THE CITY OF
INDEPENDENT BUDGET OFFICE
This report begins with a review of the current financial agreements between
The Current Agreements. Most baseball stadiums are owned by local governments or public authorities. Franchises pay rent for use of the facilities according to a wide variety of formulas. The formulas typically set a minimum annual payment and then divide up the various categories of revenue generated at the games. These categories include: tickets sold, revenue from concessions, suite and club seats, stadium advertising (signage), and parking. Maintenance and other operating expenditures are covered by either the team, the local government, or the stadium authority.
In addition to direct payments, the play of the Yankees and Mets affects the city treasury indirectly. On the cost side, the city provides game day service such as police and clean-up outside the stadiums. Teams also generate tax revenues for the city. The fiscal impact of the teams is discussed later in this report.
Plans for New Stadiums. The Yankees' current lease runs
through 2002, and the team, even before the recent fall and crash of a steel
expansion joint, has expressed a strong preference for a new stadium. Although
attendance at Yankees games has been above the major league average as shown in
Figure 1, the experience of teams with new stadiums suggests that revenues for
the Yankees could be much higher. The team believes that a new
location-particularly one in
In April 1996, a private consultant hired by the city of New York, the state of New York, and the New York Yankees evaluated a number of potential sites for a new baseball stadium for the Yankees and found that locating a dual sport facility on the Hudson River over the West Side Rail Yards made the most sense financially. That site was expected to generate the most stadium revenue and to produce the most overall economic development of the four locations considered. The study estimated the cost of constructing a dual-sport facility to be just over $1 billion and a baseball-only stadium to be roughly $800 million.1
The possibility of the Yankees' relocating to
The Mets have recently exhibited a plan to construct a new ballpark to
replace the 35-year-old Shea Stadium. The site for the new ballpark is the
parking lot adjacent to Shea and the estimated cost is $500 million.3 The team plans to raise some of the
money needed by selling the naming rights as a form of advertising to an
interested corporation. In addition, the team is asking for a public
contribution to cover 75 percent of the stadium's total cost. The sale of the naming
rights is expected to yield more than the amount Staples Inc. paid for the
naming rights for the new facility for the Los Angeles Clippers, Los Angeles
If the city were to issue general obligation debt or use the New York City Transitional Finance Authority (TFA) to finance a stadium, the stadium would displace other much needed projects currently included in the city's capital program. Displacement would occur because of the constitutional debt limit applicable to the city and the statutory debt limit applicable to the TFA.
Even if legislation expanding TFA's debt limit is enacted and new stadiums do not crowd out other needed infrastructure investments, the city would still be faced with the issue of how much debt it can afford. Debt service has grown sharply in recent years, and is projected to account for 9 percent of the city's operating budget in 1998 and reach 11 percent of the budget by 2002.5 Significant increases in debt-including debt used to finance stadium construction-would put further pressure on the city's ability to fund other operating budget priorities.
In his just-released executive budget, the Mayor proposes funding the city's contribution to stadium construction on a pay-as-you go basis. The revenue would be raised by indefinitely delaying elimination of the city's commercial rent tax (CRT). (See Stadium Financing Alternatives, below, for details.) The resulting stream of CRT revenues would be earmarked to fund the New York City Sports Facilities Corporation, a new agency created to build the stadiums.
With his proposal, the Mayor has framed the decision as a choice between new stadiums and cuts in the CRT. In fact, however, the choices facing the city are far broader. To the extent that new stadiums are funded on a pay-as-you-go basis, such spending would compete with other city spending priorities, desired tax cuts, and the need to eliminate out-year budget gaps.
Stadium negotiations between MLB teams and local governments hinge on the
benefits each offers the other, and the competition each faces from other
cities or other teams. Because the number of franchises in MLB is carefully
controlled, baseball teams usually have significant leverage in these
negotiations; were a baseball team to leave a city, no substitute would
immediately replace it. Cities, however, can also offer some unique attributes.
The New York Yankees, worth an estimated $241 million in 1997, are the most valuable team in Major League Baseball.7 As shown in Figure 1, the team's value results from TV and radio revenues nearly three times the league average, ($54.3 million in 1995 and $69.8 million in 1996). In second and third place in 1996 media revenues were the Los Angeles Dodgers and New York Mets, teams that also benefit from being televised to huge audiences.
In stadium revenues, however, the
The advantages that city size provide in potential media revenues do not
apply as well to stadium revenues for two reasons. The size of a stadium, where
a team's fans can watch their team in person, is inherently limited. Doubling
or tripling the size of the city that surrounds it will not double or triple
the revenues produced by a single venue. Moreover, in recent years, the leaders
in stadium revenues have tended to occupy new stadiums. Figure 1 shows that the
four teams with greater stadium revenues than the Yankees play in parks
constructed since 1992. The three teams immediately behind the Yankees play in
Figure 1 also shows that the most recently constructed stadiums tend to be
in smaller markets, such as
New stadiums, however, may be coming to the big cities as well.
