The president of the National University System Institute for Policy Research — hey, it’s never heard of you either, okay? — has come out with a report on plans for publicly funding a new San Diego Chargers stadium, and determined that all the other kids are doing it:
San Diego County would have to cover up to 65 percent of the cost of a new stadium, based on what other NFL markets have contributed. … The center’s president, Erik Bruvold, said he is still preparing his findings, but a much lower public contribution matched by a much higher private share would make a stadium deal in San Diego an “extreme outlier” in the NFL stadium world.
Well, yes, cities do tend to put in most of the money for stadiums these days — I believe I’ve read a book or two about that. This is somewhere between “painfully obvious” and “answering the wrong question,” since the point should be whether it makes sense for San Diego to pay 65% of the cost of a stadium, not whether other teams have gotten away with it. (It’s worth noting, which Bruvold did not in his U-T San Diego interview, that the Chargers’ best alternative option at the moment is a stadium in Carson that would be covered 0% by the public, at least so far as we know now.)
Bruvold did acknowledge, kind of, that 65% is a lot of money, but mostly because those pesky voters might not be happy about spending it:
“It’s unclear to me that the region has got an appetite for a 60 to 65 percent contribution on an $800 million stadium,” he said.
Fabiani has said a new stadium could cost as much as $1.5 billion or more — meaning that the public contribution according to Bruvold’s calculation could reach $975 million.
“People may not like that and I’m not expecting people to like that,” Bruvold said. “That makes some sense of Fabiani’s negative message in his letter to the task force, which is there may not be a deal.”
So to sum up: Other NFL teams have gotten an average of 65% of their stadium costs covered by taxpayers, so the Chargers are going to want that, even though no one else is offering it to them, but San Diego residents aren’t going to like it, so … let’s throw up our hands and say that people can either like the Chargers’ demands or lump them? I’m not really sure what to make of this, except that I’m now thinking I’d get more press coverage if I changed the name of this site to the National Institute for Analysis and Research of Field Schemes.
Won’t happen here, that’s for sure.
As far as job creation goes – it’s a lot of seasonal/part time/no insurance types (like Petco or Qualcomm now). Sure, those are new jobs, but nothing close to what the Chargers will claim.
As far as city revenue goes – substitution effect is in full force here. There’s more than enough to do in SD to spend that disposable income. The Chargers claim 25% come from OC / LA to see the Chargers, and I think that number is too high. Even if it isn’t it’s a small loss yes, and I think it’s going to happen anyway with the Rams in LA (at least I think that’s what is going to happen).
The Chargers continue to work the backup plan because they know a vote doesn’t look like it will shake out in their favor. If the taxpayer part was say, 200 million, it may be a different story (regardless of my point below).
People in the county here are smart – they realize the city pension is garbage, the city is in debt, schools are falling apart and the roads are a joke. We haven’t voted on measures to fix any of those, so why would we bend over backward for the Chargers? Having the Chargers here hasn’t fixed those issues by way of the HUGE revenue people say cities make when having a new stadium and a team.
So if we haven’t chosen to fix those issues already, and having 2 teams hasn’t magically fixed the city’s issue why would we even spend a cent on them now? If one wants to solve problems add a 200 million dollar measure to try to stop the bleeding city-wide.
Of the 31 NFL metro-plexes, San Diego is the one that ‘needs’ an NFL team the least. I have been to San Diego 5 times, never to see the Chargers. I will visit San Diego in the future, never to see the Chargers, if they are still there. If Spanos NEEDS a new stadium, he can build it using 100% of his money in San Diego or Los Angeles – his choice as long as the NFL allows the relocation, if it comes to that.
I do not understand the need for a stadium that cost a billion dollars or more when if you account for inflation the stadiums built by Tampa, New England and others will cost today between $550-$750 million dollars, and no one is saying that they are inadequate for the NFL today
Ed,
You raise a great point. Tampa’s Raymond James Stadium, which opened in 1998, cost $168 million to build. Per the CPI Inflation Calculator at http://data.bls.gov/cgi-bin/cpicalc.pl?cost1=1%2C000.00&year1=1996&year2=2015 , the inflation factor for 1998 to 2015 = 1.43. Thus that $168 million in 1998 dollars would be $240 million in 2015 dollars.
Hi all, thanks for posting about the article.
