to 2008, the Giant have been seeking a new stadium for several years. After a proposition for financing a new stadium with significant public funds was defeated in 1989, another proposal was developed and approved in 1996. This plan has the Giants building their own stadium with predominantly private funding. The total construction cost is estimated at $255 million with the City providing the site for a rental fee. The funds are being raised privately, with the exception of $10 million from bonds issued by the San Francisco Redevelopment Agency and to be repaid from incremental tax revenues generated by the stadium project. The stadium is expected to open for the 2000 season. Included in the private financing is $50 million from Pacific Bell for 24-year naming rights.
Milwaukee Brewers. The Brewers now play in Milwaukee County Stadium, which was built in 1953 by Milwaukee County for $8 million. In 1996 an agreement was reached among Milwaukee City, Milwaukee County, Wisconsin State and the team to build a new, retractable dome facility. It is expected to cost $322 million, divided between $72 million in infrastructure and $250 million for the structure. The $72 million in infrastructure costs are to be paid $36 million from the State and $18 million each from the City and County. The $250 million in structure costs are divided $90 million from the team and $160 million from the State. To provide its share the State created the Southeast Wisconsin Professional Baseball District, which is issuing bonds and certificates of participation. The District debt will be repaid from a five-county sales tax increase. The Miller Brewing Company bought naming rights with a $1.2 million initial payment and subsequent $2 million annual payments for the next 20 years; these funds go to the team. Miller Park is expected to open in 2000.
Houston Astros. TThe Astros now play in the Astrodome, which was built by Harris County in 1965 for $31 million. Although the lease runs to 2005, they negotiated with the County for a new stadium in 1997. The new, retractable dome stadium, tentatively named The Ballpark at Union Station, is being built by the newly-created Harris County-Houston Sports Authority. Total cost is estimated to be $265 million. Of this total, $180 million is from public sources; temporary increases on the local hotel and rental car taxes will raise this sum. The $85 million in private financing includes land donations from private corporations, an interest-free loan to the team, and $53 million from the Astros in the form of advance rent payments to the Authority. The new facility is expected to open in 2000.
Detroit Tigers. Tiger Stadium, where the team now plays, was built by the City of Detroit in 1912 and is still owned by the City. The team's lease runs to 2008, but in 1996 plans were approved by voters in Wayne County for a downtown sports complex that includes an open-air stadium for baseball and a domed stadium for football. The entire project is projected to cost $485 million with $260 million for the baseball stadium. Of that $260 million, $145 million is provided by the team's owner. The remaining sources include $55 million from the Michigan Strategic Fund, of which $26 million is from casino revenue, $19 million is diverted from a fund to pay for high-tech research, and $10 million is from other accounts. Wayne County is contributing $20 million from bonds backed by increases in the hotel tax and the rental car tax. Another $40 million is being raised through bonds issued by the Detroit Development Authority. Comerica Incorporated, a Detroit-based financial services company, will pay $66 million over 30 years for the naming rights. Comerica Park is expected to open in 2000.
Pittsburgh Pirates. The Pirates play in Three Rivers Stadium, owned by the City of Pittsburgh, and built in 1970 at a cost of $35 million. The team was sold in 1996, and the new owners have a right to move the team after 1998 if it incurs certain losses, and if no funding is in place for a new stadium. A mayoral task force recommended a new stadium in 1996, specifying the location and making it part of a broader development proposal including a new football stadium and an expanded convention center. The stadium cost is estimated at $228 million including $25 million for site acquisition and $203 million for construction. This is a part of a projected $803 million cost for the entire development project. In November 1997 voters in 11 counties rejected a proposal to increase the sales tax to help finance the project. The current plan is to use some combination of state revenues and funding from the pre-existing Allegheny County Regional Asset District to back the project.
San Diego Padres. As noted above, the Padres now share a stadium with San Diego's football team and want their own stadium. In August 1998 a plan was developed between the City and the team for a new stadium. The proposal anticipates creation of a Ballpark District in the city with commercial development in addition to the stadium, but the initial agreement only specifies how the stadium will be financed. It is expected to cost $411 million, of which $143.5 million is for land and infrastructure and $267.5 is for stadium construction. The Padres and other private sources are expected to provide $115 million; the rest is from public sources. Most of the public money would come from City borrowing to be repaid from expected increases in hotel tax revenues. Voters approved the plan in a November 1998 referendum, and the stadium is projected to open in 2002.
Cincinnati Reds. The Reds play in Cinergy Field, built in 1970. It is owned by Hamilton County, and leased to the City, which issued $44 million in stadium revenue bonds to construct it. The team's lease runs to 2017, but there have been recurring negotiations for a new facility. In 1996 Hamilton County voters approved a sales tax increase which was intended to finance new baseball and football stadiums. The football team, which also uses Cinergy Field, has a lease which ends after 1999; it is moving to construct a new stadium which is expected to open in 2000. However, the Reds owner and the County have not reached agreement on a new baseball stadium, and specific plans are not in the works despite the availability of some public funding from the County's earmarked taxes.