Within the metro area, however, New Jersey Governor Christine Whitman said the state would welcome the Yankees with open arms, but also indicated that her state would not make the first move. The first move is New York's and the city's position should reflect the value that the city location offers the team, and the important precedents recently established by private stadium financing plans under way in San Francisco and, most likely, in Boston.
Seven new MLB stadiums have opened since 1991, and at least four more will open in the next several years.10 The flurry of new stadium construction is not hard to explain: new stadiums provide dramatically increased revenues to teams.
As shown in Figure 2, franchises enjoy a surge in revenues following the
opening of a new stadium. On average, gate and venue receipts jumped by nearly
$17 million the first year the teams played in their new stadiums. The Baltimore
Orioles' gate and venue receipts more than doubled, increasing from $24.0
million to $51.2 million, from 14 percent below to 82 percent above the MLB
average, after they played their first game in
The enhanced revenues collected by the franchises can be traced to new revenue sources, increased prices for premium seating, and improved attendance. A new stadium allows teams a range of additional revenue-producing options including luxurious stadium clubs, restaurants, team museums, and shopping arcades. Venues of this sort, along with novel architectural designs, have brought a real change to the stadium experience.
New stadiums allow franchises to market alternative-and more expensive-seating options to their fans. Two such revenue raisers are luxury seating and personal seat licenses (PSLs).11 Luxury seating comes in two principal forms: suites and club seats. A suite is a leased space containing up to 16 seats and a variety of trappings such as television monitors. Club seats, physically set off from general admission seats, are more comfortable and are attended by a wait staff. PSLs are licenses that permit fans to purchase season tickets. Professional football teams have found PSLs to be an invaluable tool for raising money in advance of the construction of a stadium, and the San Francisco Giants are hoping to sell them to baseball fans.
Luxury seating options have driven up the amount fans must pay to attend
games. Average ticket prices at stadiums in the American League have increased
52 percent between 1990 and 1996. Over the same period, the average price of
tickets purchased at
For the teams with new stadiums, attendance has increased along with ticket prices. Attendance at Orioles games went up by over one million fans between 1991 and 1992 when Camden Yards opened, and it has continued to increase since then. In 1997, attendance was 3.7 million, 140,000 more than it was in 1992. The surge in Indians fans was even greater, though it was not as immediate due to the 1994 baseball strike. In the four seasons leading up to 1993, attendance averaged 1.4 million. In the four seasons since, the average has been 2.9 million. Figure 3 shows the ratio of team attendance to the MLB average in the years leading up to and following construction of a new stadium. An immediate jump is obvious for each of these four new stadiums.12
A number of researchers have argued that a novelty effect lies behind such
attendance increases. Estimates of the effect's duration have ranged from 7 to
11 years. Insofar as the increased attendance has resulted from a genuinely
improved experience, there is less reason to expect a decline. Figure 3
suggests a short novelty effect underlies the surge in attendance at
Evidence suggests that owners of teams occupying new stadiums may sustain revenue increases by investing in premium players, thereby improving the quality of their teams. Player costs for the four new-stadium teams increased $11.6 million between 1995 and 1996, while the average increase across MLB was $0.2 million. The teams with new stadiums are bidding up player salaries because the revenue generating power of the new stadiums has made star players even more valuable.
The teams' expenditures appear to have had an effect on their success on the field: between 1995 and 1996, victories increased an average of 12 for the four new-stadium teams.13 Teams with older stadiums apparently suffer a competitive, as well as a financial, disadvantage.14 Such factors increase the pressure on owners to replace older stadiums with state-of-the-art facilities.
A major capital expenditure such as a stadium requires either issuance of debt or a substantial diversion of tax revenues for pay-as-you-go financing. One argument in favor of debt finance is that debt service payments will approximately coincide with the useful life of a stadium, so that residents who benefit from the project over time are the same ones who pay for it. Moreover, annual debt service payments are roughly commensurate with the value a stadium provides in a year. In contrast, pay-as-you-go financing requires an up-front contribution many times the amount of annual debt service, and that contribution may bear little relation to the benefit current taxpayers eventually receive.
The major argument for pay-as-you-go finance is that it would allow the city to build a stadium without adding to the city's already considerable debt service payments. Moreover, pay-as-you-go finance would allow the city to avoid the strict limits on team rental payments associated with the use of federally tax-exempt debt for stadium finance.
