[Tinordi]

Want to know why Katz is lobbying so hard for someone else to pay for his arena?

Several forces propel the trend toward public provision of facilities for use by privately owned professional sports franchises. During the 1990s, 48 new sports facilities were constructed (or refurbished for over $100 million) while only 16 expansion teams opened for business in the four major professional leagues. Two-thirds of the new facilities and all of the refurbishments are to replace the existing facilities of established teams. The first step toward a new facility usually is a team’s claim that its existing facilities are “inadequate.” The inadequacy commonly pertains not to seating capacity, structural integrity, or sightlines to the action, but rather to the fact that the stadiums built more than a decade ago do not include the luxury boxes, club seats, catering facilities, and advertising opportunities that generate substantial cash flow from high income fans. In other words, although the existing facilities are not physically obsolete, they are economically obsolete.

Private investors and team owners have rarely found a new stadium to be an attractive investment. Since revenues from the existing facility are largely spoken for (for player salaries, organizational expenses, and so on), new stadiums would have to generate incremental revenues over and above those of the facilities they replace to attract private investors, so as to cover their entire construction cost plus a suitable return. While new facilities invariably contain amenities that offer additional revenue sources, and ticket prices usually increase with the opening of a new stadium or arena, new facilities also cause other costs to rise. Because players’ salaries depend on their estimated marginal revenue products and are roughly proportional to team revenues, much of the additional revenue from a new stadium goes toward payroll. The result is that seldom does enough incremental revenue survive to cover facility construction costs. If the financial responsibility for new facilities were left to team owners alone, or to other private investors, surely fewer and more modest facilities would be constructed.

The financial attractiveness of a new playing facility is largely irrelevant, however, if a team can persuade someone else to pay for the facility. Most professional sports franchises find themselves in precisely such an enviable position today. They have lured state and local government officials into a frantic competition to build stadiums and arenas with tax or lottery revenues, requiring the teams to pay virtually no rent, while retaining all or nearly all of the revenues the facility generates. Why do local governments agree to do this?

This nugget is great too:

Few fields of empirical economic research offer virtual unanimity of findings. Yet, independent work on the economic impact of stadiums and arenas has uniformly found that there is no statistically significant positive correlation between sports facility construction and economic development (Baade and Dye, 1990; Baim, 1992; Rosentraub, 1994; Baade, 1996; Noll and Zimbalist, 1997; Waldon, 1997; Coates and Humphreys, 1999).

http://www.uwlax.edu/faculty/anderso...s/stadiums.pdf