Foundation Briefs Advanced Level September/October Brief Resolved
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- Modern financing
- Current funding methods
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Topic Analysis ThreeA backgrounder The debate over stadium financing has been brewing since the modern era of stadium financing. I delineate the modern era as a time when public financing became the source of financing for a majority of new stadiums. It’s important to understand the trends underlying modern sports financing; the current debate over stadium financing did not begin in a vacuum. The change from private to public financing, like many long-lasting socioeconomic changes, began following World War II as America shook off the lull of a Great Depression and began flexing the economic muscles it had generated as a result of military-based production. As populations and incomes shot up, so too did demand for “middle class” resources: cars, clothes, entertainment, etc. Professional entertainment fit neatly into the latter category of “entertainment.” At the time, as continues today, a majority of professional sports teams were privately owned; this distinction is important, as the significance of profits also increases with private ownership. Most stadiums were urban hubs, making transportation and integration with the community a simple affair. But with economic growth also came a relocation of wealth: the 1950s coincided with the suburbanization of America. Arena owners, left with the prospect of catering to a wealthier clientele outside their urban homes, did not have adequate funds to fully finance the kind of posh stadiums (with requisite enhanced seating capacity) mandated by an increase in both the wealth and size of their audience. Between the public’s ravenous demand for professional sports and team owners’ inability (or unwillingness) to finance new digs for their teams, the modern public financing model came into its own. By the 1960s and 1970s, public financing had peaked, in terms of public willingness to fund stadiums. Cities would often foot the entire cost of stadiums for their local teams. Arenas were considered public infrastructure. This means they could be included with urban renewal efforts—urban stadiums could be either rebuilt or renovated at whim. Dr. Judith Grant Long of Rutgers University puts the average public share of costs at 89%, or $117 million, by 1979. The 1980s saw a renewed boom. Because cities over the previous three decades often footed the entire bill for stadiums, they were on point for construction of the facilities. Stadiums were thus constructed with an eye for efficiency. Of course, efficiency and profit generation often did not go hand in hand. Football stadiums, for instance, were often constructed with baseball in mind—an awkward fit, given the funky dimensions of a baseball stadium. It was two efficiencies of publicly funded construction that crumbled in the 1980s: multipurpose stadiums and democratic seating. Both were remedied with new stadiums. Major League Baseball (MLB) led the initial charge, as it was baseball teams that suffered profit losses from both factors the most. Democratic seating indicates a lack of premium seating. That is, no luxury boxes, “club” levels, etc. With revenue sharing agreements in place, however, big-market teams needed ways to retain cash. And because premium seating was typically exempt from revenue sharing calculations, the onus was on team owners to construct facilities which: a) Minimized conflicts of use which would make the stadium suboptimal for its original intent, and b) Maximized luxury seating capacity, as well as general seating. This is generally still the guiding philosophy of stadium construction today. By the 1990s, public funds were harder to come by. Public funding as a ratio of total funding for new stadiums fell from its peak of 89% (see previous page) to 57%. Whereas the post-WWII years saw an all-or-nothing approach—some owners would independently construct stadiums, while cities would entirely finance others—the 1990s saw the broader emergence of a modern bastion of stadium construction: split financing. That is, teams and private interests would divvy up the cost of a new stadium in whatever manner they saw fit. Modern financing So how does the modern sports team finance a modern sports stadium? Before we get into that, we need to understand the Tax Reform Act of 1986 (it’ll come up throughout the brief). The Tax Reform Act (TRA) was a bipartisan federal effort to stymie the kind of public financing that had grown rampant by the 1980s (see backgrounder above). The goal of the TRA was to prevent egregious borrowing practices from public funds by private businesses, e.g. the public financing of stadiums for private owners. Prior to the TRA, cities relied on the issuance of tax-free bonds to finance projects, including those for worthwhile private industry. That is, the city would sell off bonds which generated interest. That interest was exempt from federal income taxes, and the city was on the hook for paying interest on those bonds to the bondholders. These tax-exempt bonds were instrumental for cities to be able to uphold their share of bargains struck with sports franchises to fund their stadiums. The TRA essentially tried to eliminate stadiums from the kind of facility that could benefit from the sale of these tax-free bonds. The TRA required that if more than 10% of the debt (e.g. the bonds sold) accrued in the process of building a facility for non-government use was repaid from revenue generated by the building, host cities’ bonds would no longer be federal income tax-free. To put the above paragraph more simply: if the locale financed any more than 10% of a stadium’s cost, it couldn’t sell tax-free bonds to raise the money needed to pay for the stadium. Given that the peak of 89% city financing was already long gone by 1986 and was decreasing en route to the 57% share we saw in the 1990s, lawmakers behind the TRA believed that the bill would halt public financing of sports stadiums through tax-exempt bonds. The alternative was cities performing economic manipulation: finding a source of surge funding for stadiums other than tax-exempt municipal bonds, or pay more than 90% of financing costs for massive, technologically advanced options. Contrary to lawmakers’ predictions, the latter option was chosen. Instead of wilting away, public financing became a boon for privately owned teams. While hesitant to fund them, lawmakers and people continue to see pro sports teams as a net benefit to their communities (see the “intangible” arguments provided in Topic Analysis 1). Pro sports teams, of course, are in artificially limited supply. The leagues—NFL, NHL, etc.—determine whether or not that supply meets the demand. Of course, it doesn’t. Every large metropolitan area wants to either have or keep a professional sports team. This becomes a simple, but perverse, problem of economics: limited supply, soaring demand, and a pricing structure inadvertently designed to place the burden on cities to account for a substantial portion of financing.