By way of background, we did this quick analysis of comparative demographics of NFL METRO areas because we were seeing things in the media that made no sense to us: comparing CITIES rather than Metropolitan Statistical Areas; Household median incomes; and TV markets. In our minds that left out a key issue – how did San Diego’s market for ticket buyers compare to other NFL markets. Now without propriatary info from all the NFL franchises one has to use proxy variables and that is what we did – looking at population, number of Households in the metro area with more than $100,000 and the number of “establishments” with more than 250 employees as a measure for the market for corporate support for boxes and club seats. Not rocket science but missing from the dialogue here.
We then decided to regress the percentage the public has chipped in against the number of higher income households. We found a strong relationship (r-squared for the economics geeks of .502). Plugging the value for San Diego (316,000 households) into the equation gave us 64.68%.
Now this blog and others have observed that in recent years cities have been getting better deals with the NFL franchise putting in more money and the public less. There are two competing hypotheses for why this is the case. Hypothesis one is that cities have gotten smarter and/or the NFLs negotiating strength has waned. This could be true. Hypothesis 2 says that this is the case because largely privately financed stadiums are being built (Dallas, SF Metro, New England, Atlanta, possibly LA) in the NFL metros with the greatest number of these higher income households. The private side of the equation (the team, the naming rights, the PSLs) may simply reflect the higher capacity of those metros to absorb on the private side the billion dollar cost. Hypothesis 2 predicts that when we get back to medium/small metros (San Diego, St. Louis) we will see outcomes as we have seen in the past — stadiums built only with a high amount of public dollars spent. As I said in the interview, for San Diego to be an outlier makes little sense – there is no compelling reason the NFL HAS to be in San Diego and the Chargers are not likely to be so generous an ownership group as to personally absorb the lack of private sector capacity to finance more than 1/3 of the cost.
Now I think Hypo 2 is right. You only have to look at the Kings deal in Sacto and the St. Louis rumblings to see that things haven’t changed that much. The biggest cities have markets where ownership can absorb on the private side a much higher percentage. Smaller Cities? SOL
Now National Institute for Analysis and Research of Field Schemes wants us to ask and answer the question of SHOULD SD do this. We have been pretty clear (see http://craftbeerdebates.com/2012/10/13/full-video-the-great-stadium-debate/) that people are right to be skeptical about the economic impact of stadiums. But in many ways that debate isn’t where San Diego is right now. That point has been pretty well covered in our metro and is likely to be discussed once we get there. People don’t really care. What we hoped to do through our research is say that given that people have an emotional attachment to the Chargers and believe it has intrinsic value they better be ready to pay for that as there is unlikely to be a free lunch.
Hi Erik,
Thanks for the details. For us non-economic geeks, the simple fact is that every NFL team owner can easily afford to pay for 100% of any percieved needed new stadium since each owner receives $200 million per year in TV revenue and will have a salary cap liability of about $140 million for 2016. So what you are really measuring is the backbone and corruption levels of elected officials in the NFL metro-plexes. It is time to end ‘stadium stamps’ for billionaire owners. If the stadiums are so bad in St. Louis, Oakland, and San Diego, then games played there should not count in the NFL standings.
Scott, I do think there is an issue between “should” and “will”. I think the activities in St. Louis, San Diego, and especially Carson suggest that there are cities out there that will still pay a high price to be “an NFL city”. I am especially troubled with Carson as the taxpayer “protections” are all of 9 lines in the initiative with very little (any?) protections from a classic stadium “Bait and switch”.
Hi Erik,
It will be especially sad if San Diego even puts forth $1.
@Ed / Scott
I’m with you guys here – I believe Gillette cost 350, and Kraft owned the land already. Even still that’s a far cry from 1 billion, which makes little sense to me. I’ve posted the following link before regarding the NFL’s list of requirements for a super bowl (in this case to the city of Minneapolis), and I don’t know if these type of requirements are the reason for the inflated prices. Or is it an effort to say “we have the best” and “the team’s value went up X%”?
The Chargers were very good in the mid 2000’s, but made some boneheaded personnel moves that left them mired in mediocrity until recently (even in the last 2 years they’ve been better… maybe top 15). So while we go back and forth on the public financing part of stadiums we have to account for previous success or failure of the team itself. The NFL is a cap driven league, and a new stadium doesn’t make them contenders. This isn’t MLB (a league with no salary cap), where ticket prices can affect salary, which in turn affects the product. That is a simple perfect world scenario but at least the case can be made that a stadium can have some team impact. The Chargers simply have no consistency regarding success, and a stadium is going to magically fix that?