In his just-released executive budget, the Mayor proposes to fund the city's contribution to stadium construction on a pay-as-you-go basis. To free up sufficient funds, the Mayor proposes to indefinitely postpone eliminating the city's commercial rent tax (CRT). The CRT rate is scheduled to decline to 3.9 percent in September 1998. In January's preliminary budget, the Mayor advocated eliminating the CRT entirely by fiscal year 2002. In contrast, the Mayor's executive budget now proposes reducing the CRT rate to 3.4 percent in December 1999 and 3.0 percent in June 2001. The difference between the larger preliminary budget tax cut and the more modest executive budget tax cut is to be earmarked to fund the New York City Sports Facilities Corporation, a new agency created to fund the city's contribution to the construction of city-owned sports facilities.
Implications of Tax Reform. Enactment of the Tax Reform Act of 1986 dramatically reduced the stadium debt financing options available to municipalities. Stadiums were traditionally financed using publicly issued tax-exempt bonds, but the act made the use of the federal tax exemption more difficult for stadiums by removing them from the list of private activities that qualified as a category for tax-exempt financing. Sports facilities bonds would henceforth be exempt from federal taxes only if they abided by much more stringent requirements imposed on private activity bonds in general.
The act granted exemptions to stadiums that qualified under a transition
rule including, among others, Jacobs Field and
Methods of financing used for all stadiums other than those few that were grandfathered by the transition rule have been restricted by new rules governing private activity bonds. The interest on project debt is exempt from federal income tax if either less than 10 percent of the proceeds from the bonds issued are used by a private entity or less than 10 percent of the debt service on the bonds is secured by revenues from a private activity. Since the facilities in question are used primarily by private entities (professional sports teams), the bond issues do not meet the first part of the rule. Because rental payments to the city or the authority that builds the stadium would constitute direct or indirect payment of the debt, these payments must be less than 10 percent of debt service if the stadium debt is to be federally tax-exempt.
Current Financing Options. In the wake of the act, three alternatives for financing new stadiums are currently available: the use of taxable bonds issued by a state or local government or public authority, the use of tax-exempt bonds secured by general government revenue in combination with very little or no rental payments from the team, and reliance on private financing on the part of the team.
The first option is publicly issued taxable bonds. This financing alternative has a disadvantage relative to tax-exempt debt because the loss of the federal tax exemption on the bonds issued can add up to 34 percent to the total cost of the bonds.15 The debt service is increased by the greater interest rate required to compensate investors for the taxes due. The significant advantage that taxable debt holds over tax-exempt is that team rental payments may be used to secure a taxable bond issuance, and the amount of rental payments would not be restricted by the terms of the Tax Reform Act of 1986.16
Publicly issued taxable bonds have been used only in the financing of the
$191 million stadium in
Publicly issued tax-exempt bonds continue to be used to finance stadiums. The effective limitations on rent have led teams to advance large up-front payments for specific capital components in exchange for use of the new stadium. Such payments reduce the amount of borrowing required and the debt service the municipality ultimately faces. Tax-exempt debt was used to finance the new $325 million stadium for the Milwaukee Brewers. The tax-exemption is permitted because taxpayers fund nearly all of the debt service on the bonds, while the team pays minimal rent. The Brewers did, however, commit $90 million in advance of the public borrowing.
A similar arrangement between
The third option for stadium construction is private financing.
Trends in Debt Finance. Current trends indicate that cities
are increasingly receiving a considerable contribution from their MLB teams in
financing their stadiums. All four cities with stadiums currently under
construction and projected to open by 2000 have gone one of two ways. Bypassing
the use of taxable bonds, three of these cities-
The Moynihan Proposal. New York Senator Daniel Patrick Moynihan has proposed a new law to completely eliminate the use of tax exempt debt for professional sports facilities.18 There are two arguments in favor of this ban. First, the principal user of a professional sports facility-and therefore the principal beneficiary of the subsidy derived from the tax exemption-is a professional sports team, a private rather than a public or non-profit organization. The stadium itself could be delivered by the private market; fans are charged money to attend a game, and this potential revenue would attract some amount of private investment in a stadium. According to this view, a federal tax exemption should not be used to provide a bigger or better stadium than dictated by fans' demand.
Secondly, the benefit is regional. A stadium is enjoyed primarily by the residents of one metropolitan area, and therefore should not be subsidized by taxpayers nationwide. While local governments do use federally tax-exempt debt to provide other services that primarily benefit residents of one metropolitan area, these services are generally necessities. There is a difference between subsidizing the provision of essential services, such as water and sewage, and subsidizing a sports stadium.
