Sunday, November 8th, 2009
Pro Sports As Naming Rights Deal
Over at Columbus Underground they are discussing a report commissioned by the Columbus Blue Jackets NHL team claiming the team and its arena had a $2 billion economic impact in the region. I’ve no doubt that a lot of money was spent around the team, but if anyone believes that this resulted in net $2 billion in benefits to Columbus, I’ve got a bridge to sell you.
Every independent study I’ve seen suggests that pro sports and stadiums are a bad deal. But city after city invests in them. If this is so seemingly irrational, why? Some of the arguments include ego, corruption from the influence of rich team owners, the fact that local fat cats will get to enjoy the boxes, etc.
It strikes me, however, that we really ought to take a very different view of pro sports. Rather than seeing this as a direct economic investment with a direct ROI in the way a company models investing in a new plant, we should look at it as a marketing and branding expense. In effect, when cities pay hundreds of millions of dollars to team owners to put a franchise in their town, what they are really buying is naming rights to the team.
Is this rational? I haven’t seen a study that attempts to model it this way, but I think we could evaluate it by comparing what cities pay for naming rights on a team versus what non-public sector actors might pay and comparing the prices on some type of normalized CPM basis. CPM, cost per mille, that is, the cost per thousand impressions, is the way advertising is typically sold in the United States. (Other countries use slightly different albeit conceptually similar models such as cost per gross ratings point). If a city is getting as good a CPM rate as private advertisers or naming rights sponsors, then it could be in at least some sense justified.
Is that standard met? Again, I haven’t run the numbers and don’t have the resources to conduct such a study, but my hypothesis is that cities are getting a very good deal indeed.
Consider the Indianapolis Colts. The city initially paid about $80 million to build the Hoosier Dome, which it used to lure the Colts from Baltimore. But that was in 1984, a different era. To keep the Colts, the city had to build them a new stadium at a cost of $725 million. Plus, the city is foregoing a large chunk of the revenues from the stadium. Let’s assume that when you add up all the lost revenues, factor in interest, etc, you are looking at $1.5 billion over time. That’s just a rough, finger in the wind measure.
Lucas Oil Products, desirous of building a brand for itself, purchased the naming rights on the stadium for $120 million. This is far from the high water mark, by the way. Reliant Energy signed a $300 million deal in Houston.
So Indianapolis paid 12.5x to put its name on the team versus what Lucas Oil paid to put its name on the stadium. This means it needs to draw 12.5 times as many impressions to have paid the same effective rate as a private business that is presumably purely profit motivated. I don’t think it is hard to imagine that the name “Indianapolis” appears or is mentioned on TV with regards to the Colts way more than 12.5 times more than “Lucas Oil Stadium” does.
That puts it in perspective. How much money do advertisers pay to get their names on TV? A 30 second Super Bowl ad is $2.7 million or so. That’s what Budweiser pays to get 30 seconds of air time. But when the Colts were in the Super Bowl, the name “Indianapolis” appeared for a heckuva lot longer than 30 seconds. Think about what you would have to pay the TV networks to put your name on the screen and on the lips of the commentators (even that jerk Chris Collinsworth, who has always hated the Colts) as often as “Indianapolis” appears. The price tag would be staggering.
Beyond just having distinctive names versus a generic one, sports teams and major events are likely the main reason everybody in America knows where you are talking about when you say Indianapolis, Cincinnati, or Cleveland, but “Columbus” does not have the same resonance.
This also helps explain why small cities subsidize sports so much more than big ones. It’s not just about big market vs. small market revenues. Bigger cities aren’t as dependent on pro sports to get their brand message out. That’s why Mayor Daley could afford to take a comparatively tough line with the Bears these things go. There are lots of ways he can market Chicago.
Of course, we can still debate whether or not the investment is wise. Just because the cost is market competitive doesn’t mean you should purchase something. But again, I think about the way companies brand themselves and wonder about the ROI for them too. Think about it. Everyone in America already knows Budweiser and their brand promise intimately. But they still advertise heavily to build the brand, not just for specific promotions. They know they need to stay top of mind with their customer.
My previous employer, which was a business to business concern whose buyers are high end executives, nevertheless spends money on television and outdoor ads. I can’t disclose the amount obviously, but let’s just say it is a lot. Why do this if there is no value? Clearly, when tracking various independent measures of brand equity value, there was a payoff. Also, we built sophisticated modeling tools and utilized a team of math Ph.D’s. to help our clients’ marketing organizations calculate the response curves for various advertising types to help identify the marginal value and optimize outlays for various variables. So while there is still an art to it, there’s a lot of science that could be brought to bear to study this, if indeed someone wanted to do the research.
