Sport Finance Chapter 9

Front 1

Who benefits from new facilities

Back 1

Sports teams and owners
Leagues (ALL teams benefit thru increased ticket sales)
Fans/patrons
Cities/municipalities

Front 2

Benefits to cities and municipalities that come from a new facility include:

Back 2

Positive externalities: benefits produced by an event that are not going to the sport facility/team
(creates new jobs and local businesses get more business)

Consumption by one consumer does not prevent another customer from consuming it

Psychic impact (may be devastating if a team moves)

Front 3

A spillover effect in which a firm's decision may affect innocent bystanders in a negative way (government usually tries to intervene when the possibility of this may occur)

Back 3

Negative externalities

(noise pollution, traffic)

Front 4

Historical phases of facility financing

Back 4

Phase 1 - 1880s to end of Great Depression
Phase 2 - 1960 to 1979
Phase 3 - 1987 to present

Front 5

Phase 1 of facility financing included _____ and _____;
First half of era _____% of stadia were paid for with private financing;
Overall in this era _____ of _____ facilities received public funding (which was _____% of construction cost)

Back 5

Wrigley Field & Fenway Park

100%

5 of 27
31%

Front 6

In 1923 __________ became first to use public money

Back 6

LA Coliseum

Front 7

In phase 2 of facility financing _____ sport and entertainment facilities were built;
Public funding covered _____% of construction costs;
Many were __________ facilities

Back 7

57

83%

All purpose/multi sport

(Phase 2 saw a big increase in the cost of construction)

Front 8

In phase 3 of facility financing _____ new facilities were built over 20 years;
_____% of major professional sports facilities have been replaced or substantially upgraded;
Public financing covered about _____% of the costs;
Usually housed _____ teams

Back 8

90

80%

71% (since 2000, the public share has averaged 58%)

Only 1 or 2

Front 9

In 1987 __________ opened and was quickly renamed __________

Back 9

Dolphin Stadium
Joe Robbie Stadium

Front 10

1960 to 1994 real costs of stadia rose on average _____% per year;
Since 1990 real costs rose _____%; (_____% increase in growth rate)

Back 10

1.76%
(Cost doubles every 40 years)

2.3%
30%

Front 11

Stadium construction costs are rising _____ than inflation

Back 11

Faster

Front 12

Nominal costs adjusted using the construction cost index (CCI)

Back 12

Real costs

Front 13

Stadia is _____ expensive than arenas

Arenas attract _____ events than stadia

Back 13

Much more

More

Front 14

Stadia public funding has dropped from about _____% to _____%

Back 14

85%
62%

Front 15

In the analysis of the costs of stadium construction the __________ are not included

Back 15

Cost or opportunity cost of land and foregone taxes

(Land and lost taxes may add 57% to public costs)

Front 16

Historical changes in the different phases of financing

Back 16

Phase 1 - private sources of revenue
Phase 2 - general obligation bonds
Phase 3 - changing array of complex and creative financing methods

Front 17

Phase 3 in facility financing included what 2 Acts?

Back 17

Deficit Reduction Act of 1984
(prevented tax exempt bonds for financing luxury suites)

Tax Reform Act of 1986
(prohibited tax exempt bonds for facility where a single organization was responsible for 10% or more of revenues generated in facility)

Front 18

Initial public funding sources examples?

Back 18

Sales taxes
Property taxes
Stadium rent
Hotel and rental car taxes (increasingly came from this)

Front 19

Private sources examples?

Back 19

Capitalizing revenue streams from the facility
(naming rights, premium seating, sponsorships)
and borrowing against those to pay for construction

Front 20

Public financing principles (2 types)

Back 20

Equity principles
Efficiency principle

Front 21

3 types of equity principals

Back 21

Vertical equity
Horizontal equity
Benefit principal

Front 22

Equity principal concerned with the taxpayer’s ability to pay; don’t want poorer to pay a disproportionate share
(ability to pay)

Back 22

Vertical equity

Front 23

Equity principal where individuals with similar incomes should pay similar amounts

Back 23

Horizontal equity

Front 24

Equity principal where those who benefit should be the ones taxed (ticket tax)

Back 24

Benefit principle

Front 25

Public financing principle where tax should be easy to understand, simple for the government to collect, low in compliance costs, and difficult for taxpayers to evade

Back 25

Efficiency principle

Front 26

Public financing techniques (4 types)

Back 26

General obligation bonds (historically the most common)
Certificates of participation
Revenue bonds
Tax increment financing

Front 27

Bond where issuer has a commitment to repay the principal plus interest through whatever means are necessary; back by full fait and credit of issuing body

Back 27

General obligation bonds (GOB)