It is widely acknowledged that most professional sports stadium contracts
favor sports teams through the granting of significant subsidies funded by
state and local governments. Proponents of public subsidization sometimes
justify taxpayer investment by arguing that sports teams are catalysts for
economic growth. The studies described below test whether the presence of teams
and stadiums affect such measures of local economic performance as aggregate
income and employment. The value of this approach is that it fully reflects all
of the effects of a stadium or a team. For example, new jobs in and around the
stadium will be reflected in the totals, but so will any negative economic
impacts associated with the stadium. Possible negative impacts include tax
increases, reductions in other public expenditures, or declines in private
spending on alternative forms of entertainment. The section concludes with a
look at the role of stadiums in neighborhood economic development and some
Stadium Subsidies. In the 1992 book Paydirt, James
Quirk and Rodney Fort estimate the governmental subsidy present in 25
professional sports stadiums around the country in 1989. A positive annual
subsidy was found to be present in every case. The subsidy was defined as the
net operating income minus the sum of lost property tax, the lost return on
capital expenditures, and the depreciation of the stadium asset. The level
ranged widely, from an annual subsidy of $189,000 for Lambeau Field in
A possible response to this finding is the assertion that public subsidies are appropriate because the public benefits from the presence of professional sports teams. This is certainly true, at least for most fans of the teams. Another argument occasionally advanced holds that the presence of big league sports teams have economic impacts benefiting the community as a whole, not just the sports fans. While it is apparent that many businesses depend heavily on sports teams, the studies described below did not find any evidence that the presence of professional sports leads to noticeable increases in income or employment.
The Impact on Metropolitan Areas. In a number of studies
Robert Baade has examined the economic impact of new sports stadiums on
metropolitan areas in the
Accounting for differences in regional growth, they found that for the metropolitan areas as a group, the opening of a new stadium had a slightly negative, statistically significant effect on aggregate personal income. The presence of a baseball team had a slightly positive, statistically significant effect on personal income-almost offsetting the negative impact of a new stadium. The presence of a football team had no effect. The greater impact of baseball is explained by the fact that baseball teams play many more games than football teams.
Baade and Dye argue that the negative impact of stadiums on local income results from a government subsidy that might bias local development toward low-wage jobs. Jobs in the stadium are generally low paying and part time and other permanent jobs resulting from the arrival of a sports stadium are likely to be in the low-wage, low-skill, retail sector.
In 1994, Baade studied the effect of the presence of professional sports
teams and the effect of new stadiums on metropolitan area per capita income.21 For 30 of the 32 metropolitan areas
where there was a change in the number of sports teams, he found that the
presence of sports teams had no statistically significant effect. Professional
sports teams appeared to decrease
The Impact on Cities. In determining what is best for a city, however, the impact on the metropolitan area as a whole is not the final consideration. There are good reasons to expect the impact of sports stadiums on the particular city in which they play to be different from their effect on the metropolitan area as a whole. Fans may come from the suburbs surrounding the city to spend time and money near the stadium, in the team's home jurisdiction. These expenditures reflect disposable income that will not be spent in other parts of the metropolitan area. So it seems possible that a stadium could benefit a city or town, while having no impact on the economy of the entire metropolitan area. This possibility has not received much attention, but a recent article by Mark Rosentraub finds that sports stadiums generally do not fuel the economies of cities.
Rosentraub chooses 12 cities in the South and Midwest thought to be similar in ways relevant to the question he poses.22 He questions whether such downtown sports facilities met their intended goal of reinforcing the centrality of the central business districts and slowing the gradual erosion of jobs from the central city to the suburbs. Comparing the experience of the seven cities with downtown facilities to the five cities without, Rosentraub finds that this strategy does not seem to be working. The cities with downtown facilities lost more population than those without, both in the central business district and in the balance of the city. The cities with downtown facilities had a smaller share of metropolitan area jobs in the central business district in 1985, and this share declined almost exactly as much as in the cities without downtown facilities between 1985 and 1995. Rosentraub does not argue that sports stadiums hurt the economies of the cities in which they locate. But the evidence he gathers does suggest that they have not had an appreciable economic benefit.23
Neighborhood Development Strategies. The evidence outlined
above makes it hard to justify a great expenditure of public resources in the
hope of generating city-wide economic growth. The location of a stadium within
a city does, however, affect local patterns of economic activity and thus can
be an important element in a neighborhood development strategy. This may
explain why recent stadiums tend to be located in parts of downtowns ready for
commercial development or redevelopment. The new
If neighborhood economic development is the sort that can be achieved, it
makes sense to locate a stadium in a neighborhood that would benefit from the
additional activity. Conversely, the closing of a stadium could harm an
economically vulnerable area, such as the
Robert Baade and Richard Dye make a number of recommendations for cities considering the use of a stadium for local development.24 Most important, more use is better. One reason stadiums do not have a greater economic impact may be that on most days nothing happens in them. Baseball parks are used for 81 regular season games, and perhaps a handful more if a team makes the playoffs. A professional football stadium is guaranteed just 10 games a year if two preseason games are scheduled. Given the importance of use in economic development, however, a municipality might insist upon the cooperation of the team to ensure the maximum availability of the facility as part of any stadium contract.