Forgot to add the link I mentioned: http://www.startribune.com/local/minneapolis/262253921.html
Hi SD,
Even the worst teams in the NFL (e.g. Tampa Bay Bucs) are highly profitable no matter how terrible the product on the field is. If an owner wants a new stadium, for whatever his/her reasons are, that is fine. Simply pay 100% of the cost Mr/Ms Owner and if you can get the NFL to subsidize your efforts, go for it. There is no reason that public tax dollars should be going to further increase the already huge capital gains of team valuations are the year over year operating profits.
@Scott
Spanos definitely has the cashola. On sports talk radio the claim was he is going “to lose money” this year because fans won’t re-up on their season tickets after the Carson project announcement. Spanos isn’t going to “lose money” – he is going to profit less (maybe).
For some reason people feel the need to feel sorry for these owners. I sure as h*ll don’t.
Erik: Thanks for all the additional information about your study. The methodology sounds well thought-out — I think the bigger question is what you’re trying to answer, and how that gets played in the media.
Yes, absolutely I would agree that all signs are that bigger-market team owners can fund more stadium construction costs out of their own increased profits — that’s as to be expected, really. But what, then, does that mean for smaller cities? That the teams aren’t going to pay for stadiums, so the public has to? Or is it that new stadiums (at least with $1-billion-plus price tags) are pointless for smaller cities, since the revenue gains aren’t enough to pay off the construction costs?
We’re back to the question of what it means to say that the Chargers “need” a new stadium. What they “need” (“want,” really, but from the public’s perspective it only matters that they’re demanding it) is more money, and they figure they can do that with a new stadium if they only have to pay for like a third of it. I’m not entirely convinced, though, that the Chargers have a viable Plan B if San Diego tells them to lump it — Carson sounds nice and all, but even if they do manage to work out some hidden subsidies, it’s going to be tough to make that pencil out. So while I don’t want to pooh-pooh the real risk that the Chargers might leave, I also think San Diego can too easily get into bidding against itself if it just looks at what other cities are spending, and not what other offers Spanos has on the table and how much they’d be worth to him.
One reason I try to avoid talking about average cost shares and the like is that it can way too easily get spun (by both teams and the media) into “this is industry standard, all the other cities are doing it, if you want to be an NFL city you have to suck it up.” I know that’s not what you’re saying, but nuance tends to get lost in the press.
From the sound of it, I’m sure I’m not telling you anything you don’t already know. Just wanted to be clear why I get cranky about these kinds of issues. (Well, I’m pretty much always cranky, but why I direct my crank in this particular direction.)
“We then decided to regress the percentage the public has chipped in against the number of higher income households.”
A few questions:
A) Why just a univariate model?
B) Why high income households as your independent variable? What’s the logic here? That the more rich people there are the more likely a municipality is to, what, use public funds? Couldn’t it be the opposite? If you have a ton a rich people aren’t they more able to pay a premium for PSLs and offset more of the public costs? Basically I’m asking for the coefficient on your independent variable (p-value would be good, too), but also why you think that’s a good independent variable to use in the first place as well would be helpful. (Although if it’s univariate and your x is 316,000 and your y is .6468, then your beta is about 2e-6).
C) Incomes > $100K in San Diego is very different from incomes > $100K in St. Louis. Did you control for cost of living in each market you used?
D) You could do a multi-variate regression that would include any number of factors (SMA size, wealth, some proxy for engagement of team with population, projected cost of the stadium, was there a public vote on the stadium—did Minnesota pony up for almost the whole thing because it has fewer rich people, or because there wasn’t even a vote?—etc. all these things are relevant; a good model would include them), that would show effects that you think might be happening that either support or refute Hypothesis 2.
Re: B. That’s assuming there is no intercept, which is a terrible (and almost certainly false) assumption. Depending on that value, you might still have a negative beta. My bad.