Now, if you contrast the brand recognition of Indianapolis and Columbus, Indy is far higher. On the other hand, if you compare their demographic and economic performance, they are virtually identical twins despite Indy’s far greater investment in sports. That’s a bit of a cautionary tale. Of course there are a lot of variables involved. That’s why we also shouldn’t be so quick to use some sort of “but for” modeling to claim too many benefits for pro sports – and it is why we needed so many math Ph.D.’s!
From what I’ve seen, a lot of chief marketing officers think they are over-spending on advertising. But clearly there is real value in marketing budgets or highly profit-motivated firms wouldn’t spend so much on it. It strikes me that if you look at pro sports investments and stadiums in this light, there’s a stronger possible rationale for doing them than traditional economic impact analysis would suggest.
If there is a study out there that has modeled pro sports in this way, I’d love to see it.
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Aaron M. Renn is an opinion-leading urban analyst, consultant, speaker, and writer on a mission to help America’s cities thrive and find sustainable success in the 21st century.
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For the past ten years, I’ve been eager for anyone to tell me what’s happening with the St. Louis Ball Park Village. The Cardinals took our money and promised to build something wonderful for us, but it just never happened.
Before we approved the TIF for them, there was a lot of talk about other sports teams with similar promises that never did the building they said they would. The Cardinals have many loyal fans in the city and do contribute a lot to public transit ridership and downtown spending. Only a cardinals game has the power to put thousands of suburbanites on light rail and into downtown sports bars.
It seems like our downtown staida do help the city to steal money from the county (they are separate in St. Louis). However, the presence of three downtown stadiums has contributed to a downtown that is more than half parking garages. Every year or so we knock down another historic structure and put up a parking garage. The most notable tear-down was of the historic Century Building.
The recent all-star game in downtown St. Louis, with its convention component was supposed to have had a large impact on the downtown economy. My assumption is that a lot of that was in local dollars, but who knows…
Of the cities you cover, which cities have their stadia downtown and which have them on the outskirts? What’s the difference?
I feel strongly about the parking garage issue, and I’ve included some maps and comparisons here,
http://stlelsewhere.blogspot.com/2009/10/st-louis-parking-garages-parking.html
In New York, the city spent hundreds of millions on new stadiums for the Yankees and the Mets, even though it needs no advertising. The stadiums are located in dense urban neighborhoods, though not downtown or the gentrified areas, and are surrounded by parking lots even though they sit next to subway and commuter rail stations.
I think one of the reasons of the overattachment of cities to sports is that, as Aaron mentions, the close linking of the city to the team.
As Aaron said, the city is presented in every impression of the mention of the sports team. Indianapolis is mentioned every time that the Colts play.
Yet how that filters to civic health is hard to measure.
Detroit is dead in the water economically, yet it still maintains a team in each of the Big 4 sports. Best of all, in 3 of the 4 sports the teams have been going strong.
Yet it has done nothing for Detroit economically.
The same test can be said for economically robust cities. The L.A. region lost both of its NFL teams in 1995, yet it had no economic impact. However, there was a noticeably large drop in crime when the Raiders left. :>
Overall, though, there is a huge bond between the teams and their cities that places the cities as the clingy, co-dependent significant other.
Spectators feel that if a team is in the city, it is also of the city. The professional sports world, though, realize that sports is a business.
On the outside looking in, sports fans feel any sort of discontinuity (a team leaving, or even a star player exercising free agency or being traded) can be anything from a prodigal child running away from home all the way to high treason.
Inside, though, professionals on the playing field and in the front office are all looking out for No. 1. It’s not about the honor of the city or love of the game. It’s about salaries, concessions, merch and branding rights.
The teams know they can leverage the intangibles against their cities to sweeten the pot. Cities just need to start looking at sports the way the sports world looks at itself, and use it against the teams.
I agree that pro sports hold cities hostages for new largely tax payer funded arenas, and sometimes more, but they do have a value for the cities that them. Having a pro sports team puts your city on the map so to speak. A pro team can take a mid sized city and put it in the next tier of cities.
Urban used the Indy, Columbus comparison. I will use another. Look at Nashville before the Titans. Nashville was already doing pretty well before the Titans, but it was still known as that country music town. Post Titans it’s slightly different. The city has taken on the persona of the team. People I talk to view Nashville differently since the team has been in town.
Another example of the power of pro sports would be Green Bay. If the Packers weren’t in Green bay would anybody give a hoot about the city? Would we even know there was a Green Bay, WI?
Alon noted that NYC has spent several $100 Million on the Yankees and the Mets. Even though NYC is a world class city and doesn’t “need” the Yankees and the Mets those teams, well the Yankees, are iconic. The Yankees are NYC. They represent everything NYC is about. Winning. Larger than life heroes and personalities. One of the most valuable sports franchises in the world. A history like no other. Why would not want to keep the Yankees in your city?
Go out and ask any New Yorker you know about sports. They will almost always bring up the greatness and then rattle off all sorts of facts about the team. Even non sports fan will sometimes do this. That’s the power of sports.