Stadium Ownership and Operations

As new or renovated stadiums are built, how do the teams and government officials handle issues of ownership and control? Figure 1 summarizes the relevant information that is publicly available.

WWith respect to ownership, the dominant form is for some public entity to own the stadium. Among the 18 relevant cases, only two are owned by the team.[24] In 14 cases the stadium is owned directly by the unit of local government (5 cases), by an authority controlled by local governments (6 cases), by an authority controlled by the state government (2 cases), or, as in Seattle, by a joint State-local authority. In two cases (San Diego and Milwaukee) ownership is divided between a local government and the team.

Leases vary in their terms. The longest lease (Diamondbacks) is for 40 years plus a 10-year renewal option; the shortest lease is for 12 years relating to the Padres' renovation project, and it has been preempted by arrangements for the new stadium. Generally, leases range between 20 and 30 years.

When public entities own the stadium, they sometimes rely on the teams to provide maintenance. For two of the four renovation projects (including one where the team owns the stadium) and for five of the eight completed projects, the teams assume maintenance responsibilities.

Another aspect of operations is control of non-baseball events at the stadium. Only limited information has been collected on this topic, but there are some interesting models. For the Diamondbacks, the county authority controls all such events and retains the associated revenue up to $1 million annually; in the Padres' new stadium, the City can schedule events on 240 days per year and retain the associated revenue. In contrast, in Anaheim, the team owners (Disney) control all event scheduling, but pay the city 25 percent of associated revenue above $2 million annually.

Financing and Lease Terms

The earlier descriptions of financing arrangements are summarized in Figure 2. The renovation projects cost between $105 million and $135 million. Two were completely financed from public sources, the Angles received 44 percent public funding, and the Marlins' stadium was only 9 percent public funding.

The completed stadiums cost between $167 million and $354 million. The Diamondbacks stadium appears exceptionally expensive at nearly $7,300 per seat; the other completed stadiums ranged between about $3,800 and $4,900 per seat.

The unfinished stadiums have considerably higher costs. At the low end, the Astros' stadium is projected to cost about $250 million or under $6,000 per seat; at the high end, the Mariners stadium will cost $498 million or nearly $10,700 per seat, and the Padres' facility will cost $411 million or nearly $9,800 per seat.

Of the 15 new stadiums, two (which were the two earliest deals) were financed completely with public funds, and only the Braves' stadium was financed exclusively with private funds (mostly through the local Olympic Committee). The remaining mix ranges from 4 percent public for the Giants to 96 percent for the Orioles. Generally, higher cost stadiums seem to have a higher share of public funding.

Most of the leases with public entities provide some revenue stream from the team in order to help cover debt service and operating costs. In some cases there is a lump sum rent payment, but other leases provide for an amount per ticket (which may vary with the volume sold). In a few cases the team shares concession revenues, parking revenues, local broadcast revenues and/or in-stadium advertising revenues. Also, as described earlier, several teams share revenue from naming rights.

Comprehensive comparative data are not available to determine the actual amounts received by the public entities under these varying arrangements, nor can the sums be related to debt service and operating costs to determine what share of these costs are covered by the available revenues. However, as described above, in several cases new taxes have been passed to support debt service, indicating the shared stadium revenues are not sufficient for this purpose. In other cases, the localities have levied temporary taxes to generate revenue for an initial pay-as-you-go investment, also suggesting revenues from the stadium were not expected to be sufficient to cover debt service if capital were raised by borrowing.