Baade and Dye also suggest that the stadium be either situated near potentially benefiting businesses such as hotels and restaurants or developed simultaneously with such businesses. Nearby residential development would sustain the new businesses in the off-season. They also warn against allowing too many businesses in the stadium itself, as this reduces the demand for development beyond the stadium walls. Large parking lots surrounding the stadium would also inhibit neighborhood development, especially if parking is otherwise unnecessary in the area.
Despite evidence to the contrary from the Rosentraub study, the impact of a
team or a stadium on the economy of a city is less clear. Because a
significant share of the baseball fans who currently attend games at Yankee
Stadium and Shea Stadium live outside
Finally, it appears that the location of a stadium within a city affects local patterns of economic activity. To the extent that public funds are used in financing a stadium, the city should work to locate the stadium where economic development is needed and to devise a coherent strategy to ensure that development is maximized.
In this section we examine the fiscal implications of the presence of
As we saw above, econometric studies find little discernible difference between metropolitan areas with major league baseball teams and areas without teams. Such research suggests that when a team relocates out of a region residents substitute spending on other forms of local entertainment for spending at the ball park.
However, for the present study the relevant question is what would happen to
As a result, while a team's relocation across local jurisdiction borders would probably have little economic and fiscal consequences for the region as a whole, it would have consequences for New York City itself, which would lose the output, jobs, and government revenues engendered by current team and fan spending in the city. The following analysis shows what is at stake for the city.
Impact Studies and Their Limitations. One way cities attempt to quantify the economic benefit of sports teams is with impact studies. These studies first estimate the direct expenditures attributable to the presence of a team. That figure usually reflects the revenues of the team and the complementary purchases of its fans. (The latter includes spending on food, drink, merchandise, travel, and lodging when attending ball games.) Impact studies also make use of a regional multiplier to account for indirect expenditures; that is, the increased spending on local goods and services by the businesses and individuals whose own goods and services were purchased by the teams and their fans. The total economic impact is the sum of those direct and indirect expenditures.
The results of economic impact studies are often too high because they assume that all of the payments to ball clubs and complementary fan expenditures add to the output of goods and services produced in a local economy. There are three main reasons why this is not the case. First, the major operating cost of a baseball club is player salaries, but few players typically live in the host city during the baseball season and even fewer make the city their primary, year-round residence. Indeed, just two of the current Yankee and Mets players (and none of the managers and coaches) have their primary residence in New York City.25 The spending on housing and other household amenities generated by non-resident players contributes little to the city economy.
Second, the lion's share of the remaining operating costs goes to player development (expenses of farm clubs), team replacement (scouting, player acquisition, amortization of player contracts), spring training, and team travel-none of which involves significant spending on local goods and services.
Third, much of the complementary spending of fans on food, drink, and merchandise pays for output produced outside the city or region. For example, when a fan buys a $20 team cap at a store outside Yankee Stadium, typically some $8 or $9 pays for the services of retailers and wholesalers and enters the local economy; the rest compensates merchandise production and transportation costs incurred elsewhere in the nation or abroad.
Current Economic Impacts. According to Financial World
magazine, total Yankee team revenues came to $133 million in 1996. Of this
amount, $63 million was paid out in player salaries, and $32 million went to
cover other operating expenses and licensing fees. Accounting for player
development, spring training, salaries paid to players living outside the city,
and so on, IBO estimates that about $25 million of the $95 million was actually
spent by the team and its principals in
In addition, visiting teams and fans spent an estimated $39 million on
concessions, merchandise, restaurants, hotels, parking, gas, and public
transportation in conjunction with Yankee home games. A little less than half
(about $18 million) paid for goods and services produced in
Total Mets' team revenues (again as estimated by Financial World)
were $68 million; local spending by the team and its players directly and
indirectly added about $23 million to the city economy, while complementary
spending by fans and visiting teams added another $19 million. The total Mets'
Altogether, the two teams had $202 million in revenues and generated an
additional $98 million in
Current Fiscal Impacts. Based on the economic impact analysis
above, we can estimate the impact of the teams' presence on the
Second, despite the very high salaries of baseball players, player earnings in New York City-the earnings of home and visiting team players in games played at Yankee and Shea Stadium-are actually taxed at a low average rate.29 This is because the New York City earnings of both visiting players and of Yankee and Met players living outside the city are taxed at the 0.45 percent nonresident personal income tax rate. Only the Yankee and Shea game earnings of the players who make the city their primary residence are subject to the city's substantially higher resident personal income tax rates.30
Nonresidents accounted for almost 95 percent of the total home and visiting
player earnings in
The largest baseball-related city tax impact is derived from the sales tax. IBO estimates that sales tax revenues related to the Yankees' presence were almost $3.6 million in 1996, including $3.2 million in tax revenues from gate receipts and complementary purchases in and around Yankee stadium. The Mets generated about $2.1 million in sales tax revenues, including $1.8 million from gate receipts and purchases at Shea.