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I agree with Wad, that cities should view sports teams through the same economic lens that the teams view host cities. Taken one step further though, the cities should use the teams to further a positive urban plan that encourages dense development independent of the team, use of public transit (as Daron mentions), and actively discourages surface parking lots.
That said, I think that the sports teams face the same issues of maintaining infrastructure that cities do, but in an intensely more competitive environment. There is a lot of pressure for each team to “keep up with the Jones’s” in the appearance of their stadium. The wear-and-tear on stadiums is significant and is broadcast nationwide at every home game. Aside from local politics, it’s the maintenance that makes teams want to move to greener fields. This is a problem that affects both the public and private sectors. Cities, unlike sports teams, cannot just up and move once the cornice starts crumbling. A national economic model that encourages new development over re-development is what those math PhDs should really be looking at and not just CPM models.
Thanks, everybody.
One of the challenges of stadiums is that they are simply so large and have very bifurcated use patterns that mean you either support a full stadium of 70,000 people or nobody. It is very tough to create anything human scaled that works for that. Arenas or smaller baseball stadiums perhaps, but major football stadiums are nearly impossible. I’ve never seen one done right. Perhaps Chicago’s somewhat works because it is in a park, and so goes along with the “museum in a park” motif.
Joseph Addai’s name was mentioned dozens of times during the Superbowl three years ago. What has this national exposure done for him, very little I’m sure.
I’m sure half of football fans couldn’t tell you whether the Titans played in Nashville, or Memphis or Knoxville. What the Packers have done for Green Bay in the national sense, other than put it on the map, I cannot tell. No one I’ve met goes to Door County for vacation so they can see Lambeau field.
I’m not convinced that cities get anything from their sports teams…when the Colts won the Super Bowl, was there a huge influx of people moving to Indianapolis? When people make decisions on where they are going to live, how good the local team is generally enters pretty low in the equation.
In the UK (and in most countries, in fact), half of the professional soccer teams aren’t even named after their respective cities, yet everybody who follows the game worldwide knows that Arsenal and Chelsea play in London. What’s more, I was attempting to explain how American teams pack up and move to other cities to some friends from Ireland, and they were dumbfounded. That sort of thing just wouldn’t happen, if Liverpool moved to Manchester nobody in either city would want anything to do with them.
Pro Sports aren’t going to cause a rash of people to move to your home town. What they do is give people the perception that your town is major city. It’s a player. It keeps your city on people’s minds and lips. Millions of dollars of merch sold with your city’s name on it is purchased every year. Your city and stadium is featured on millions of video games sold.
Those are things that are hard to put a price on, but they are very important. Look at it this way. If you asked the average person which city was bigger Cincy, Cleveland, or Columbus. Most people would pick Cincy or Cleveland. If you asked them which of these Ohio cities were major players on the national scene I would bet that Columbus would not be in that conversation. If you asked the average person which city was doing better, again most people wouldn’t pick Columbus.
A better example. If you are a pro sports town then most of the nation has at least 1 point of reference for your city. Most people in the US can tell you that Cincy has the Bengals and the Red. Cleveland has the Indians and the Browns. I would bet my next pay check that almost nobody could tell you anything about Columbus, unless they have been there. Some of them may know that it’s home to Ohio State, but most people will not.
Businesses pay a lot of money to not be forgotten. Pro sports is a way to do that.
PS. You would be surprise how many people go to Green Bay just to tour Lambeau Field. You might also be surprised at the serious ROI Green bay gets for it’s team.
First, most New Yorkers I know hate the Yankees – the only ones who don’t are from the Bronx or Westchester.
Second, if you think sports teams put cities on the map, you should test your theory against European soccer. The top teams in Britain are Manchester United, Liverpool, Chelsea, Leeds, and Arsenal. Manchester, Leeds, and Liverpool may have the best teams, but they’re still poor post-industrial towns, and are no better than Birmingham, which has no comparable team. Chelsea and Arsenal are London-based, but they’re not symbols of London; Chelsea, the higher-ranked of the two, is ranked 35th in Europe (link). In France, the strongest team is Olympique de Marseille; Paris Saint-Germain is second nationwide, and 49th in Europe. Neither London nor Paris is any worse for not having a team with the Yankees’ record.
And third, yes, if you asked the average person to pick a city in Ohio, he’d pick Cincinnati or Cleveland. But Columbus is performing much better.
Cincinnati and Cleveland are smaller core cities than Columbus but larger metro populations, which really is what matters.
I might be surprised on what the ROI Green Bay gets from the Packers. I would be even more surprised if someone on the internet took the time to show me, so have at it!
