Super Bowl Impact on Local Economy of Publicly Subsidized Nfl Stadiums

IT’S THE ECONOMY, STUPID! : SUPER BOWL IMPACT ON LOCAL ECONOMY OF PUBLICLY SUBSIDIZED NFL STADIUMS A Project Presented to the Faculty of California State Polytechnic University, Pomona In Partial Fulfillment Of the Requirements for the Degree Master of Science In Economics By David Raymundo 2015 SIGNATURE PAGE PROJECT: IT’S THE ECONOMY, STUPID! : SUPER BOWL IMPACT ON LOCAL ECONOMY OF PUBLICLY SUBSIDIZED NFL STADIUMS AUTHOR: David Raymundo DATE SUBMITTED: Spring 2015 Economics Department Dr. Bruce Brown _________________________________________ Project Committee Chair Professor of Economics Dr. Greg Hunter _________________________________________ Graduate Coordinator Professor of Economics ii ACKNOWLEDGEMENTS I would like to thank my parents, Octavio and Lilia Raymundo, for their love and support throughout my life. Thanks to their guidance and support, the completion of this project would not have been possible. I will forever cherish many memories I share with my parents and because of them I am truly blessed to have them in my life. As a child, I did not believe that I would be able to graduate with a college degree, but because of my mom and dad I was able to achieve my master’s degree. iii ABSTRACT This paper examines the economic impact on a local community based on the city hosting the grandest game in the NFL, the Super Bowl. The impact that the city generates from the Super Bowl becomes clear evidence if whether or not taxpayers should subsidize league stadiums. The way that this paper arrives to a conclusion about publicly subsidized stadiums is by first looking at the history of NFL stadiums built and the total cost of the projects. Secondly, the amount of public funds is viewed for the stadiums that have been built and how the NFL had an impact on more stadiums being built. Lastly, the Super Bowl impact on the host city is observed. The NFL is the first to claim that having a franchise in a city generates jobs, income, revenue, taxable sales, etc. However, others have found that the statements that the NFL makes are over inflated. In fact, more jobs and revenue are indeed generated by the construction of the stadiums and merchandise sales on game days, but the amount produced does not justify for subsidizing millions of dollars to wealthy NFL owners. Thus, the conclusion that this paper reaches is that of the latter; that there is no real benefit for a city to subsidize league stadiums. At the end of this paper, the question about Los Angeles is briefly brought up. This paper can serve as a perfect example for the city to examine the costs and benefits of getting a professional football franchise back to the City of Angles in more than 20 years. iv TABLE OF CONTENTS Signature Page…………………………………………………………………………….ii Acknowledgements………………………………………………………………………iii Abstract…………………………………………………………………………………...iv List of Tables……………………………………………………………………………..vi List of Figures……………………………………………………………………………vii Chapter 1: Introduction……………………………………………………………………1 Chapter 2: Literature Review……………………………………………………………...7 Chapter 3: Stadium Financing…………………………………………………………...14 Chapter 4: The Stadium Revolution……………………………………………………..18 Chapter 5: Super Bowl Impact on Local Economy……………………………………...26 Chapter 6: Conclusion……………………………………………………………………31 Bibliography……………………………………………………………………………..34 v LIST OF TABLES Table 1 Sources of Public Funds for Stadium Construction……………………...16 Table 2 NFL Stadiums Built Since 1995 Expansion……………………………..21 Table 3 Direct Visitor Super Bowl Spending 2002-2014………………………...29 vi LIST OF FIGURES Figure 1 Annual League Revenue 2014…………………………………………….2 Figure 2 Annual TV Revenue 2014………………………………………………...2 vii CHAPTER 1 INTRODUCTION Among the various sports leagues in America, the National Football League continues to be the most popular sports franchise in the United States. League revenue has been increasing year after year, with annual revenue being more than $10 billion this year alone. Among the revenue that the NFL earns, $6 billion is from television rights alone! The other $4 billion comes from the likes of merchandise and sponsorships.1 Similarly with league revenue, NFL team values have skyrocketed since the early 2000’s. Today the average NFL team is valued at around $1 billion compared to $700 million in 2004.2 In comparison to the other popular sports leagues in America, the NFL earns much higher total annual revenue and TV revenue. The next closest sports league close is the MLB with $8 billion in total league revenue. The NBA comes in a distant third with only $4.56 billion league revenue. Figure 1 shows how much each of the three sports leagues generated in revenue in total for the year 2014. Also, Figure 2 displays total annual TV revenue each league makes. NFL revenues are far greater than the competition when it comes to TV revenue with $6 billion compared to only $1.5 billion for MLB and $930 million for the NBA. League and TV revenue will only continue to grow as the next set of contract agreements with local TV producers are about to take place. This is a clear indication that the NFL has greater popularity than the other two most popular sports leagues in America. 