KINS 6520: Chapter 5 - Stadium Financing

[Public Taxes That Pay for Venues] •Tax only impacts

"users"

[Public Taxes that Pay for Venues] Sales Taxes

- a small increase in the general sales tax for all retail sales that goes towards venue construction •Ex - 6% sales tax increased to 6.5% •Tax impacts all that purchase in the given city -> so it impacts both users and nonusers of the facility

[Public Taxes that Pay for Venues] In-Facility Sales Tax

- additional tax on all transactions within the facility •Usually a percentage of purchase price •Tax only impacts "users" •If fans avoid "in-facility" purchases, this hurts team revenues

[Public Taxes that Pay for Venues] Income tax

- small increase on household incomes •Ex - 0.5% increase on those households making between $100K and $150K per year... •...so tax rate may increase from 24% to 24.5% •A small increase generates substantial revenue

[Public Taxes that Pay for Venues] Parking tax

- usually occurs at parking lots and structures by the venue and during an event held at the venue •Structure similar to the ticket tax (% or flat fee) •Tax only impacts "users" •Can this impact team revenues?

[Legislation Vs. Public Vote] •Since 2000 (Sport and Urban Policy Initiative, 2017):

-50 publicly funded projects awarded using legislation -15 stadium subsidy projects brought to a public vote

[How Does Public Financing Work?] Public can contribute through:

1) Higher property taxes 2) Higher standard sales taxes 3) Additional new taxes on specific items •Rental car tax •Alcohol tax •Tobacco tax •Gaming tax 4) Diversion of taxes from the general fund to the stadium construction fund

[Legislation Vs. Public Vote] •Public financing (funds) are awarded in two ways:

1) Politicians have the ability to simply legislate a public stadium subsidy for a franchise 2) The potential for the award of the public subsidy can be placed up for a public vote

4 Positive Externalities

1.Creation of Social Capital 2.Relocate economic activity 3.Define the identity of the city/region 4.Economic Development

Venues can be constructed through:

1.Full private financing 2.Full public financing 3.Combination of private and public financing

[Public Taxes That Pay for Venues]

Added as a percentage (+5%) or as a fixed fee (+$7.50) to the ticket price

Who is Really Paying for Stadium Construction

If the venue is privately funded, then the brunt of the stadium costs are paid by fans. Why? What is not paid for by the fans is paid for by the owner. Why? If the venue is publicly financed, then taxpayers in the taxed municipalities bear the brunt of the costs.

Why Public Financing Occurs

Politicians make the case for four positive externalities that occur when a local government kicks in public financing Positive externalities - scenarios that improve life or another person's welfare

[Public Taxes That Pay for Venues] •Net result =

fans pay higher ticket prices, team receives less ticket revenue and fewer fans attend games (but depends on consumer willingness to pay)

[Legislation Vs. Public Vote] Majority of public stadium subsides have come from ___________ __________ with no public vote

politician legislation

[Public Taxes That Pay for Venues] Ticket tax

tax added to the cost of the ticket •AKA - amusement tax

[More Public Taxes] Food and Beverage tax

tax on food and beverages sold at restaurants and pubs within a given geographical area •Considered a "voluntary" tax

[Public Taxes that Pay for Venues] Gaming taxes and lotteries

tax on gambling winnings or lottery ticket purchases...or... •Lottery proceeds for a period of time can go towards venue funding

[More Public Taxes] Tourist tax

tax on hotel rooms or rental cars •Lower level of voter opposition because tax largely falls on visitors •If the taxes are too high, it could shift tourism patterns and reduce economic activity in an area

[Public Taxes that Pay for Venues] Sin tax

tax on the purchase of alcohol or tobacco •Affects only users of these products •Considered "voluntary" tax

[Public Taxes that Pay for Venues] Sports district tax

taxes generated in a specific area around the proposed venue are used to help fund the venue construction

Private Financing

team ownership contributes to the construction of the venue

[Private vs Public Financing] Why?

•Local governments feel pressure to keep the franchise in their local market •Fans do not want their local team to move •Politicians do not want to be "the one in office" when the team decides to relocate

[Public Taxes that Pay for Venues] Property taxes

very small increase in the rate at which real estate is taxed •Tax on the "assessed value" of a property for property owners •Generates a significant amount of revenue •Opponents are those on fixed-incomes and those who believe increased property taxes should support education/other public services

[Private vs Public Financing] Why does the franchise owner have the advantage?

•Open markets that are a "real" relocation threat •Think of the open markets in NFL, MLB, NHL and NBA

Financing NCAA Stadiums

•Some football and basketball programs are popular enough to finance their venues through donations, tickets prices, and seat licenses (Michigan, Ohio State, Stanford, Penn State, Alabama and Texas, especially) •At other universities, student fees and allocations from state legislatures have been used to pay for venues. •Some enter into partnerships with local governments: UofL and Louisville joined together to build what was originally the KFC Yum! Center. •The Cowboys joined the city of Frisco , TX, and the local school district to build a venue called, "The Star" that local high schools use for football and soccer games, and the Cowboys use for training and practice. •Other examples of shared use: Carolina Hurricanes and NC State, PITT and the Steelers

[Private vs Public Financing] What is unique about sports venue construction?

•Team owners are being subsidized by local governments (indirectly through taxpayers/consumers)

[Public Taxes that Pay for Venues] Why does this work? (even though non-users pay)

•The small increase usually has little political opposition •Even a small % increase generates a large amount of $ •Impact on the individual taxpayer is very small

Public Financing

•local city/county/state government contributes to the construction of the venue