In addition to the above, the city derives property, income, business, hotel, utility, and selected excise tax revenues from the complementary and secondary economic activity associated with the Yankees and Mets. As shown in Figure 5, there were $2.3 million in additional tax revenues associated with the Yankees, and $1.6 million associated with the Mets. These revenues brought the total Yankees tax revenue impact to $6.2 million, while the total Mets tax revenue impact came to $3.9 million. Together, the two teams directly and indirectly generated $10.1 million in city tax revenues-about 0.06 percent of the city's $18 billion in total tax collections.
The city also collects parking fees at the two stadiums while incurring ancillary day-of-game (principally police protection) costs.32 In 1996, $2.4 million in parking fees less about $1 million in day-of-game costs raised total net city taxes and fees from Yankee Stadium operations to $7.6 million. At Shea, $2.0 million from stadium parking less $700,000 in costs brought total net city taxes and fees to $5.3 million. Those are the figures that will be used below to contrast the fiscal impacts of new stadiums with current fiscal impacts.
The total impact of baseball on the city's budget also includes rental payments collected by the city less stadium maintenance and (in the case of the Yankees) stadium capital costs absorbed by the city.33 In 1996, the city collected $5.1 million in stadium rents from the Yankees, spent $3.8 million on stadium maintenance, and incurred roughly $1.2 million in debt service on stadium renovation bonds issued in the 1970s (and later refinanced). Taking all this into account, the net total city fiscal impact of the Yankees was $7.7 million.34
Comparable numbers for rents and maintenance costs are not available for Shea Stadium for 1996. In 1995, the city received $3.4 million in stadium rents and spent $2.7 million on stadium maintenance at Shea. Carrying these figures over to 1996, the net total city fiscal impact of the Mets was $6.0 million. The combined $13.6 million generated by the two teams was 0.04 percent of the total $32 billion city budget in 1996.
These net totals do not include the fiscal impact of the two teams on the Transit Authority. In 1996, the Authority received approximately $2.1 million in bus and subway fares from fans going to and from Yankee stadium and about $1.5 million from fans attending games at Shea. Costs associated with extra day-of-game transit services absorbed some (but probably less than a third) of these revenues.
Finally, it is important to note that
Prospective New Stadium Impacts. If the teams stay in the city thanks to new stadiums, and the new stadiums cause increased attendance and increased revenues, tax revenues should also rise. For the four new stadiums discussed above (Baltimore, Chicago, Cleveland, and Texas), first year stadium revenues grew by an average of 76 percentage points more than the average in MLB, while attendance grew 46 percent more than average. Applying these growth rates to New York's stadium-derived revenues and complementary fan spending respectively, we obtain the results shown in Figure 6-about $111 million in additional annual economic output in New York City, about 570 new jobs, and $4.9 million in additional annual city government taxes and fees (net of additional city day-of-game costs).35 These are the benefits that should inform the negotiations between city officials and the ball clubs over the burdens of financing and maintaining new or refurbished stadiums. (Note that more than two-thirds of the additional economic output, a total of $76 million-$48 million for the Yankees and $28 million for the Mets-would represent increased revenues of the teams themselves.)
These figures do not distinguish between building at the present site of
Yankee Stadium (or elsewhere in the Bronx) and building on
This is an important point that is often lost in discussions of public policy impacts. Even if we suppose that the city would lose the Yankees without public subsidization of a new stadium, it is still the case that insofar as the city does subsidize a new stadium it foregoes the opportunity to use the funds in question in other ways that could boost city economic activity. Alternative uses could include investing in schools, mass transit, or other types of infrastructure that lower the costs of living and doing business in New York City-or financing tax cuts that would directly increase private disposable income and private demand for goods and services produced here.
The public financing of stadiums has become a contentious political issue in
a number of American cities. In
The results of recent referenda have been inconsistent. In 1991, 65 percent
of voters in
With or without a referendum, however, there will be other forums for public participation. Regardless of how the stadiums are financed, hearings and approval by the City Council will be required. Moreover, stadium construction will trigger the city's Uniform Land Use Review Procedures, which provide for public hearings to be held by affected community boards, borough boards, the City Council, and the City Planning Commission.
Judicial decisions on stadium finance issues have generally supported
governments' decisions to publicly finance professional sports stadiums. The
lawsuits are often based on the legal requirement, common to almost all states,
that public expenditures be for public purposes, and state courts have
generally deemed stadiums to be a public purpose. Before the 1960s, state
courts often struck down the use of tax-exempt debt for public-private ventures
such as industrial revenue bonds, from which private businesses would benefit.
