The Team Needs a New or Renovated Home, but Is it Worth the Cost?

January 16, 2008  |  Fox Business

Kathryn Glass
FOXBusiness

As long-term leases approach expiration, many professional sports franchises that have enjoyed years of love and support from fans in the cities where they got their start begin requesting, or rather demanding, a facility upgrade.

But even though some venues may need to be rebuilt, many city residents say it’s tough to justify a project as costly as a sports arena, when other expensive community projects such as education, infrastructure and law enforcement desperately need funding. The question each locality must inevitably decide is whether or not a new or renovated sports venue is a good investment – especially considering the price tag.

With construction prices on the rise, experts estimate the cost of those upgrades to be in the ballpark of $400 million, and closer to $1 billion if you're talking about football. Marshall Glickman, CEO of g2Strategic.net, a sports and venue consulting firm, said the problem is that many stadiums need to be rebuilt from scratch to bring them up to date.

“The issue isn’t whether or not they have a fresh coat of paint--the issue with these venues is the fundamental geometry,” Glickman said. “In a certain era--back in the 60's 70's and 80's--most venues were designed badly by municipalities who weren’t carefully considering economics. They just ended up these large bowls that had seats in them.”

Seattle is no stranger to the issue. The state’s only NBA basketball franchise, the SuperSonics, which has spent the last 40 years in Seattle, is demanding its own arena-upgrade. Team owner Clay Bennett says that his team cannot play at Key Arena any longer if it’s to make the kind of profit that other teams are making around the league. Bennett is threatening to move the team to Oklahoma City if Seattle doesn’t pick up the tab for his proposed new $450-million arena.

The community has voted down all attempts to help finance the new arena. (King County paid for a full renovation of Key arena just 8 years ago.)

While this situation certainly is not unique, it prompts the question of whether or not these teams are really such a boon to the community that they can be expected to contribute upwards of $400 million dollars to the local economy over the term of the next lease.

According to one sports economist, the answer to that question is a resounding ‘no.’

John Fizel, a professor at Penn State University that specializes in sports economics, says he’s never seen a study where the monetary benefits of building a sports venue exceeded the cost.

“A city will talk about generating millions when hosting the Olympics,” Fizel said. “They don’t actually make more money, but the city is often better off because they subsidize that community and improve it—in terms of the amount of income and employment the venue creates, that number is very small.”

The arguments made in support of a community-funded sports venue are typically three-fold.

One: The stadium will increase jobs and spending in the area.

While they admit this is true, economists argue that the number of jobs created is typically low, if you compare the amount of jobs created by the venue to the amount of jobs any other new business would bring, and the positions are for unskilled and low-paying jobs. Spending in the area may increase, but that spending is not significant enough to offset the cost of the venue’s construction, according to the economists.

Two: Professional sports franchises attract new residents and promote a significant amount of commercial growth.

Rodney Fort, a sports economist at the University of Michigan, said it’s uncertain whether or not this is true. But some studies have shown that the opposite is true, and many cities with professional sports actually experience negative growth.

"There’s no difference or growth rates may be lower when there are pro sports teams," Fort said. "We’re thinking that they’re growth engines, but the real growth makers are education and natural resources. Things like sports are consumption items that say 'we’re pretty wealthy.' The presence of sports teams may tell us about the underinvestment those cities have made in infrastructure and education."

Three: The teams improve the community’s quality of life.

While this point is the most difficult to measure, Fort said it is the most compelling argument to date. He says there are several studies that prove cities with professional sports can charge higher rental rates than those that don’t have a team.

The above argument might pull weight in favor of building a venue if the community was building it to attract a new team. But if the team already exists in the city, and is lobbying for a reason to stay, Fort said it’s not as cut and dry.

“Added value for an existing team is very tough to prove because the city is already enjoying any growth benefits, jobs or revenue created by the team,” Fort said.

Nevertheless, city-dwellers usually love sports, and having a professional sports team gives residents a certain degree of hometown pride. In Kansas City, MO, the county is currently funding the $400 million renovation of both the professional football and baseball stadiums.

“In our case, the teams themselves are helping to pay for the renovations. But we had to ask the taxpayers what they wanted,” said Mike Sanders, Jackson County Executive. “We had to decide, do we want to be Omaha or do we want to be Kansas City. Without the Chiefs and the Royals, we look a lot like Omaha.”