Friday, March 25, 2011

First Post on Stadiums

There are a lot of topics I want to get into, but few touch me like this one. I try to keep things local within the Dallas Fort Worth region or that relate to something local. However, this is one of my hot button issues, like the tunnels, that I like to comment on from time to time, especially when something relevant comes along.

That relevant is this, a piece on the economic benefits of stadiums from Governing. As per a usual stadium critique piece, it interviews elected or city officials who cite tax revenue and then it interviews academics who have studied the issue. As usual, cities officials say they are great and the academics, who cite statistical or cost/benefit analysis studies, say stadiums don't deliver the bang for the buck.

Some excerpts:

In 2001, the Florida Sports Foundation – a non-profit that works with the state government – put up $54.5 million in state money for construction and renovation of five spring training stadiums. That money was matched – and then some – by localities. Another $52.9 million in matching funds for four stadiums was issued in 2006.

Even more money could be forthcoming. By 2016, at least four Florida-based teams will have leases that are up for renewal, and many will want renovations. Meanwhile, five Cactus League teams will see their leases expire soon, and Florida municipalities will likely try to recruit them. Nicky Gandy, the communications director for the foundation, says his organization is trying to figure out how to obtain more funding for upcoming projects.
Initially, the ASTA was slated to provide $402 million over a 30-year period for Cactus League stadiums, says Tom Sadler, its director. So far, ASTA has funded $68.3 million in new construction or renovation at four Arizona facilities. It’s also providing funding for two other facilities in the Arizona cities of Goodyear and Glendale, though it may have difficulty meeting those commitments. Goodyear officials expected ASTA funds to reimburse $90 million of their $103 million stadium, while Glendale expected to recoup $142 million of their $158 million facility, the Arizona Republic reported.

Those figures will fall vastly short, given ASTA’s struggles, leaving city governments on the hook for even larger sums. Going forward, teams may be expected to make more contributions to stadium funds, and private-sector partners may need to play a role too, Sadler says.

Public officials acknowledge that a huge sum of money has been spent on the facilities, but they consider it an investment. In Florida, government leaders frequently cite the fact that the Grapefruit League contributes $753 million in annual sales to the state, including $385 million from out-of-state visitors. Meanwhile, the Cactus League estimates that spring training contributes more than $350 million to Arizona's economy. “It’s a proven economic driver,” says Gandy, adding that the stadiums also host minor league teams and college baseball tournaments that likely make the real number impact of the facilities even greater.
The two also highlight the intangible benefits of spring training. Cities that might otherwise be obscure get cachet and name recognition by serving as spring training hosts, similar to how football has put Green Bay, Wis. on the map. That, in turn, can result in businesses investing in the community. “It’s amazing how much publicity we get for this,” Dalke says.

Shoemaker says the county has not yet conducted an independent study to measure the financial impact of spring training on Charlotte County. But she emphasized that the team fosters a “home town spirit” and is involved with local charities. “Those kinds of things you can’t get any way else,” Shoemaker says.

So here we have the officials for the stadium. No sort of analysis about the actual revenues brought in or cost associated with a constant turnover in stadiums. The cite obscure numbers without really giving those numbers teeth. How do they know it brings in $385 and $350 million respectively?

They can say it is a proven economic driver, but they don't actually prove anything. In fact, the only thing they can hang their hat on is the unprovable, the name recognition and civic pride. However, as I briefly discussed here, name recognition isn't a guaranteed.

The critics, in my opinion, are a bit more convincing:

Since teams move around so frequently, there’s ample data to determine whether a city suffers financially when its team leaves. But, Porter says, “nothing changes” when a team skips town. Sales tax, property values, and the size of the tax base generally remain at comparable levels, undermining the argument that the stadiums pose a vast economic benefit. “That finding is so universal as to be irrefutable,” Porter says.

