Sport Finance

Political reality of Economic Impact Analysis -Used to legitimize viewpoint not find truth-Assure public of “profit” in return-Issue of neutrality
Mischievous application of EIA: Qualifying statements All of these qualifying statements are meant to protect the employee incase they are wrong. Qualifying statements are fine if you really mean them for things your not sure about. But when you’re “not sure” about everything it screams incompetence and a lack of self-confidence.
Mischievous application of EIA -EIA is an inexact process-Inappropriate procedures and assumptions-Errors unintentional or intentional-San Francisco Giants example (p. 109)-Difference between $3.1 million and $50-150 million impact
The Inviolable principle #1 -Exclusion of Local ResidentsEIA should only discuss money injected into economy by:-Visitors-Media -Vendors -Sponsors -External government entities -Banks and investors-Expenditures of local residents is seen as recycling of money that already existed there-Seen as switched spending-Figure 4-2-If these numbers excluded, impact is much smaller, and deemed not useful
The Inviolable principle #1 con’t -Gross expenditures and economic multiplier approach–Most common–Not widely accepted as legitimate–Meaningless results–Deliberately mislead-Also includes impact from construction–Substitute expenditure-City funds should be excluded–However, if the money comes from state or federal sources and would not have been granted to the city for other projects, then it can be legitmately considered as having economic impact on the city-Denver Bronco example (p. 112)-Deflected Impact–Instead of leaving town to watch a game, residents spend their money on the local community–Difficult to collect this information–Resultant impact may be small
Substitute expenditure Not new money coming into the city-It wouldve been used elsewhere either way
The Inviolable principle #2 -Exclusion of “Time-Switchers” and “Casuals”-Time Switchers–Nonlocal spectators planning a visit–Changed timing of visit to coincide with sports event–Spending would have occurred anyway–Prices may be raised for event, so small impact from this factor-Casuals–Already live in community–Attracted by other features–Elected to go to a sports event instead of something else–Arizona example (p. 114)-Time switchers and casuals expenditures would have occurred without the sports event
The Inviolable principle #3 -Use of Income Rather Than Sales Output Measures-Multiplier Concept–Initial direct impact as well as additional impact–Figure 4-3 (pg. 115)–Only money remaining in host community after leakage constitutes net economic gain-Multipliers often not used appropriately-Derived from input-output tables that disaggregate an economy into 528 industrial sectors-Elaborate accounting system
The Inviolable principle #3 6 different ways in which each of the establishments receiving the initial funds could disburse money it receives: -Local interindustry purchases-Direct household income-Local government revenue-Non-local interindustry purchases-Non-local household income-Non-local government revenue
The Inviolable principle #3 -Return of leaked funds not shown in Figure 4-3–Likely to be relatively small–Including it would complicate understanding-Subsequent rounds of economic activity termed “indirect” impacts-“induced” impacts: proportion of household income spent locally-Indirect and induced together equals secondary impacts
The Inviolable principle #3 Direct, Indirect, Induced effects -Direct effects–First round effects of visitor spending-Indirect effects–Ripple effects of additional rounds of recirculating the initial visitor’s dollars-Induced effects–Further ripple effects generated by direct and indirect effects–Employees of affected businesses spending some of their earnings in the city
The Inviolable principle #3 -Defining Geographic Boundaries of an Affected Area-Who is a local resident and who is an out-of-town visitor-Flexibility-Size of geographic area has great influence on size of multiplier effect-Structure–Degree to which businesses where visitors spend their money trade with other businesses within the affected area of interest-Downtown vs. Suburb facilities-Smaller community –Much of expenditure respent outside of local region–Larger the defined area’s economic base, the smaller the leakage
The Inviolable principle #3: Interpreting Alternative Measures of Economic Impact -Sales or output measures–Reports the direct, indirect, and induced effect of an extra unit of visitor spending–Vague measure–Limited practical value-Personal income measure–Reports direct, indirect, and induced effect of an extra unit of visitor spending on the changes that result in level of personal income–Employee compensation and proprietor income
The Inviolable principle #3 -Value added measure–More expansive than personal income measure–Includes other property income and indirect business taxes-Coefficients are different for each category of expenditure (p. 120 example)-Values of sales indicators are substantially higher than those of personal income measures (p. 120 example)-“In an analysis of a sports event or facility, sales measures of economic impact are not of interest to local residents” (p. 120)–Point of interest is on resident’s personal income-Because sales measures usually much higher than personal income indicators, used more frequently (deceiving)
