Baseball Economics: Current Research

By John Fizel; Elizabeth Gustafson et al. | Go to book overview

additional revenue. For example, increasing ticket prices by an average of $1 will reduce attendance by about 600,000 over the four years; combining this with the new-stadium effect yields a net of 0.5 million in additional attendance. If attendance would have averaged 2 million without the new stadium, the increased ticket prices yield an additional $1.6 million over the four years (this also accounts for reduced parking and concessions revenue).

Second, and perhaps more important, is revenue from rentals of luxury boxes. The Milwaukee proposal apparently calls for between 75 and 120 boxes with an annual rental of from $10,000 to $50,000 [ Chicago Tribune ( 1995a); Outside the Lines ( 1995)]. 4 Assume a 40-year life for a new facility {County Stadium in Milwaukee is about 40 years old [ Chicago Tribune ( 1995a)]}. If all the boxes could be rented for $50,000 annually for the forty-year life of the facility (and applying a 3% real discount rate), then the boxes would generate about $135 million in incremental revenue (120 boxes) or about $84 million (75 boxes).

If, more reasonably, we use an average annual rental of $30,000 and assume 90% occupancy, then the incremental revenue falls between $45 million and $73 million.

Combining the incremental revenue from additional attendance and from luxury boxes and assuming that the stadium opens in 1999 (as planned), yields a present value of incremental revenue of between $78 million and $167 million. Unless additional uses for the stadium can be found that would yield a present value of between $85 million and $175 in additional revenue, then building a new stadium will not generate enough incremental revenue to cover its costs. It is for this reason that all new stadium proposals include public financing--as, for example, the use of additional sales taxes to finance the new stadium in Milwaukee [ Chicago Tribune ( 1995a)].

This also suggests that a single-purpose, open-air stadium is less likely to be able to generate sufficient additional revenue than a multi-purpose, enclosed facility.

Construction of a new facility is clearly not privately profitable. On what basis, then, can construction of a new baseball facility be justified? Only if we can identify significant multiplier effects of new stadiums, compared to the existing facility, could the investment even be justified on the basis of the social returns. Independent analyses of the effects of sports facilities on local economies [e.g., Baade and Dye (1988)] does not provide support for this justification. It remains almost inconceivable that a new sports facility can provide an economic return that would justify using public funds.


NOTES
1.
I estimated both linear and log-linear functional forms. The linear equation is reported here and the log-linear is available upon request.
2.
Data to perform these calculations were drawn from team media guides for each team for each year. These were provided to me by various members of the Society for American Baseball Research. I would like to thank them for their generosity.

-45-

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