Financing the facilities used by professional sports teams

Abstract

Each team’s facility is a ‘stage’ on which its home matches are presented. If owned by the team, the stadium or arena is its largest physical capital asset. That ownership, or else a contract for the use of a publicly-owned stadium, allows the team to sell tickets, broadcast rights and Internet rights. Teams have an obvious economic interest in convincing the public authorities to pay for the stadium. To justify the public subsidy teams claim that the benefits generated by their presence extend beyond the fans that watch or listen to a game. Many economists claim that the benefits produced by teams are almost entirely private in nature and limited to the team’s fans. The chapter explores these claims and develops a framework to determine the optimal portion of public sector support for a sports facility. Next, the chapter considers the benefits and costs of different financial instruments and strategies to pay for any public subsidy of stadiums and arenas. The model of optimal cost-sharing between the public and private sectors and least cost payment mechanism are then compared with recent contracts for building new facilities.