Since then, state courts have been reluctant to interfere with the issuance of
federally acceptable tax-exempt debt. In
First, the economic impact, which does not totally justify the investment but justifies a piece of it. Second, the intangible benefits of having a high profile NFL team in the community at a time when cities are competing for attention is positive. Third, it is an amenity that a lot of people want. We build a golf course and parks and libraries and lots of things because people in the community want them and certainly there are substantial numbers of people who want this. Fourth, the location of the stadium represents the redevelopment of an industrial area close to downtown, certainly a positive in its own right and a significant factor in the public's mind. Taken together, it makes a very compelling argument for going ahead with this.
The attitudes of lawmakers may be changing. Speaker Thomas Finneran of the Massachusetts House of Representatives vows that that state's stand against public subsidies of professional sports stadium will be "the second shot heard round the world."
The use of public money for stadium construction raises questions of equity.
The principal beneficiaries of stadium subsidies are the teams and the fans,
mostly suburban residents, who go to the games. Fans of the teams who live
throughout the metropolitan area but do not attend games also benefit, though
less tangibly, from the presence of the team in the region. As a result, it
would be inequitable for the stadium subsidy to come entirely from
Both of New York's baseball stadiums draw many of their fans from the city's suburbs.39 A stadium too heavily subsidized by the residents of a city would be enjoyed by many suburbanites not paying their full share of the costs. At present, because the existing Yankee Stadium debt service is as small as it is, the city taxes generated by suburban fan spending make baseball games a net fiscal gainer for the city. Heavy city subsidization of a new stadium, however, could easily turn the surplus into a deficit.
In the case of
One way to address this potential inequity is through a stadium taxing
district that extends beyond the limit of the city. Examples of state and
metropolitan area financing include Camden Yards, financed through a statewide
sports lottery, and Coors Field, funded by a multi-county tax increase. Unlike
Yankee and Shea Stadiums, which are owned and operated by
Millions of New Yorkers greatly value the Yankees and the Mets; it is
certain that many would be disappointed were either team to leave the region or
even the city. Despite the importance of baseball, the city is in a strong
negotiating position. Because
Moreover, sports teams are not reliable economic engines. Studies on the economic impact of teams suggest that they do not generally yield increases in jobs, population, or income for metropolitan areas. The location of a stadium within a metropolitan area does, however, affect local patterns of economic activity; the Yankees and the Mets bring suburban baseball fans-and their entertainment spending-into the city. If either team were to move to the suburbs, a significant share of the $300 million they annually contribute to the city's output and the $14 million they add to the city's treasury would be lost. While these impacts may justify some expenditure of public funds, very substantial contributions from the teams would be required to make the new stadiums a fiscal winner for the city.
Recent stadium financing deals that rely more heavily on private financing
and less heavily on public subsidies reflect this critical view of the benefits
of stadiums. They also reflect the dramatic revenue increases new stadiums
generate for baseball teams. The financing agreements for
1. These figures do not include the costs of acquiring
the site or direct ramp connections from the Lincoln Tunnel. Office of Bronx
Borough President Fernando Ferrer, The Perfect Pitch: The Bombers in The
2. Letter from American Littoral Society, Baykeeper, Environmental Defense Fund, Natural Resources Defense Council, New Jersey Audubon Society, New Jersey Conservation Foundation, New Jersey Environmental Lobby, Straphangers Campaign (NYPIRG), and Tri-State Transportation Campaign to Governors Pataki and Whitman, Mayor Giuliani, and Robert Mulcahy of the New Jersey Sports Authority, April 25, 1996.
3. The costs estimates for
4. Tom Topousis, "Rudy in 'Corporate'
5. In general, a debt service burden exceeding 10 percent of a city's operating budget is viewed as one signal of fiscal stress.
6. A recent study finds that smaller
metropolitan areas tend to pay greater subsidies in supporting their sports
teams. Maguire, Steven, "The Market for Professional Sports
Franchises," presented at the National Tax Association Meetings,
7. Total value and revenue figures are estimates from Financial World magazine on the internet at http://www.financialworld.com.
8. The games broadcast on cable had a smaller viewership, averaging 249,000 adults for the Yankees and 122,000 for the Mets.
10. The seven new stadiums are
11. Discussed in Roger Noll and Andrew
Zimbalist, "Build the Stadium—Create the Jobs!," in Noll and
Zimbalist, ed. Sports, Jobs and Taxes, p. 9-12 (Washington, DC:
Brookings Institution, 1997), and Mark Rosentraub, Major League Losers,
12. Note that this surge in attendance
coincided, for three of the four teams, with the decision to remain within the
city limits of the central city of their metropolitan area. The success of the
fourth team, the Texas Rangers, cannot be attributed to a move to the suburbs
either. They remained in
13. The improvement in the teams' play contributes to the teams' popularity and makes it impossible to attribute attendance increases to the new stadium alone.