The Inviolable principle #4 -Use of Multiplier Coefficients Rather Than Multipliers-Multiplier Coefficient–Normal, proportional, true, unorthodox–Direct + Indirect + Induced Effects–Injected Visitor Expenditures–Should be used but isn’t because smaller effect-Ratio Multiplier–Still used frequently because it generates larger numbers–Ratio, incremental, orthodox–Direct + Indirect + Induced Effects–Direct Effects–Should not be used because shows larger effects–Misleading because it does not include info on size of initial leakage–Only measure of internal leakage within economy–No real value
The Inviolable principle #5 Employment multiplier-Measures direct, indirect, and induced effect of an extra unit of visitor spending on employment in host community-Expressed in number of jobs per million dollars in direct sales-Maryland example (p. 123)-Estimates include both full-time and part-time jobs and do not distinguish between them-Employment estimates assume that all existing employees are fully occupied, so increase in visitor expenditures will require increased employment-Imply all new jobs will be filled by residents from within the community
Describe Leakage: -Much of team’s business and practice operations may be conducted outside the city-Multipliers are based on the usual spending patterns of the proverbial “average person”…and athletes are not averageAthlete’s Spending-May save more money than average person-Purchase of more luxury items-Pay higher share of income tax-All leads to large leakage-Multiplier would be much smaller than the average multiplierAtlanta example (p. 125)-79% of players and staff live there-Most field personnel are local residents-Printing is local-Uses Atlanta banks-Uses Atlanta based airlines-Locally owned
Independent Findings -No statistical relationship between sports facility construction and economic development-Sports as the “golden goose” is a myth-NFL is poor investment for city–LA sports industry grew after Rams and Raiders left-Teams employ average of 70-130 full time and 1,000-1,500 part time-This size business is relatively small in overall grand scheme of economic activity-Table 4.4 (p. 128)–Impact is less than .4% of all jobs in county–Car-rental businesses earn more money than pro sports in Dallas-Media and politicians use numbers but don’t explain them-Gross Sport Product–May represent less than 1% of the community’s overall sales product–Distorted since may be listed as a “billion” dollar investment
Evidence of economic impact -Sports teams are small-medium sized firms-Professional sports sector is very small portion of region’s economy-Substantial portion of the spending that takes place at facility is merely transfer of economic activity-Majority of revenue collected used to pay players; players tend to save or spend elsewhereMinor league teams-Similar to small local business-Operating budget between $250,000 – $2 million-Average grocery store, $7 million gross sales-Little impact from visiting players, umpires, and visiting fans
Mischievous Economic Impact Study -Assumption #1–Patriots would sell 95% of regular ticket inventory–From ’96-2000, NFL average was 92% sold-Assumption #2–Patriots sell 100% of 6,000 club seats at $4,250 each–1999 NFL overall sold 92% of club seats at average of $2,500Assumption #3-Patriots generate concession sales per capita of $18.50-20.52-NFL average concession sales per capita was $15.00 for 2000Assumption #4-Patriots would have 90% of revenues as new money-Reality would be 20% new money since many locals attending gamesAssumption #5-Patriots applied a sales or output multiplier of 1.75-Should not be using sales multiplierAssumption #6-Patriots would create 3,240 FTE(full-time equivalent)-Numbers derived from data including local spending; jobs would most likely be part time and seasonalImpact of Alternative Assumptions-Direct spending would go from $107 million to $88.6 million-Incremental spending (new money) would be only $17.7 million (using 20% instead of 90%)-Personal Income Multiplier would give final figure of $13.3 million instead of $170 million
Abusing the Inviolable Principles -“Economic Activity”–Includes local residents–Economic activity in terms of sales instead of personal income–Includes time switchers and casuals–Displays total jobs created-Should be “Economic Impact”-Conduct survey to identify percentage of time switchers and casuals–Their impact should be ignored-Issue of one study being done correctly and another being exaggerated–Causes real issues with budget allocation and public support–Example of festival and rodeo on pps. 134-135Misinformation is perpetuated -Need to be able to compare to other studies-Larger numbers sound better-Political reality-If possible to sway even a small percentage of voters, will use them
Consideration of Costs -Most often, only positive economic benefits are discussed-If include cost analysis, then it becomes a benefit-cost analysis instead of an economic impact analysis-Benefit-cost analysis designed to identify the return on investments made in sports events or facilities
Impact Costs On-site-Additional equipment or supplies-Additional labor-Cost of the time investedOff-site-Traffic congestion-Road accidents-Garbage collection -Vandalism-Increased prices to local residentsOff-site costs-Difficult to measure in some cases-Usually ignored-May choose to measure it qualitatively so can assess impact over and above a numerical number