For a city on the margins of being a major league city (Indy not NYC) perhaps having a pro sports teams may have a net benefit pr impact. I would need to see more than a comparison to how much Lucas Oil or whatever spent. They are in large part advertising _to the people_ of Indy, while the people of Indy will naturally spend their money where they live.
There’s a concept in advertising known as “affinity”. You have an actual target demographic for your campaign. But for various reasons, you can’t always buy it, but have to buy more generic audiences, thus some of your impressions go to waste. Back to the SuperBowl example, Bud probably isn’t targeting people who for health, religious or other reasons can’t or won’t drink. So part of what they are paying for is wasted. Minimizing this waste is part of the all important “quality” side of advertising, which is important to measure in addition to the “price paid” side.
There is no doubt, many of the impressions for both “Indianapolis” and “Lucas Oil Stadium” go to waste. But I’d suggest that on the local market side, it is LOS that gets more wastage. A lot of its impressions come from locals driving by on the highway. They are possibly potential customers, but that’s not why Forrest Lucas paid $120 million.
On the other hand, the national exposure for both “Indianapolis” and “Lucas Oil” is valuable, at least for certain demographics. Again, Lucas thought it was worth his money, so that is some indication it is worth something.
I’ll second the observation that people really do travel to Green Bay to see Lambeau Field. I know several of them; a good sign perhaps that I should hang out with more sensible people.
Anyway, I’ll also offer the thought that one reason Packers fans are so tenaciously loyal is they (or some of them, so I’m told) own the team.
I’ve often wondered why cities that have been shut out of the pro football market don’t set up their own league of fan-owned teams, modeled after the Packers.
Fan-owned teams would NEVER leave their respective cities, so there wouldn’t be any of the ugly but routine blackmail now used to extract exorbitant stadia and concessions from desperate places like Indianapolis.
Louisville, Columbus, Memphis, Birmingham – there’s a division right there.
Even if the level of play weren’t up to NFL standards, at least at first (and I predict a league of this sort would soon leave the NFL behind) it wouldn’t matter.
People are quite capable of fierce loyalty to an inferior product. I’m thinking of perennially losing college teams and the major political parties, but there are many other examples.
Factoids of dubious relevance: the Green Bay Packers are owned by 112,000 (as of 2005) shareholders who elect a board of directors. No shareholder may own more than 200,000 shares which is about 5% of the total shares. Lambeau Field is named after the club’s founder.
But Lucas Oil is paying $120 million, and Indianapolis paid $1.5 billion.
Is it Sunday yet?
It appears to be nearly impossible to place a monetary value on the marketing benefit some cities get from placing their city name on a team, a fundamental challenge in all economics research. A conversation or debate just approaches a ridiculous, endless level of “but what about…” senarios.
A mid-sized city with a good but under appreciated product, might benefit in attracting business, conventions, or even new residents partially based on exposure from the professional sports franchise. Initially it appears this could be the only (or best) example where Aaron’s theory holds up. However if true, it’s an important consideration when loosly tossing around investment numbers. It also appears to be a model cities wanting to take a leap forward should consider. I would hedge that the same benefits could be achieved spending on items other than professional sports.
Anonymous #18 wrote:
I would hedge that the same benefits could be achieved spending on items other than professional sports.
I would say that money should be spent on items other than professional sports.
Pro sports teams are incredible money makers — for their owners. Many cities give these plutocrats the treasury with tax breaks, direct subsidies and even eminent domain. Why? Because elected officials are afraid that sports fans may vote them out if they “chased away the team.”
Read the book or the blog Field of Schemes, http://www.fieldofschemes.com , to see how much pro sports teams require public subsidies to stay happy.
Let the money makers make money. Things like schools, mass transit, libraries and public parks and recreation do not make money but in the public sphere allow residents as a whole to become better off through access to work or an improved quality of life.
Alon, the price tag on Lucas Oil Stadium was about half what you quoted, $780 million. The bond principal and interest is paid by a regional food and beverage tax, not solely by the people of Indianapolis-Marion County.
I tend to agree with Aaron’s assertion about the “naming rights” value of the Colts for Indianapolis.
I lived in Indianapolis before the Colts; the Pacers (our other major-league team) had just moved from the defunct ABA to the NBA and were perennial doormats. The whole sports strategy (which includes luring the Colts and NCAA here) has made a significant difference in the city’s self-image and outward promotion. Having the best and most consistent regular-season NFL team over the past decade (at least until Sunday night’s “Game of the Century, round 9″) is no small thing.
Obviously correlation is not causation…but since the Colts have come here, three Japanese auto-assembly factories have been built in Indiana, two within an hour of downtown Indy. Maybe Indy’s brand was already strong in Japan because of auto racing, but I doubt the “major league city” status was completely insignificant in those location decisions.
Pro sports owners are often billionaires who buy a team to less for investment than to feed their egos.
I’m sure Mr. Lucas, like civic boosters, is incapable of acting out of vanity.