Public subsidies (or lack thereof) come in many shapes and sizes. It’s advisable for teams to familiarize themselves with the different ways cities and pro sports teams cooperate, they can better understand the resolution and their side of the case. Understanding currently accepted formats for subsidizing sports teams is also an excellent baseline for teams to develop their own advocacies on this issue. Having a cogent idea for how subsidies should work will especially be helpful to Pro teams; arguing for some nebulous idea of a pro sports subsidy can get Pro into hot water with sharpshooting Con teams who have case studies and strong analytical evidence at their back. Model 1: The public-private partnership | Case study: Cowboys Stadium (Arlington, TX) This is currently the most common format of financing new stadiums in the United States. Under this system, the community and the team reach a deal where each subsidizes some portion of the construction cost. While the baseline for funding is approximately 50-50 split between the city and the team, it can vary depending on circumstances. Ownership can belong to either the team or city, depending on the conditions in place. This was the model used by the city of Arlington to build Cowboys Stadium, a gleaming mecca of football in what was already an athletic and tourist hotspot—Arlington hosts MLB’s Texas Rangers. Since 2005, Arlington has sold $300 million in tax-free municipal bonds to help fund the stadium. As a concession to issuing tax-free bonds (so bondholders make more profit off the bonds), the city offered 4% interest—lower than a standard bond. In exchange for its financing of the stadium, the city of Arlington retains ownership of Cowboys stadium; the Dallas Cowboys pay a relatively nominal $2 million annual rent on the facility. The lease has a total lifespan of 30 years.
We can see that the effectiveness of such a funding model is dependent on the municipality in question. Stuck between larger Texas cities, Arlington is a municipality dependent on “outside” revenue, of which Cowboys Stadium was a component when constructed; the city-team partnership made sense. As for Detroit, the city’s main problem is economic revitalization. Given that the literature is almost unanimous on the economic inefficacy of stadiums, Detroit is largely augmenting its financial woes by funding another stadium for another billionaire. Given that this is the most popular model for sports financing, and that most of these partnerships end up favoring the team far more than the host city, Pro teams can easily argue the problem with the status quo in America simply by evaluating all the failures of public-private financing partnerships across the nation. That said, however, the Pro can still advocate this model of financing as a tenable one for the local community. Even in instances like Detroit, for example, if the Pro limits the “local” community size, there is obviously a gain: the arena location goes from an unused chunk of land to a (hopefully) bustling center of commerce. The key for the Pro, with every model, will be to frame the debate in favorable terms. If the Con objects to the framework, this is a debate that must first be settled before digging into the resolution. By establishing and defining the definition rigidly and favorable, the Pro can turn net negative situations (like the Detroit financing issue) into a positive; greater Detroit might suffer, but greater Detroit doesn’t have to be the community in question. Model 2: Full private funding | Case study: MetLife Stadium (Meadowlands, NJ) Given the economics of the modern NFL, it makes almost no sense for a private financing scheme to build a stadium. This is due to a multitude of factors, many of which we’ve already discussed: the emphasis on luxury amenities drives the price of stadiums (and future renovations) up, while the combination of limited teams and political capital makes municipalities inclined to financially subsidize their sports teams as a means of keeping them from relocating. That said, the New York Giants’ and Jets’ new home presents a unique example of how fully private funding would make financial sense for not only municipalities but also the teams they host. The teams’ new stadium, built four years ago, was created adjacent to the ashes of Giants Stadium, which used to host games for both teams. Both the new and demolished stadium are part of the Meadowlands Sports Complex, a multi-arena swathe of land in New Jersey proposed and municipally funded beginning in the 1970s. The new stadium itself, while sitting on municipally owned and developed land, is entirely privately-financed; the New Jersey Sports and Exposition Authority retains nominal control of the facility. Neither the Jets nor Giants individually had the funds for a stadium, so the two split the facility’s $1.6 billion pricetag 50-50. The result is the most expensive stadium not only in the United States, but the world. With formal municipal ownership (by the NJSEA; see previous paragraph), MetLife Stadium is under lease by both teams. Each team can independently back out of the lease; given that the Jets historically “borrowed” Giants Stadium, it is reasonable to assume the Jets would be inclined to leave and make a new, smaller, independent stadium their home. The stadium’s construction went off relatively smoothly, and the Meadowlands area was left with a new stadium that sees twice the usage of the average football stadium (the two teams alternate home games there) without any of the public financing boondoggles that typically accompany such massive construction projects. Neither team had to finagle tax favors or engage in political strong-arming to push the project through, and the