Displacement Costs Visitors from outside community who may displace other visitors who otherwise would have come to the community but do not because:-Can not obtain accommodation-Not prepared to mingle with crowds attracted by the event-No economic impact if displacement occurred-Super Bowl studies (p. 141)–No impact based on January numbers–Guests leave after event-Olympics examples (p. 141)–Not like ordinary tourist or business traveler–Uninterested in tourist attractions-Old vs. New facility–Only incremental gains uniquely attributable to new facility constitutes gain
Opportunity Costs -Even though a positive impact can be shown, opportunity costs must be analyzed-Sport facility vs. convention center (p. 142)-Sport facility–Locals–More popular politically –Positive impact on small segment of society (wealthy owners, players, etc)-Convention Center–Attracts nonresidents to community–Not as popular–Economic impact felt by larger group of individuals-Expenditure on a sports facility by local government is not injection of new funds-Opportunity costs of the land could be substantial–Property taxes–Sold or leased for private development–Rent
Collecting Expenditure Data Assess visitor expenditure data-Directly survey visitors to the event who come from outside the community-Survey the hoteliers, restaurateurs, retailers–Less reliable–Difficult to assess what proportions of spending is from visitors or localsSurvey visitors at sports eventVisitors-Spectators-Participants-Officials-Media-Sponsors-Vendors
Analyzing the Data: IMPLAN -Input-output modeling system-Builds accounts with secondary data-Software–Performs the calculations–Windows based-Databases–Updated annually–Provide all of the information needed for the calculations
Results of 20 Economic impact studies -Summary of EIS for tournaments and events-Over 12 month period-Seven U.S. communities-Outliers thrown out-Purpose of breakdown to establish common denominators across tournaments of different duration, different number of teams, and different team sizeTournaments-Larger the number of participants from outside the community, the greater the economic impact-If overnight stay is not required, then economic impact on community likely to be small -Per team member group-per day expenditures consistent for tourneys, approximately $55 per day likely expenditure for youth tourney-Per team member group-per day expenditures of softball tourneys, approximately $100 per day likely expenditure for softball tourneySports Events-Large number of participants and spectators does not necessarily equate to large economic impact-Importance of proportion of time switchers and casuals-Extraordinary impact of sporting mega-event-Impact increased if visitors are encouraged to stay longer
Spillover benefits: Increased Community Visibility -Benefits?-Desire to generate awareness may cause friction between public entities-Some cities receive visibility from teams that play elsewhere-Linkage between community exposure and team visibility is widely recognized-Figure 5-2, p. 165
Spillover benefits:Enhanced Community Image -Mental reconstruction of a place in a person’s mind-Perceived reputation or character-Place marketing–Striving to sell the image of a place so as to make it more attractive to businesses, tourists, and inhabitants-Sports as “image builders”
Spillover benefits:Enhanced Community Image Negative and Positve Impacts Negative impact–Displacement of poorer people living in the cities–“removes the working classes from the scene, replacing them with a more affluent clientele” – may be seen as positive depending on who you talk toPositive impact–Example of Calgary and Winter Olympic Games
Spillover benefits:Enhanced Community Image -“Do we want our community to be considered Major League or Minor League? Do we want to be a community of vision or a community that lacks vision?”-“There is a whole bunch of…second-tier cities creeping up on our heels. Unless we continue to provide a viable exciting community, we’re going to wake up and wonder how Nashville, Charlotte, even Albuquerque outran us. Cleveland’s already done it.”-Parallel between image of a city relating to perceptions of the level of competency of a community’s governance–Meaning that gaining or losing a sport franchise may impact this perception–Risk that if the team is poor, the city’s image will be negatively impacted
Spillover benefits: Stimulation of Other Development Principle of having a threshold level of cumulative attraction-In order to persuade people to go downtown there has to be a threshold number or critical mass of complementary attractions, such as hotels, restaurants, specialty retailers, theaters, and other entertainment offerings-There must be other reasons to visit the area when games are not being played
Proximate development -Use of facility as a catalyst for attracting other development-Lapse between construction of a facility and emergence of associated proximate development is common
Complementary development Two forms(1) Refers to new facilities constructed as part of a jurisdiction’s commitment to hosting a megaevent(2) Refers to the upgrading or initiation of businesses as a result of the demand for their services that is directly created by a sport facility or event