Role of Referenda

Public referenda have played varying roles in the process of building new stadiums. Public involvement may be categorized into three types of circumstances -- projects in which no referendum was held; projects in which an initial referendum was rejected by voters, but the stadium was built eventually; and projects which were approved in an initial referendum. There also are examples of stadiums not built because they were rejected by voters.

Of the 20 projects completed since 1990, eight did not involve a referendum. This includes the four renovation projects and the new stadiums in Tampa, Chicago, Baltimore, and Atlanta. However, it should be noted that the new stadiums generated some community opposition, and in at least one case (Baltimore) a group sought to have the issue placed on the ballot, but the petition was rejected by the state attorney general.[25]

For 5 of the 16 new stadiums, a referendum was held and the project rejected before the stadium was eventually completed. In San Francisco, a 1989 referendum involving substantial public funding was rejected, and eventually a stadium was built largely with private funds.[26] Also in 1989 Phoenix voters rejected a stadium referendum, and then in 1990 the state legislature authorized creation of a stadium district to finance the facility. In 1996 local referenda were rejected in both Milwaukee and Seattle; the Wisconsin state legislature responded by creating a regional authority with taxing powers, and in Washington the state legislature enacted new taxes to support the stadium project. In 1997 Pittsburgh voters rejected a referendum increasing the sales tax for a stadium; the plan now being implemented seeks to fund the stadium from alternative sources without the new sales tax revenue.

Another seven stadiums were subject to a referendum and were approved in the initial vote. This includes referenda in Cuyahoga (Cleveland) and Denver in 1990, in Arlington (Texas) in 1991, in Cincinnati, Detroit, and Harris County in 1996, and in San Diego in 1998.[27]

There is only one case in recent history where a stadium proposal was rejected by the public and a stadium has not yet been built. In November 1990 a measure asking if San Jose should participate in the building of a baseball stadium with an unspecified amount of tax dollars failed with 51 percent opposed. A June 1992 measure, seeking a 1 percent increase in the city's utility tax to finance the bulk of a $265 million stadium, was rejected by 55 percent of the voters.

Finally, during its 1997 session, the Minnesota legislature rejected a series of proposals made by Carl Pohlad, the owner of the Minnesota Twins, to obtain public financing for a new stadium. In November of that year, Minneapolis voters approved a referendum requiring voter approval for the city to spend more than $10 million on a sports facility. No proposal to authorize such spending has been placed before the voters yet.

ECONOMIC BENEFITS OF A FOOTBALL STADIUM

Using a framework similar to that applied to major league baseball teams, it is possible to assess the economic benefits that might derive from a new football stadium. These benefits include the revenue brought into the city by attendance at football games at the stadium and the new revenue generated by any other events at the stadium. Since the Mayor's recent proposal is to link the new stadium to the Jacob Javits Convention Center, the possible benefits related to events held jointly at the stadium and the Convention Center warrant careful attention.

Benefits from Football Games

As shown in Table 3, the types of economic benefits from professional football games parallel those from baseball games -- attendance, concession spending, game-related spending, and local taxes generated. As with baseball, in each case the local benefits derive only from spending which would not otherwise take place, and only from spending which is retained in the local economy.

The benefits associated with game stadium attendance revenues are estimated at $6 million annually. This figure is based on the following assumptions: (1) Total attendance at games would equal the average regular attendance at New York Jets and New York Giants games for the 1993 to 1998 period, plus expanded luxury seating attendance. (2) The "luxury" component of total attendance would equal a luxury seating capacity based on 9,000 club seats and 118 luxury suites for 16 to 19 people. (3) Club seats are priced at $2,400 per season, luxury suites at $62,500 per season, and regular tickets at $30.34, which is the 1997 average for stadiums built in the last ten years. (4) The share of attendance by out-of-towners and the share of spending retained locally are the same as for baseball teams; that is 54 percent and 20 percent, respectively.

The benefits for stadium concession spending total $1.2 million and for game-related spending total $2.3 million. The spending in these categories was estimated using the same assumptions about per attendance spending, share of out-of-town attendance, and share of spending retained locally as was used in the calculations for a baseball team.

As shown in Table 3, these benefits plus the multiplier effect and local taxes generated yield a combined total of $14.5 million. Assuming a minimally acceptable rate of return for public economic development projects of 10 percent, then the annual subsidy for a football stadium without other events should be no more than $13.2 million. This represents $182.6 million worth of construction, assuming a bond issue bearing interest of 5.2 percent over 25 years.