1 Quinn, Kevin G., ed. 2012. The Economics of the National Football League: The State of the Art. n.p.: Sports Economics, Management and Policy series., 2012. 2 Murphy, Kevin M., and Topel, Robert H. “The Economics of NFL Team Ownership.” 1 Annual Revenue 2014 NBA MLB Annual Total Revenue (billions) NFL $0.00 $5.00 $10.00 $15.00 Figure 1. Annual league revenue 2014 Annual TV Revenue 2014 (millions) $930 $1,500 NFL MLB $6,000 NBA Figure 2. Annual TV revenue 2014 2 While the NFL has certainly succeeded in growing its league to unprecedented heights, other sports leagues cannot even come close to this type of revenue while hosting more games in a season overall. Some say that because of this the NFL has leverage when it comes to each individual franchise in their respective home markets. Some may even say that the league has some type of monopoly power since they know that the type of success that they have endured cannot be easily replicated. To this extent, the economics of the NFL is an interesting topic to study on. To some, understanding the way that the NFL does business is difficult. Others are able to comprehend exactly what they intend on doing. It involves more than simply signing players to lucrative contracts and winning championships. There is also the business aspect of the league that is indirectly seen on the field every Sunday. The league must figure out a way to continue increasing its revenues and its product as well or else fans may jump ship to other sports leagues. Part of making the product better is by having a state of the art stadium. With no stadium then there are no games to be played and having an exceptional stadium not only enhances the experience for the fans but may also benefit the host city in which the team plays. Since 2000, approximately 14 new NFL stadiums have been built and another stadium is to be finished being built in 2016.3 With the average NFL stadium (approximately $1 billion) becoming more and more expensive to build, team franchise are continuously asking local government in their respective markets to pony up tax payer dollars to help build these expensive stadiums. The most expensive stadium that 3 Kaempfer, William H. 1998. "Sports, jobs, and taxes: The economic impact of sports teams and stadiums." Journal Of Economic Literature 36, no. 4: 2188-2190. 3 has been built to date and paid for in part by tax payers is that of the Dallas Cowboys in which $444 million of the total $1.2 billion stadium was paid for by public funding.4 In 1998, the owners of the Tampa Bay Buccaneers did not have to pay a single penny for their stadium to be built. It was completely funded by the public through sales tax increase and state bonds. In return for having NFL stadiums being subsidized, the argument is that by having a franchise in a local community, most in the community gets to benefit from it. By having the stadium built tourists come to the games on Sundays and spend on merchandise, hotel, food, attractions, etc., and because of that local economies gain tax revenue. Advocates in favor of having sports teams in a local city argue that having a team is better than not having one because of the economic implications. Even though the city would need to subsidize part of the stadium for the team to play in, the economic benefits are still greater than the cost of the stadium. On the contrary, there are naysayers who are strongly against the idea of subsidizing stadiums because they state that the revenue that is gained from NFL games does not outweigh the cost of a stadium. Although tax revenue does increase due to events, in the long run it does not benefit the city. Bates is one of those who oppose using public funds would describes it as, 4 Ibid 4 Subsidies for professional sports are often rationalized on the grounds that teams generate substantial economic values for host cities. If sports franchises and stadiums generate economic profits for hotels, restaurants, and retailers, for which team owners receive no compensation (i.e. external benefits), the free market will lead to an underprovision of teams and facilities that can be corrected through subsidies. Numerous academic economists such as Coates and Humphreys and Baade, however, have generally found no significant correlation between new facilities or franchises and citywide incomes or employment. The most common explanation offered up by economists for this, perhaps, surprising lack of economic impact is that spending on professional sports is simply a substitute for spending on other goods and services in the local economy so that while the economic impact of a sports franchise may be large in a gross sense, teams have little net effect on a city’s economic variables.5 Another argument for having an NFL franchise in a local municipal is because of the impact of the labor market.

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