14. The Yankees, however, have consistently had one of the highest payrolls in baseball. This has been made possible by their high media revenues.
15. Dennis Zimmerman, Tax-Exempt Bonds and the Economics of Professional Sports Stadiums, CRS Report for Congress 96-460 E (Congressional Research Service, May 29, 1996). The savings due to tax-exempt financing is determined by the rate differential between taxable and tax-exempt bonds. The 34 percent upper bound for this savings is based on a rate differential of 4.5 percent. In contrast, a 2 percent rate differential would result in a savings of 17 percent.
17. Stephen J. Agostini, et. al.
18. S. 434 was referred to the Senate Finance Committee on March 12, 1997.
19. Yankee and Shea stadiums were not included in the study.
20. Robert A. Baade and Richard F. Dye, "The Impact of Stadiums and Professional Sports on Metropolitan Area Development," Growth and Change (Spring 1990). Their sample covered nine cities over 19 years (171 observations).
21. Robert A. Baade, "Stadiums, Professional Sports, and Economic Development: Assessing the Reality," A Heartland Policy Study, No. 62 - April 4, 1994.
22. Mark Rosentraub, "Stadiums and Urban
Space," in Noll and Zimbalist, (1997). The 12 cities included seven with
downtown sports facilities,
23. Rosentraub, like Baade (1994), finds
24. Robert A. Baade, Richard F. Dye, "Sports Stadiums and Area Development: A Critical Review," Economic Development Quarterly, Vol. 2, No. 3, August 1988, p. 265-275.
26. Lacking itemized data on Yankee operating costs, we have estimated the non-player salary shares going to player development, spring training, and so on from data provided for other teams. Jesse W. Markham and Paul V. Teplitz, Baseball Economics and Public Policy (Lexington, MA: D.C. Heath and Company, 1981), provide a detailed breakdown of the expenditures of MLB teams.
27. This estimate is based, with some modification, on figures for parking, subway use, venue and neighborhood spending by fans, and the size and budget of the visiting team contingents, provided by City of New York, Office of the Comptroller, New York City Sports Economy, How the City Benefits as a Regional, National and World Sports Capital (November 1996).
28. The values of properties surrounding Yankee Stadium—and to a lesser extent surrounding Shea—are likely to be boosted by the activity generated by the teams. Our fiscal impact analysis captures that effect.
29. Ballplayers are taxed where they earn, not
where they live. Thus of the $63 million paid to the Yankee ballplayers in
1996, $31.1 million was earned hosting the 80 regular season games played at
Yankee stadium and $31.9 million was earned playing 82 games on the road. By
the same token, visiting players from the other 13
30. Ballplayers who live in the city during the season (not more than a handful on each team) while maintaining primary residences elsewhere would need to spend more than half the year in the city to be taxed at the city resident rate.
31. These figures are based on average ratios of private city output (gross city product) to city tax revenues.
32. Note that the following day-of-game cost numbers cover police protection only. They are based on the cost of police per attendee cited in New York City Comptroller, What Sports Brings to NYC's Economy, Economic Notes No. 13 (September 1993). The city also incurs sanitation costs outside the stadium, but those figures are not available.
33. These are discussed separately here and broken out in Figure 5 because comparable estimates of city rents, maintenance, and finance costs are not available for new stadiums.
34. In addition to reimbursing the Yankees for maintenance, the city makes capital expenditures on the stadiums. Since 1983, capital allocations have totaled $10.4 million at Yankee Stadium and $41.0 million at Shea Stadium and its immediate surroundings.
35. These numbers cover ongoing stadium operations only; the one-time impacts of new stadium construction are not included.
36. Using somewhat different assumptions than ours, an unreleased 1996 study of alternative stadium sites commissioned by the city, New York State, and the Yankees reportedly found that city tax revenues would increase by $2 million with a new or renovated turf stadium at the present Yankee Stadium site; by $3 million with a grass single-sport stadium on Manhattan's West Side; and by $5 million with a single-sport turf stadium on the West Side.
37. Robert A. Baade, "Professional Sports and Economic Impact," State Tax Notes, December 8, 1997.
38. National Football League, "National Voters Say "Yes" to NFL," NFL Report, vol. 45 (Summer 1996), p. 4. Cited in Rodney Fort, "Direct Democracy and the Stadium Mess," in Noll and Zimbalist (1997).
39. Estimates of the share of fans from outside the five boroughs vary widely, from about half to 85 percent in the case of the Yankees.
This IBO Report
was prepared by Stephen Mark and
Independent Budget Office
(212) 442-0632 · 442-0350 (fax)
Web Site Address: www.ibo.nyc.ny.us — E-mail Address: firstname.lastname@example.org
Douglas A. Criscitello, Director