Front 28

GOBs _____ require the use of ad valorem taxes, result in a _____ cost of issuance and a _____ credit rating;
GOBs _____ require a vote;
Default risk? (yes/no)

Back 28

Usually do

Lower
Higher

Do

No, so rates are low

Front 29

Disadvantage of GOBs

Back 29

May limit the use of other bonds

Front 30

For general obligation bonds:
Benefits principle: _____
Efficiency principle: _____
Horizontal and equity principles: _____

Back 30

No
Yes
Maybe

Front 31

GOBs will _____ debt ceiling of municipality and are _____ exempt so interest rate is _____ compared to taxable bonds

Back 31

Reduct

Tax
Lower

Front 32

Governmental entity creates a corporation to buy or build a public facility then issues a _____ to raise money;

Government leases back the building/payments pay back the bonds

Back 32

Certificates of participation

Front 33

Certificates of participation _____ require a public vote and have a _____ risk than GOBs

Back 33

Do not

Greater (because not back by full faith and credit of a municipality)

Front 34

_____ bonds are paid off solely from specific, well defined sources of revenue like hotel taxes, ticket taxes, parking, team rent (public funding sources)

Back 34

Revenue

Front 35

Revenue bonds _____ require pledge of ad valorem taxes
and typically carry a _____ interest rate & requires a _____ debt service ratio/reserve

Back 35

Do not
Higher
Higher

Front 36

Revenue stream backing the payment of the bonds is a _____

Back 36

Lease
(Lease revenue bonds)

Front 37

__________ are based on the incremental property tax value of the ancillary economic development projects triggered by facility;
Dependent on __________

Back 37

Tax increment financing

Development potential

(Tax base is frozen and any increases in the tax base are used to repay the bonds; think Monopoly)

Front 38

Public financing direct revenue sources

Back 38

- Sales tax (most common for sport facilities)
- Tourism/food and beverage taxes
- Sin taxes
- Sale of government assets (land)
- State appropriations (funding from state government)
- Ticket or parking taxes
- Lotteries/gaming revenue
- Player income taxes (athletes on visiting teams)
- Utility and business taxes
- Reallocation of existing budget (limited uses)

Front 39

Public financing indirect sources

Back 39

- Land donations
- Infrastructure improvements
- Tax abatements

Front 40

Private financing return on facility results:

Additional _____ tickets over 8 years after MLB stadium opens

Additional _____ tickets in NFL over 5 years

Back 40

2.5 million

138,000

Front 41

Private financing sources and techniques

Back 41

- Contractually obligated income (COI)
- Asset backed securities
- Luxury suites (generate considerable amount of revenue)
- Naming rights
- Personal seat licenses

Front 42

__________ is the revenue stream team receives under multi-year contracts (ex. pouring rights)

Back 42

Contractually obligated income (COI)

Front 43

__________ - technique known as securitization; sell bonds based on COI

Back 43

Asset-backed securities
(package expected revenue streams and sell bonds based upon the assets)

Front 44

Agreements between stadium owners and large corporations that permit the sponsor to attach their name to the facility (generates a considerable amount of revenue)

Back 44

Naming rights

Front 45

__________ are to individuals what luxury suites are to corporations; gives individuals the right to that seat
(money frequently collected upfront)

Back 45

Personal seat licenses

Front 46

Public Private Partnerships:
2 sectors?
Key element?

Back 46

Public sector - Uses authority to implement project funding (taxes)

Private sector - Contributes project related/other venue sources

Key element - Relationship between government and entrepreneurial sport owners

Front 47

In public private partnerships what is the goal of team owners (private sector) and what is the goal of the public sector?

Back 47

Goal of team owners –maximize contracts & minimize debt service & coverage requirements

Goal of public sector – maximize credit quality of revenues, maintain debt service & maintain a reserve fund

Front 48

Public policy issues and public/private partnerships

Back 48

- Ownership (most facilities owned by a public entity)
- Voter approval
- Payment terms (pay for facility now or later?)
- Responsibility for cost overruns (if stadium costs more than expected who will pay for it?)
- Management of future revenue streams
- Financing sources

Front 49

Ways to get rid of a facility

Back 49

- Transfer from one division to another
- Outright sale
- Sell equipment and then put building on sale
- Sell to a lender and then lease it back
- Demolish and rebuild
- Donate to a charity

Front 50

In 1927 Kyle Field cost _____ and today the upgrades will cost a total of _____

Back 50

$75,000

$450million

Front 51

Who is going to pay for the upgrades to Kyle Field?

Back 51

- Students ($75 million)
- Seat licenses ($230million; represents 80% of premium sales capacity & 70% of regular seating capacity)
- Capital campaign ($125million from donors)
- Local contributions ($20million, actually $36million that will secure a bond revenue stream of $20million)