A decent analysis of major league sports and new factory building would be to count how many new plants have opened in Birmingham, Columbus and other minor league cities since the Colts moved to Indy, correct for other factors and see where the correlation goes.
Anon, the sports-as-development concept worked for Indy. I would recommend that you read Mark Rosentraub’s “Major League Winners”. He is generally highly skeptical of sports stadia as economic development tools, but in his book he declared Indy a “Major League Winner”.
At one point in the book, he specifically compares employment gains in downtown Indy with employment losses in Columbus through 2005.
The spirit and direction of Rosentraub’s book inform (and support) Aaron’s view of “team as naming-rights deal” for Indy.
CDC Guy, I just quoted the figure Aaron gave for both construction costs and lost tax revenue, which should be understood as a tax expenditure.
So what if it was funded by a regional food and beverage tax? This just means that the stadium is paid for by a regressive tax on the region’s people. It’s even worse than paying it out of the general fund, to which people contribute based on their income or property value rather than based on how much they eat.
My comment was above (#18) suggesting mid-sized cities might benefit most from the profressional sports marketing strategy. An important factor would very likely be a city with underappreciated product in terms of what it might offer to buisnesses, events, conventions, and individuals looking to relocate. The name on the team might get the word out. Clearly though once the city sees that benefit (if at all) they must continue to “support” the professional team indefinitely.
What’s the deal with a team like the New England Patriots who play way outside Boston in Foxboro? Does the city of Boston contribute anything? State of Massachusettes? Does KRAFT just support the team outright? I know they have built a cheesy upscale mall around the stadium.
This is all why I like college sports. Go Butler Bulldog backetball.
I really get stuck on the opportunity cost of space that could be utilized every day rather than once every sunday during football season. (Although the season and number of games seems to get longer and longer..)
Regardless, I think the economic impact is a relative thing depending on how the space might have been used. If, lets say, in Cincinnati, Paul Brown Stadium had been located elsewhere (away from the water) and another use was found for the river front (tourism, etc.) we might be able to create broader economic impact than simply having located the stadium there.
I’d really like to know more about why cities choose to use up valuable space inside of their urban core for such under utilized space like a stadium implies. Even more so in a place like Cincinnati where clustered development of horizontal industries (food and merchandise lets say) are relatively low. Perhaps Boston is doing something right in this respect with the relative density of eateries and other retail locations around their baseball stadium.
I can’t necessarily measure, nor negate, the idea of the Steeler Nation, the Red Sox Nation, etc. But I’m unsure if the choice of location for their stadiums inside the region/city would have much impact on consumer choices surrounding ticket purchases etc.
Another aspect that needs addressed is the popularity/record of said team. Cincinnati’s impact (via the Bengals) v. the impact of Pittsburgh (via the Steelers) would be an interesting comparison. I’m betting more growth/development happens around Pittsburgh versus Cincinnati (and they both have river fronts so that renders that variable negligible).
This was just posted by the Mayor of St. Louis. It has a lot to do with when and if we get our new soccer stadium.
________
St. Louis United Soccer
FOR IMMEDIATE RELEASE
Tuesday, November 10, 2009
St. Louis pro soccer enthusiast Jeff Cooper continues to leave no stone unturned in an effort to bring the outdoor game here. Cooper has joined the owners of teams in Atlanta, Raleigh, Minnesota, Montreal, and Vancouver to form a new professional league to play in the US and Canada, beginning in April 2010.
According to a press release:
Jeff Cooper, the principal owner of St. Louis Soccer United and spokesperson for the new league, said team owners have commenced a search for a league commissioner and are actively finalizing other details, including a name for the league and its sales and marketing plans. The league intends to launch an extensive marketing campaign in the coming months, Cooper said.
In addition, Cooper said the team owners are in active conversations with several teams and organizations throughout the world which have expressed interest in joining the new league.
“This will be a league that will offer the best of both worlds – outstanding experience and leadership at the ownership level combined with the promise and ability to chart our own course for success as a new league,” Cooper said. “It’s this structure that motivated me to bring St. Louis into the new league, and why I believe the new league will have a lot of success at launch next year and well into the future.”
JG, college sports are great, for a university with 50,000 students. For a smaller university, athletic admissions and scholarships dilute the merit admissions and need-based scholarships too much.
Spacks, I am with you on the opportunity cost of space. I also think, as Americans are becoming more environmentally conscious, the ecological cost should also be put side by side with the economic cost.
I am not talking about building public sports venues to LEED silver or gold status. By ecological impact, I mean is the stadium the best use of resources?
As you said, football stadia have the most limited use of facilties among all major league sports. The NFL has a 17-week season, with each of 32 teams playing eight of their 16 regular season weeks at home. There is also a four-week preseason, and another four weeks for playoffs. The Super Bowl site is not determined by play, and for the most part, is almost always played in Florida. :>
So for eight games, each NFL team must assemble thousands of tons of cement, steel, plastic, lighting, glass, asphalt and millions of gallons of water.