Absolutely agree. And I think you guys are great. Use your book in my undergraduate Econ Dev. Seminar for the section entitled bread and circuses. At the fine grain San Diego leadership should cut a good deal. But the public needs to understand as well that the Spanos’s ARE likely looking at the toys the other moms bought. They know far better the size of their markets and what was paid/extracted/extorted from those other “mid sized” NFL hosts. San Diegans need to prepare themselves for the money that will be demanded and then get ready not to blame the leaders if they hold for an equitable deal and the Chargers say “no”. And San Diegans may say “yes”. I do not presume how people decide to spend their tax money. They should not (and we will scream loudly) that there will be an “economic return” but people spend money all the time on things that don’t.
Michael good questions –
Univariate – cause that has all I have done so far and a bunch of the other variables out there are going to correlate with HH income. If/when we do this for a different audience we may get all fancy but for a project I have worked on for all of 72 hours this seemed fine (foolish of me to mention I was “working on it” on Twitter.
Independent variable. Right or wrong the Way that CSL calculated “public/private” share puts PSLs over on the Private side. Ditto Ad revenue, Naming rights, etc. So we figured that the number (not share but raw number) of High income HH translates into capacity to buy PSLs/derive high margin income for the ownership and thus their willingness to forgo public subsidies. It is akin (I was just talking to a reporter about this) treating an NFL team as a retailer. As you probably know, the simple way that retail location decisions are made are rooftops and incomes. If you don’t have enough, then the retailer is likely to demand a subsidy. It is really interesting to see the NFL has some of those same dynamics.
Control for cost of living. Would be good. I haven’t yet. Be interesting what it did to the data. I have to think a BIT more about that though before committing – as you know a big chunk of regional differences in CPI is housing costs and the BLS figures, as I understand, do NOT account for rates of owning homes free and clear. Most of the time that doesn’t matter but for high income HH I am thinking we might want to try to think that through before making the simple adjustment.
Agree with D and if I wanted to make this a major piece of work I might (and still might) do that. Lots of work (and lit. reviewing) to get from here to there but I am intrigued with the idea of treating stadiums as we would retailers so I might.
I will get the p values and all the stuff out once we finalize the scrub. Checking things twice and all that.
Thanks for the answers. There are soooo many factors that go into the stadium game that, while interesting as an exercise, I think any univariate model is going to fall well short in trying to predict what a public share would be (independent of whether they should do it). But again, thanks for the reply.
Michael – maybe. What would be interesting is that if we used variables in the retail game and came up with a good model it would tell us a lot about how we might think about a product that, in the end, is selling entertainment. Probably pushing the metaphor far beyond where it would go but then we might think of NFL teams (and stadiums) the same way that developers think about anchor department stores in malls – worth susidizing but on the backs of the businesses that directly benefit from the presence. Of course capturing those externalities are tough….ergo tax breaks…..
Wow, Erik even cites the Sacramento deal. This is what I’ve been saying all along, that California has flawed laws when it comes to revenue-anticipation bonds; all they have to do is produce a study to show the thing they’re funding will produce enough revenue to repay the bonds, and there goes the public vote requirement.
It’s all so convenient.
And then when there’s a shortfall? Sorry. We didn’t mean for that to happen. You still have to make the payment, you should have researched it better.
People, insist on clawback provisions.
What I’d do if I were in a citizen’s group in SD right now is I’d start working on something like I-91 that Seattle voters overwhelmingly passed. Force this to go to a public vote.
Erik, as a San Diego voter and Charger fan, I just wanted to thank you for presenting a well thought out report that seems to be balanced and fact driven. Looking forward to the complete analysis to come out.
I happened to hear both of your interviews on the sports stations in town yesterday, and it seems to me they were counting on hearing more positive spin and to keep their cheerleading campaign going. I thought it was refreshing hearing a more balanced approach, although I would be surprised to hear you invited back.
Did the UT take quotes directly from those interviews? Or did they actually interview you? I didn’t see them referencing the interviews at all, yet seemed to directly quote your answers.
I want to ask you what you think of the promise of filling the stadium “over 200 times a year” as I have heard this being said numerous times. I just dont see it. I think claiming we would be bringing in Super Bowls and Final Fours and College National Championships could happen a few times a decade, but nowhere near enough times to pay for the costs.
Do you think SD would be better off financially building a 25-30,000 seat stadium for the Aztecs football team, maybe an MLS team in the future, and still be able to use that for concerts and other events? Would be curious to know your thoughts on that alternative.
Thanks Chris. I had fun on sports radio yesterday. I hope they invite me back but time will tell….