Benefits from Other Events

A significant element in the economic logic of a football stadium on the West Side of Manhattan is that it would be used for events in addition to football games. The expectation is that a domed facility would be operated in conjunction with the Javits Convention Center to draw events not now coming to New York City.

The expectation that a domed stadium would attract additional events is based on experiences with other cities' facilities. However, a closer analysis reveals that few cities have a situation parallel to New York's, and that domed stadiums are not a major attraction for non-sports events when a city already has an alternative site.

Seven cities now have domed stadiums used for professional football games. These facilities can be divided into two groups. Three of the facilities fit the model proposed for New York; that is, the domed stadiums are used in conjunction with convention centers located nearby. These facilities are: (1) The Georgia Dome in Atlanta. It is linked to the Georgia World Convention Center, which has 2.5 million square feet of meeting and exhibition space. (2) The RCA Dome in Indianapolis. Together with the Indianapolis Convention Center it offers 300,000 square feet of convention space and 128,000 square feet of meeting space. (3) The Trans World Dome in St. Louis. The stadium, with over 162,000 square feet, is adjacent to the America's Center, providing a combined total of 502,000 square feet of exhibition space.

The four other domed football stadiums are not operated in conjunction with a convention center. The Louisiana Superdome in New Orleans has 166,000 square feet of exhibit space, but New Orleans also has a separate Ernest N. Morial Convention Center with 1.7 million square feet. Most major trade shows are held at the separate Convention Center. Similarly, Minneapolis has the Hubert H. Humphrey Metrodome for its football and baseball teams, but the separate Minneapolis Convention Center (280,000 square feet) is the host to most trade shows. The Kingdome in Seattle has about 281,000 square feet of exhibit space, but the downtown Washington State Convention and Trade Center, which has less exhibit space (100,000 square feet), is host to most trade shows coming to Seattle. Finally, the Pontiac Silverdome is located in a suburb of Detroit; trade shows coming to Detroit use the two downtown facilities, the Cobo Conference and Exhibition Center and the Novi Conference Center.

How much of an attraction would a domed stadium add to the Jacob Javits Center in New York? The Javits Center provides 760,000 square feet, making it the eighth largest center in the nation behind Chicago, New Orleans, Orlando, Las Vegas, Atlanta, Louisville, and Los Angeles. However, the Javits Center appears to lose few, if any, events due to size limitations. New York ranks fourth in terms of number of events behind Atlanta, Chicago, and Orlando.

A domed stadium would add approximately 160,000 square feet to the Javits Center's 760,000 for a total of 920,000 square feet. Accordingly, the major potential benefit of the stadium would be to attract events requiring between 760,000 and 920,000 square feet for the now-larger facilities in other cities. However, based on 1997 data, there are only six events requiring this much space annually, and New York would compete with seven other facilities for these events. (Figure 3.)

Another potential gain from a domed stadium is sports events that could not be accommodated at local baseball stadiums or at Madison Square Garden, with a capacity of 19,763. Again, relatively few events fall into this category, but possibilities are the NCAA Final Four basketball games and professional football's Super Bowl game. However, both are annual events and would, at best, be held in New York City on a rotating basis with several other cities. Consequently, a reasonable assumption is that, at best, the domed stadium would permit New York to host one such additional event annually on average.

TThe economic benefits to the city from gaining one such event can be estimated based on these assumptions: (a) 55,000 people attend; (b) 68 percent of the attendees are from out-of-town for an average of 2.5 days; (c) spending for these visitors averages $270 per day with hotel.[28] Accordingly, the economic benefits for the events gained by linking the stadium to the convention center are $7.7 million annually. Added to the football game benefits of $14.6 million, this yields total benefits of $22.2 million. Applying a 10 percent rate of return yields a maximum justifiable annual subsidy of $20.2 million. Assuming a 25-year bond with 5.2 percent interest, this would support a capital investment of no more than $279 million.

It should be noted that other benefits attributed to domed stadiums elsewhere are not likely to apply in New York City. That is, any other type of event held in the facility, such as concerts or smaller trade shows, is not likely to be a net gain for the city's economy. New York already has multiple facilities to host such events including baseball stadiums, Madison Square Garden, numerous concert halls, and hotel convention facilities. Other smaller events in a new domed stadium would most likely substitute for the event at another facility and would not add to economic activity in the city.