Is this the best use for all those materials, knowing that a stadium becomes an outsized buyer of materials and can drive up the costs for all other producers and consumers?
Next, what is the life cycle of these materials? Stadia are generally of the most durable of construction. The downside risk is the rigidity of the materials. What if the stadium is no longer state-of-the-art and it must be renovated, or worse, far before its expected life cycle?
Then, what are the ecological costs associated with the dismantling of the stadiums? Are the materials too hazardous to dispose? Can the materials be recycled or repurposed? What can be the alternative use for such a large quantity of land?
A side-note to the above graph: Wired magazine had a very interesting diagram of abandoned car factories in the Detroit and northern Ohio areas. It explained why the old plants are just left there to rot. The factories are large and rigid. They are too expensive to retool for other uses and can’t be economically run in their present forms. Also, they use materials that are toxic or very difficult to demolish, haul away and store.
So, for the hundreds of millions bundled up into the stadiums, what about the money and energy locked into the building of the stadium? It’s a lot of use for something that is only going to be used for no more than 10-12 or so times a year. Then it also depends on the willingness of the NFL club to allow other uses for the venue when the team is not playing, though the trend in later years has been to build single-purpose stadia. A single park for Major League Baseball and National Football League teams is out of favor by both sports.
The costs, economic and ecological, are climbing higher while the returns from sports are diminishing.
College Athletics: This is a tangential discussion to the thread’s theme.
In college athletics (particularly Division I football) there is an “arms race” currently being waged among teams (schools). Many college athletics departments do operate outside the general university budget – they have a budget supported by ticket revenues, TV contracts, and donors, with some schools (yes true) dipping into general university funds. The NCAA needs reform to reduce expenditures by ALL schools to prevent this ridiculous trend.
Still I am impressed by the smaller schools who have managed to carve out a niche in certain sports, and succeed. Importantly this aids (some schools) in acquiring donations into general academic funds for scholarships, capital improvements, and research. It would not be hard to find schools who piss this money away into ostentatious stadiums and training facilities unnecessarily (with mediocore improvement on records, donations.) Nonetheless, some universities do benefit from the marketing provided by having their names attached to their teams (even small DUKE, BUTLER, and WAKE FOREST sized-schools.)
As with pro-sports and cities, calculating the true bonus to academic success may be beyond feasilbe.
Wad, clearly that’s the question that need to be asked. I have often told people when they ask me about a particular project whether I am for it or against it that there is no right or wrong answer. Every community has a limited amount of money, a limited number of “bullets” to shoot. Where do you want to shoot them? That’s the question you’ve got to answer. Where is the best use of your limited resources.
Wad, both of Indy’s downtown domed stadiums have been built to be connected to the Convention Center, and both are used far more than ten or twelve times per year.
The RCA Dome was fully integrated into the tourist/convention infrastructure, and upon completion of the connection to the convention center next year, Lucas Oil Stadium will be also.
A flexible, multi-use structure presents more opportunities than it forecloses, so “opportunity cost” is not an appropriate concept to apply in Indianapolis’ case.
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Alon, a dining-out tax is not seen as regressive in Central Indiana…quite the opposite. Dining out is perceived here as a luxury or discretionary item. Note that Indiana does not charge sales tax on most food at grocery stores…THAT would be considered regressive here.
I do not understand double-counting the cost of the stadium to measure its “cost”. The dollar cost of anything shows the opportunity cost: we in Central Indiana gave up $750 million worth of other government spending over 30 years to get the stadium. But adding the actual cost of the stadium and whatever we gave up to get it is Fuzzy Math at its best, unless the math considers the total of payments on the bonds that must be raised from the tax. Even then, the stream of payments would have to be discounted to today’s dollars, and the net present value of the payment stream should come out equal to the cost of the stadium.
And that “gave up” number is conjecture: the dining-out tax in the suburban counties actually is allocated half to the county and half to the stadium. There was something in it for the suburbs: more free cash flow for local government.
cdc, I think the point on the $1.5 billion is that $725M is the current year construction cost. We’ll pay back much more that in interest + all the operating costs of the structure (at least $20M/yr or so). Lucas Oil is paying $120 million over time. It wouldn’t be fair to compare $120M million over 20 years versus $725M up front. I wanted to be more apples to apples. Still, I think the impressions on Indianapolis dwarf those of Lucas Oil.
Which reminds me, destroying the old stadium was actually quite easy. The teflon roof was deflated, removed, and recycled. The rest of the structure was imploded. Very straightforward and easy.
Aaron,
I have always thought that \investing\ in pro sports stadiums or whether the arts invest in large performing arts venues, it was more about branding the city than direct economic benefit from the venue itself.