state receives a nice kickback in the form of enhanced revenue from the newer, pricier stadium. On the surface, then, this case study plays nicely with potential Con arguments surrounding opportunity costs. After all, MetLife Stadium is standing proof that a state-of-the-art stadium can be constructed for a professional athletic team without extra taxation, special allowances, or eminent domain proceedings complicating the mess. The state is then left with all the benefits of revenue from the new stadium without the financial obligations to break even on an initial investment; these are surplus funds that can be used to fund schools, infrastructure work, etc. Theoretically, this is both a practical and ideal arrangement for cities to fund stadiums (instead of solely team-based funding) would amount to robbing taxpayers blind. The boon for Pro teams, however, is that MetLife is indeed the manifestation of an ideal set of circumstances. Every potential drawback to the stadium plan had already been mitigated prior to it breaking ground. The property was already available for development, given that the complex was solely for sports and entertainment anyway. There were no outstanding issues of eminent domain, land purchase, or property tax to iron out. The primary source of revenue was not one, but two private enterprises, both of them being teams in the most financially viable sports league (NFL) in the largest market (NY/NJ) in America. Everything was already set up for the two teams to have a state of the art stadium. Pro teams can use the above circumstances to demonstrate that solely private financing is simply a nonstarter for the bulk of stadium financing initiatives. Few municipalities in America have the capacity for sports teams which rake in enough revenue to construct a $1.6 billion dollar stadium. Even fewer already have massive tracts of viable land being currently used for successful cultural and athletic initiatives already, with space for another new stadium. Of course, there’s always the argument that such lavish stadiums are unnecessary; there should still be enough material here, however, for Pro teams to demonstrate the unfeasibility of solely private financing in most cases. The Pro simply needs to establish the basic premise that having a sports team—ignoring the funding costs from the city—is general beneficial for a municipality. The logical conclusion is that some kind of public influx of cash, however small, is necessary. Model 3: Full public funding | Case study: Qualcomm Field (San Diego) I’ll be brief (no pun intended) on this point, given that it serves as the least applicable to modern standards of sports financing. Qualcomm Field, current home of the San Diego Chargers, was financed by a $27 million bond in 1965. The stadium is both owned and managed by the City of San Diego, with the Chargers currently being the only team playing in it (it was originally designed as a multipurpose stadium to also house baseball). The venue is outdated, and is currently ineligible to host a Super Bowl. While there is currently an $800 million project on the table for a new stadium in San Diego dedicated to just football, its funding situation is currently in flux. From my perspective on this debate, this funding model looks to be a creative advocacy for Pro teams to pursue. This may seem counterintuitive, but it could have positive impacts for the Pro. The issue is of priorities. As a private business, the incentive for pro teams is to retain as much cash as possible, and I’ve covered some of the means of doing so: increased capacity, luxury amenities, and ancillary services (fee-operated parking lots are common; advanced fan involvement tech, as seen in the 49ers new stadium, is set to become ubiquitous in new stadiums as well). This means that even if a public domain agrees to finance only a part of the cost of a new stadium, this cost can escalate quickly simply due to the base price of an advanced stadium with all its bells and whistles. Municipalities are typically interested in efficiency; taxpayer money is at stake. On that front, the onus on public planners is to construct something which provides a marriage of utility and comfort. One intriguing advocacy for the Pro, then is to push for municipalities to adopt middle-ground policies on stadium construction: build stadiums which carry advanced features that teams want (e.g. luxury boxes, retractable roofs), but also don’t push the envelope with amenities or capacity. New stadiums don’t necessarily have to be the biggest and most advanced, despite most teams pushing for just that. Especially in a time of fiscal austerity, this can hit the sweet spot for teams looking to milk revenue, while cities can recoup their money by both managing the initial outlay (though control of project goals and budgets) and controlling the property—the city can set lease terms agreeable to both pro teams and its residents. With more frugal stadium construction, public ownership and financing can be advocated as a win-win by Pro teams. Full public ownership | Case study: Green Bay Packers The operative word here is ownership—of the team, not the stadium. The Green Bay Packers are emblematic of such an arrangement today; it’s technically forbidden in the Big 4 leagues of American pro sports, but the Packers’ communal ownership system was grandfathered in. We’ll cover this more in-depth in the public ownership section of the Pro case, but here’s a quick rundown: the Packers source the general public for funding, but it isn’t a tax. Instead, the team is controlled by an eponymous corporation whose sole operation is the management of the team, including stadium upgrades and personnel decisions. Ordinarily, the team runs off