A study by University of Akron professor John Zipp examined the amount of taxable sales in Florida communities that hosted spring training in 1995, when the baseball strike caused teams to field second-rate “replacement players” and there was a 60 percent drop in Grapefruit League attendance. If spring training had a major financial impact on those communities, they should have suffered tremendously. That didn’t happen, and in fact, their taxable sales increased. Those findings “may indicate that spring training is not the major tourist draw that many claim,” Zipp wrote in a paper published by the Brookings Institution.

Porter says studies that tout the positive economic impact of spring training – typically commissioned by state and local governments – do so by asking fans at games how much they spend while they’re visiting, then multiplying that figure by the number of people who attend games. That method is flawed, Porter says, because it doesn't account for money spent locally that actually goes to the team and leaves the area, such as ticket sales or stadium advertising purchased by local businesses.
Critics also say many people visiting Florida for spring training would do so anyway, regardless of baseball, just to enjoy its warm spring weather. Furthermore, assuming the estimates of spring training's impact are accurate, it's still a relatively small sum. In 2010, Florida had taxable sales of $281.5 billion statewide. The sales reportedly generated by spring training represent less than a third of a percent of that total.
When the team left, Winter Haven was already giving the Indians a sweet deal -- the team didn’t pay rent, and it kept the bulk of revenue from ticket sales, concessions, parking and advertising. Meanwhile, the city paid for the operational costs of the stadium in full, which Stavres says cost around $800,000 annually. “Spring training is extremely expensive,” Stavres says.

“We knew we wouldn’t go into another spring training agreement unless it was a mutually beneficial deal,” Stavres says. Goodyear, meanwhile, gave the Indians a deal Winter Haven couldn’t compete with: a $108 million, 8,000-seat facility designed by HOK Sport, the premiere architect of athletic venues. “When it came time, we negotiated with them as much as we could in their final years,” Stavres says. “We just couldn’t strike a chord.”
When the team left, Stavres says, “businesses felt the pinch.” Though city sales tax revenue fell $133,000 the year after the team left, that was just a fraction of what it cost to operate the stadium. Ironically, the stadium that at one time was once synonymous with Winter Haven will soon be demolished. Plans call for a developer to build a commercial site where the stadium currently stands. Meanwhile, Legoland is set to open an amusement park in Winter Haven this fall. That could have a greater impact on the city than spring training, since it’s open year-round.

So the guys who actually study these things find a different result. Zipp sees no decrease in tax revenue, Porter finds fault with studies commissioned by teams, leagues and cities and Stavres found that his city spent more to house and maintain a team and stadium then they were bringing in.

All of this echos everything I have seen in the academic world. I have yet to see an independent, academic and peer reviewed study that favored stadiums as an economic engine.

All of these cities are now at the mercy of sports teams, leagues and their actions. Governing mentioned this briefly, but not in depth. In the USA Today Friday edition, a headline reads Attendance decline in Cactus League proving to be prickly. Fighting through the pun, it raises a question. If cities spend so much for stadiums and spend more to recruit teams, what safeguards are there if they don't deliver? As for everything else, the risk is entirely with the cities, while the gains are with the teams.

Relating this to the DFW region, officials in Arlington are starting to sweat because the NFL may not have a season. They took property and tax paying properties off the rolls and replaced it with a tax-exempt building in the hopes that increased tourism would offset the loss. Yes, the stadium does host other events, but if the stadium as a whole is not financially stable with all events in consideration, what happens when the pre-, regular and postseason are cancelled? Bare minimum ten events gone. Will there be a decline in tax revenue? Possibly, especially considering the revocation of tax paying properties to be demoed for the stadium.

But let's look at this closer. Some economist and academic planners have cited that stadiums attract disposable income. For example, a patron will not miss a rent or house payment to go to a stadium event. They will, however, skip out on a dinner and a movie. The money generated by the stadium would have been spent somewhere else. In essence, it is more of a redistribution of regional tax. Most of the attendees are from within the region, so little money is coming from outside the area for these events. This is especially true of the concerts and car rally type of events. It may make sense from a city perspective to build these and try to attact dollars from other cities, but it certainly doesn't make sense from a regional one.