Just yesterday, a prominent Indianapolis businessman, currently working for the Pacers shared a story of the importance to him of having Indy put so much time into sports.
He shared that when he was traveling for business in China, the delegate there hosted a dinner at his house. He said he was welcomed gracefully in all aspects and when the dinner discussion began, he thought they would talk about trade barriers or commodity prices, but instead his Chinese host wanted to talk about Reggie Miller. (This was prior to him working for the Pacers).
I too would like to see a study like you mentioned. I did a very small informal study of performing arts venues while obtaining my masters and it showed that they all essentially lose money.
Indy believed it needed pro sports to be recognized as a top tier city. I’ve worked in circles where the discussion is all about attracting young professionals with college degrees.
I can tell you from the neighborhood that I live in where all my neighbors are actually young professionals who moved here (small sampling, purely unscientific)from another city that not one of them moved here because Indy has the Colts. All of them in fact have allegiances if they follow sports to the team of the city they primarily were raised.
Good take on the stadiums. We need to find someone willing to fund this study of which you speak.
cdc guy,
In Southern California we have an identical arrangement to Indiana’s stadia/convention center. Long Beach has a single events complex that ties together its Convention Center with its arena and two performing arts theaters. The arena can double as expanded convention space.
Despite its fortresslike design, people still find their way to downtown attractions such as Pine Avenue and the less successful Pike retail entertainment district.
L.A. has a similar cluster with its convention center and Staples Center, but the Staples Center cannot be integrated into Convention Center events. Within the last year, a new retail entertainment district, LA Live, was developed north of this cluster. It’s doing surprisingly well.
The bad example of “venue pollution” I can think of is San Diego. The Padres and the Chargers used to share Qualcomm (nee Jack Murphy) Stadium in Mission Valley. One, or possibly both, teams did not want to share use of Qualcomm. So San Diego gave the Padres some distressed land in southeast downtown to build Petco Park.
The upside was that the Padres followed the Colorado Rockies “urban park” revolution. The Padres sited Petco Park downtown and were able to underbuild parking in the downtown. Motorists could prepay for stadium site parking or hunt for space among the existing downtown supply. The third option was to park for free at Qualcomm, the old venue, and just pay for a round-trip Trolley ticket.
The downside, though, was that the sports teams once again had San Diego over a barrel. San Diego had to forgo an expansion of its library system to get Petco Park built. In theory, the new stadium would have helped fill city coffers to pay for the libraries later on.
It didn’t happen. The Padres’ economic activity had remained flat, as the team had always been within San Diego city limits. All it did was shift economic activity away from Mission Valley’s I-8 corridor to downtown. Then came one of the city’s biggest political scandals ever: It promised such a large pension to city workers that it could not pay it back under the most optimistic of circumstances.
I think its been touched on here, but I want to emphasize the downside to branding your city via sports teams – a lot of teams suck. The Detroit Lions add to that city’s image problem. Same for Memphis Grizzlies. The Bengals only reinforce stereotypes about Cincinnati. Sure, companies pay millions to brand themselves, but they also pay significantly for damage control and spin when their image is threatened. When your brand is linked to a wreck of a team that you can’t control, what do you do?
Further, ‘model’ cities can be damaged (the Jailblazers were a pox on Portland for years). And successful franchises don’t guarantee a positive perception of a non-model city (have the Cavaliers changed anyone’s opinion of Cleveland).
Smart cities build their brand around less flippant things.
Phoenix wisely let the Cardinals shambles leave town (if only to the burbs). LA has not lost its luster since the NFL departed. And I think that Seattle will benefit more by losing the Sonics than Oklahoma city will gain by taking the team.
chuck, I think growing second-tier cities like OKC and Indianapolis do gain from the “major league city” branding when NFL or NBA teams relocate there.
You and others are right in saying that it probably doesn’t make a big difference in the first-tier (large market) cities one way or the other. I’d agree AND argue a bit with my Indianapolis colleague Mr. Morris regarding Indy: I also came here as a young degreed professional in spite of the absence of anything “major league”. But the issue isn’t whether people in general come to Indy, it’s whether CEOs and division heads are willing to come. And CEOs and division heads often like luxury suites and big-league entertainment. It may not be THE selling point, but heretofore it’s surely been a sellable difference between Indianapolis and OKC, Omaha, Des Moines, Louisville, Dayton, and Columbus.
But Indy isn’t doing any better than Columbus, and Cincinnati isn’t doing any better than Louisville. Omaha got Union Pacific and Berkshire Hathaway without any pro sports – Buffett was just luck, and UP was there because it was a convenient starting point for the Transcontinental Railroad.
Even then, nothing prevents cities or neighborhoods with pro sports from being slums. Whatever development Manchester and Liverpool still get doesn’t come from Man U or Liverpool.