General development -Optimistic view of impact may not matter if cost and market factors don’t change-Recently, sought to promote general development by harnessing the celebrity status of major events, teams, and players to open doors and gain access to key figures in business relocation decisions
Spillover benefits: Psychic Income -Focuses internally on a community’s existing residentsDefinition-The emotional and psychological benefit residents perceive they receive, even though they do not physically attend sports events and are not involved in organizing them -Provides a tangible focus for building community consciousness and social bonding
Measuring Psychic Income -Elected officials have no scientific basis or framework to use to determine a subsidy’s appropriate magnitude-Economists call it “consumer surplus”–Surplus benefit that accrues to individuals that is not captured in ticket revenues by the teamContingent valuation method (CVM)-Places dollar values on goods and services not exchanged in the marketplace-Survey-based approach-Elicit level of subsidy that individuals would be prepared to pay to support a new facility for a sports team
Preferred Alternative: Subsidizing Construction of a Facility -May help to secure political support-Facility leases are for 20 to 30 years-Provides team with potential rather than realized revenue, cash transfers from city to team would provide no incentive for team improvement-Would not establish precedents for other potential subsidy recipients-Direct cash subsidies to wealthy team owners are more likely to fuel resentment
Sources of revenue for Sport enterprises Revenue model changed over the years-Premium seating-Sale of venue naming rights-Sale of personal seat licenses (PSLs)Corporations reasons for investing-Increase their visibility-Create new business opportunities
Luxury Seating Luxury Suites-Skyboxes -Dominant feature in all stadiums and arenas since early 90s-About 20% of seating is luxury seating-Physical features vary-Houston Astrodome first luxury suitesFinance the cost of facilities-Palace at Auburn Hills–180 luxury suites–$12 million a year-Miami Dolphins–216 luxury suites–$20 million a year-1997-2001, 2,700 new suites added to total major league inventory -Figure 7-1, p. 265-NFL leads with 139 suites per venue-All sports venues–Auto race tracks–PGA tour–Tennis stadiums–Rodeo groundsCollegiate Athletic Programs-University of Texas–$3.2 million a year–66 suites-Auburn University–$15.5 million a year–71 suites-Helps to relieve debt
The Revenue Impetus Staples Center-Lakers, Clippers, Kings-$68 million from 160 suites and 2,476 club seats-Revenue from premium seating larger than total operating revenue from average NHL franchise in 2000Table 7-2, p. 266-NFL most revenue from luxury suites on per-game basis
Luxury Seating Extra incentive for NFL-Revenue from luxury seating is not included in the revenue sharing agreement of the league-FedEx field example (p. 267)–$100 million in unshared stadium revenue
Marketing Premium Seating Figure 7-2, p. 268Cleveland Browns-Sell over 2/3 of suites in first 2 weeks-Customer research!! –Focus groups–Interviews –Mail surveysAnnual lease prices vary-Location-Size -Number of amenity features-Long term leases-Staggering length of leasesClub seats-Less extravagant than luxury suites-Nice seats-Access to amenities-Private concourses-Lounges-Bars-In-seat wait service
Challenges of gaining source revenue Periodic Economic Recessions-Sports entities are not immune-Fear and uncertainty can greatly diminish corporate investment-Recessions average 11 months-Make sure suite expiration dates staggeredGrowing inventory of luxury suites-Not enough companies or affluent fans-Lease length may decrease-NBA Golden State Warriors ex. (p. 271)–Disappointing sales–Poor team performance–Fewer than 400 corporations in area
Responding to the challenge Suite Sharing-Selling half or 1/3 shares-More companies likely to purchaseSuite Reselling-Enables team to establish long-term partnership with corporate suite holders who do not want to share a suite-Sublet the suite any time it is not in use-aka “suite adoption programs”
Naming Rights: Pro Venues First agreement–1971 –Schaefer Brewing Company paid $150,000–Patriot’s stadium, Schaefer Field-Bills, Rich Stadium -St. Louis, Busch Stadium-Early 70s through mid-80s, few facilities corporately named-Publicly financed facilities typically named after civic leaders-Late 90s naming rights deals became prominent–By 1997, 1/3 of venues named–By 2002, 70% of venues named
Naming Rights: Pro Venues, Public resistance -Argue there is a civic cost to having a public building named after a corporation-Tradition and citizens will keep calling it the old name-Financed with public money, believed should not be named after corporation-Costs of deals increased tremendously–1995, $1.28 million a year–2002, $4.28 million a year–Highest year was 1999, $4.8 million a year-Houston’s Reliant Stadium–Other events than NFL–Super Bowl–Added-value elements-“hometown players”–companies based in the area they sponsor-High payments for naming rights not in every market-Other sports-Other naming rights opportunities–Media totems–Lobbies

Leave a Reply

Your email address will not be published. Required fields are marked *