Now are there Arlington residents who don't venture outside when there is a game? Sure, who wants to fight all the game day traffic just to go shopping or grab a bite to eat. At best, they take that outing to another day. At worst, that is a lost opportunity for Arlington. Economists refer to this as opportunity costs. What is the cost or loss based on this activity? For example, I am curious about attendance at Six Flags and Hurricane Harbor on Sundays. I would definitely not go during a Cowboys game. How common that thought is could make a bit of difference in actual tax revenue Arlington receives. Surely the restaurants have very few patrons during the fan's flight to and from the game. I would be very interested to see the numbers for all of this.

Another aspect not considered in these debates are who pays what. Specifically taxpayers pay for some or all of the costs of the stadium and the teams use them without paying rent. But, usually hidden from the public is the other sales that go inside the stadium. A hot dog purchased at the concession stand, despite its high price, is tax-free. No dime in sales tax goes to the city. The same is said for stadium tours, souvenirs and merchandise. In this day and age, owners make their facilities self-sufficient. They don't want people going to a bar across the street before a game, they want you in the stadium, spending your money there. There really is little spillover from these events to the surrounding area. One look around Cowboys Stadium and The Ballpark prove that. Nothing but parking lots and vacant land. If these were so lucrative, there would be development somewhere. Instead, as is the usual suburban development pattern, stadium or no, they are along the arterials, essentially with their back to the stadium.

The big issue with the lack of development is the lack of a steady crowd. It is a bad business model for a place to open a shop specifically for these events, because the vast majority of the time, they are empty. Professional baseball stadiums are the most active, with 81 events a year (Cowboys Stadium, meanwhile is less than 50). That leaves, barring no other events, which are rare in a baseball stadium, 284 days a year without activity. Now, on a day with activity, up until 6 in the afternoon for an evening game that starts at 7, there is no activity (many games are beginning at 7:30 now, with a similar timeline). Then at 7, there is no business activity, as the people that are actually on the streets are on their way to the game, not a restaurant. Then after the game, most people are headed for the highways and not lingering. At best is a thirty minute windowwhen a game concludes for business activity. So on an event day, there is only an hour and a half window for establishments to bring in patrons and make money. There are very, very few business's that can survive on a schedule like that.

The final common argument that proponents often use is the civic pride. And that is one I can't argue. You can't put a cost or a benefit to that. Do Arlington residents feel better about their city because they have two professional sports stadiums? Hard to say. Are there better ways to spend $325 million tax dollars (Near $500 million after interest)? I think so. Would Dallas citizens have felt crushed if the Stars and Mavericks had moved from Reunion Arena to Plano? Some for sure.

In an attempt to turn this post around from an overly critical to just a critical one, at least Arlington, unlike most cities, negotiated five percent of the naming rights. Sadly for them, the stadium opened up after the economy crashed and Jerry's asking price is too high. Five percent of nothing doesn't pad any budgets. Plus, I think they should have negotiated the percentage based on the final price of the stadium, which would have been roughly 30 percent. I think the taxpayers should get the same return as they are putting up.

I think this boils down to one thing. First cities are competing against each other and the owners, not the taxpayers, are benefiting. A cursory glance makes it seem that these things do bring in people and consequently, do bring in money. But an in-depth analysis shows otherwise. In civic circles, there are a lot of people who are employed in these fields and some city officials don't want to look bad and acknowledge a mistake, allowing the economic development argument still float out there. This makes it very hard for taxpayers to get the fair story.

The owners, with the vast and deep pockets, buy ads like crazy while opposition is usually informal and poor. They especially don't want the academic studies to surface, which is how those other studies come out touting stadiums (these are based on the multiplier effect, which is esoteric and often dubious).

And of course, this says nothing about the urban design of a stadium, which may be better left to another post.

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