Sports teams and convention businesses are burdens on taxpayers that require the transfer of wealth from taxpayers to wealthy (or soon to be wealthy) sports team owners and corporate CEOs. Hotels and restaurant consortiums, if anyone, should be the entities developing convention centers. Cities (taxpayers) should not be subsidizing hotel businesses. No one would want or expect a city to operate a manufacturing facility (or build the factory for the manufacturer), grocery store or bank, but for some reason people think that it is reasonable for government (taxpayers) to build sports arenas and stadiums for private businesses, with wealthy team owners and athlete performers, and to operate a convention business, complete with fully subsidized convention centers and at least partially subsidized hotels.
The City’s goal should be to produce a place that people desiring to prosper, want to move to, live in and thrive in. That requires a city to develop sound tax policy that encourages development and discourages malinvestment, (surface parking lots, used car lots, etc.) that provides for adequate to superior infrastructure development in a manner that enhances the reason for the city’s existence – mutually beneficial interactions between people. The creation of a desirable place, filled with desirable spaces permits life, liberty and the pursuit of happiness to occur and blossom. Anything short of that is a fraud perpetrated on the citizens of this or any other city. Government can not create economic activity; it can only provide the framework in which it can occur.
There’s also the dilution of the major league brand when places like Oklahoma City jump in the mix.
OKC and Columbus might represent a special case in pro sports: both are metros well over a million people, and both already have winning quasi-professional football teams with long pedigrees. (OU in Norman and OSU in Columbus.) So is it really a dilution of the “major league” brand for the NBA to go to the OKC metro to complement its existing pro football team?
And maybe that special case even explains the absence of the NFL from LA, since they have USC.
Why do teams have to represent large cities? The English Premier League has no trouble accommodating teams from small towns, if they’re good enough to qualify. One such team, Blackburn Rovers, managed to become league champion once.
I’m anon 7:48. I thought OKC’s population was half that, and the half dozen people I’ve met from there called the place a dump.
Trying to impress someone, like me, with the fact that your city has an NBA team, _just like Oklahoma City_ would strike me as pathetic.
Your article reminded me of this headline:
Pepsi to Cease Advertising
I agree with Jim Morris. I think people grow up with sports allegiances and are unlikely move to some other city for a sports team. For example, I am an Indians fan originally from Columbus. I moved to Chicago for grad school, not for the Cubs, Sox, or any other team. I intend to remain an Indians fan regardless of how long I live here or how long the Indians suck. Wrigleyville is fun and all, but both teams could leave town and I really wouldn’t care much, certainly not enough to move to a different “major league” city. I think the teams should be self-supporting. Don’t let them blackmail you. If they really want to move, then let them.
John, I did not suggest that anyone moves himself or herself because of sports team allegiances. Instead, I suggested that the “major league” label could be an influence in corporate location decisions…in support of Aaron’s contention that it is a kind of “branding” for the city. Everyone seems to want to argue from the point of view of individual allegiances and not address the central point.
Anon 7:48, OKC is in the same part of the “league tables” as Jacksonville, Memphis, Buffalo, New Orleans, Salt Lake…which is to say, at the bottom of “major leagues” but still in the top 50 US Metros. Its MSA is 1.2 million.
New Orleans, Buffalo, and Memphis are all perceived as dumps, or has-been cities. Salt Lake City sometime is, too, and it’s 50% larger than OKC.
And I’m pretty sure that if you ask every company that’s moved its headquarters to Manchester or Liverpool why it’s done so, none of those companies will say it was because of the local soccer clubs. The Manchester United and Liverpool FC brands are powerful globally, but they’ve done nothing to improve the Manchester and Liverpool brands.
It appears from this debate, that some cities were able to make big strides initially after acquiring a professional sports team. After time it may prove to be either a “drag” or just a non-factor on civic success.
Plently of examples have been cited of cities preforming poorly who have pro sports teams. Still that proves no cause and effect – or rather disproves a cause and effect. Cities with under appreciated product can increase exposure and attract business and residents partially via the sports team. The effort would have to be organized and planned, not just a “build it and they will come approach” – a sure fire no ROI. Other cities may forgo professional sports and seak to accomplish the same goals via other avenues; universities, museums, outdoor recreation, etc. Pro sports still seams like the more expensive approach.
No doubt that sports teams can help with the identity of a city. It can be a double edged sword however. It is acknowledged by most in Jacksonville that the Jaguars will be headed to a new locale in the near future; Columbus struggles to support the Blue Jackets in the NHL. In MLB, it is apparent that small market teams are likely to never make it to the World Series.
Louisville is an example of a city that may not have major league sports (or the expenses associated with that) but for far less money they have an identity because of the Ky Derby followed by UL Basketball followed by Breeders Cup and PGA events followed by UL Football that keeps it in the ‘headlines’ pretty regularly.