its own sources of revenue—ticket sales, merchandise, etc. When additional revenue is needed, the team taps the public. But instead of having Green Bay sell municipal bonds or raising sales taxes, the team essentially sells stock in itself. This stock is largely a nominal offering, lacking the traditional benefits of holding stock in a company. Stockholders don’t have a share of the company, don’t help run the team, etc. Over 90% of this “tax base” is from the Green Bay area, so the Packers are funded almost entirely by their local community. The sale of these virtually useless bonds to fans is the large-scale revenue source which enables the team to make large investments in building upgrades, outsized player contracts, etc. The team is thus able to tap a large swathe of population to fund its operation without having to levy a formal tax; instead, it is true supporters of the team which finance its success. No one pays who doesn’t want to. While this is an obsolete model for current professional sports, it is still of use to the Pro. The Pro’s job isn’t to convince the judge that all modern forms of public subsidies for pro sports are beneficial to local communities; the weight of evidence swings in the Con’s favor on this point. A much more attainable goal for the Pro, however, is to show judges that public funding of some sort can be feasible. While this isn’t necessarily presenting a policy (a nonstarter in PF debate), the onus is still on the Pro to present a financially viable method for public subsidies of pro sports teams. Public ownership is such a method. A publicly-owned team is a stable one. There is no threat of it moving, because the owners and funders of the team are almost all local. There is no incentive to lobby for political capital because the team already has the means of obtaining financial support. There is no need for municipalities to juggle funds because their own funds aren’t being used; only certain constituents “volunteer” to pay up. Admittedly, this is a left-field idea. Going into this topic and putting myself in the shoes of a likely novice debater, it seemed like working the Pro side of the case would take more finesse, creativity, and extrapolation of evidence. Researching this topic has not changed this perspective. The Con comes in armed with lay judges’ preconceived notions (a majority of the public within the past decade has shifted to an anti-subsidy stance, emblematic of a general trend toward fiscal austerity in the United States). The Con also enters the debate with a wealth of evidence pointing to the conclusion that stadiums make for a terrible return on investment. The Pro needs rebuttal evidence on this point, sure. But the Pro also needs to develop a strong case that can put Con teams into a defensive stance which prevents them from using valuable debate time for sniping at the economics of sports financing. The argument for public ownership is a paradigm-shifting, potentially emotional one. It entails switching the perspective on professional athletic teams, from coalitions of millionaires robbing cities dry, to cultural and civic foundations financed by the people. This line of logic is only relevant to the topic if Pro teams can finagle public ownership into their definition of a public subsidy. By setting the stage with clear, reasonable, and effective definitions, this shouldn’t be a trouble point.
A debate round is what you make of it. The one sentence of a PF debate case is never detailed enough to lock debaters into a box. So as always, we implore you to go deeper. Dig out of the box. I’ve tried to discuss everything relevant about all the public funding models for sports stadiums, but I hope this analysis, and this brief as a whole, serves simply as a starting point. Even with a relatively narrow topic like this one, there is far more information—and far more perspectives—than what can fit on this brief. Our goal is simply to provide the most comprehensive and broad scoped of starting points. We know what happens when we assume; this is especially true for PF rounds. It can be easy to stay in the box, and with good evidence and solid delivery, it will win rounds. That said, however, there is too much information out there to justify sticking to stock arguments and basic data. I’ll point out one assumption right now: that stadium construction is basically the only form of public subsidy. In nearly all cases, it is, and this is reflected in the selection of evidence we have placed in the brief. But a subsidy can also be direct funding of a team (i.e. something akin to the Packers’ model), or it can be ancillary funding—maybe a city finances the roads connecting a stadium, but not the stadium itself. During the months this topic is out in the wild, the World Series will start, as will the seasons of the NFL, NBA, and NHL. These are the perfect months to delve into the business of American pro sports. Win some rounds, have some fun, and probably don’t draft Sam Bradford to your fantasy football team. Dan Tsvankin Directory: school -> jchs -> staff school -> April 7, 2016 Theatre school -> Census in Schools and the 2010 Census – What’s Next? school -> Ap u. S. History presidents list the Young Republic, 1788-1815 school -> Your Name Period Date Chapter 24 Earth Science Word Study Movements of the Ocean school -> Introduction school -> Cutting Greenhouse Gases Global warming school -> Vocabulary sc geography The Land school -> Evaluate key political, social & economic changes that occurred in Georgia between 1877 & 1918 staff -> A history Of us secret Human Experimentation staff -> Things To Have Down Cold For The ap test Download 0.68 Mb. Share with your friends:
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