UT did interview me. Roger S. is great and gets a lot of the economic and development stuff. Support him.
I think I don’t know enough about the 200 times to rightly opine but I DO think there are some hard questions to be asked. San Diego is on the far southwest corner of the united states. We have a difficult airport to get in and out of. Not impossible and getting better but direct flights can still be a pain. We are in the west coast time zone. I really leave it to others to opine but those would seem to offer some significant “objections to overcome” when trying to pitch the NCAA on a final four in San Diego (or a CNC game). Not impossible but you would have to get past those.
As here is the thinking….Do I put the final four in Indy (AGAIN!!) because it is a great time to tip (7 p.m. local), has a great corporate base to support hoop, is convenient for fans from where the population center in the US is….or do I put it in San Diego because I like to tan? Hmmmm…….Or if I really want to get drunk their is always the Superdome.
Look I love San Diego. I actually believe that sports driven tourism _IS_ real for a few places (indy). If you go whole hog you can show a MODEST ROI. I am just pretty darn skeptical San Diego can make it work – not for lack of trying or capacity but some hard objections.
But, on the other hand, there are people on this site a lot smarter than I when it comes to NCAA and BCS decision making. Perhaps tanning _IS_ high on the list for decision makers but I think treating these entities as profit maximizing entities is the right approach and that leads me to be skeptical about SD’s ability to get past good (though not deal killing) questions.
BTW – Sans Chargers I think the right size of stadium (and the right level of amenities) is one that works for the Aztecs, MLS, and the bowl games. Whether than is 30-40-50K is a question better answered by others.
I hope they invite you back on too.
Agree with your points on hosting the large national events. I just heard an interview with Steve Johnson (Vice President Public Affairs) that basically shuts down a joint convention center and stadium idea because of scheduling conflicts and nobody wants to schedule an event in two buildings, blocks away from each other rather than one large building.
As an amateur economist myself, the most frustrating thing about the Chargers and the city is that they aren’t giving us numbers or facts to really grasp. Everything is estimates and plans and ideas. Hopefully in May we get some real answers about cost and benefits.
“… the promise of filling the stadium ‘over 200 times a year\'”
It’s a football stadium – somebody accidentally dropped an extra zero in that number.
What’s the busiest NFL stadium in the nation, do you think? Metlife, with two football teams and the occasional soccer game and concert? It looks like they have 11 events schedule over the next six months, then add 20 football games, maybe a concert or two during football season … they might get to 40 times a year, but anything much more than that seems crazy.
Neil – the busiest football stadium in the country is what ever they call the Oakland-Alameda Colleseum these days. 100 events a year easy at that one.
If you consider it a football stadium. and not a baseball stadium where they play football.
If the Angels were to move to Carson, then maybe.
Keith, I know its hard to believe, but that is actually the dialogue that is going on in San Diego by SOME. Keep in mind these are people heavily in favor of having a stadium, and it could be argued their jobs depend on it (sports reporters/talk show hosts), but nevertheless it is being said by people with influence. NCAA basketball tournaments, BCS championship games and Super Bowls are getting thrown around as if one of those events will be here every year.
Even in the interview with Erik, the sports talk show host said that he expected a Super Bowl to be in San Diego every 4 years. This is just unrealistic considering the competition for Super Bowls and the NFL’s willingness to explore all cities, not just warm weather ones.
If San Diego decides to vote for and pay for a stadium, so be it. I just hope it isn’t because they get fooled into thinking its going to bring in hundreds of thousands of people and fill up two-thirds of the year.
In other words, more people need to read blogs like this one and pay attention to people like Erik.
I like all this hard-headed analysis and coefficient univariate model variables or whatever they are. Proprietary has an “e”, just fyi.
I must tell you though that we have our own computer room full of eggheads at NFL HQ and you know what stat they tell us matters most? That’s right – how many pols we’ve bought up in a given market when it’s vote time.
See you at the Missouri legislature, suckers!
jmauro: And even with so many events per year the Oakland-Alameda Coliseum Authority still loses millions of dollars per year requiring taxpayers to pay for whatever revenue shortfalls exist from that debt.
Eric Bruvold — Is your study online? I’d LOVE to look it over — the demographics for sports teams would be quite valuable. I need it ASAP for an upcoming event.
I might mention that the $100K threshold is not as useful in a high cost city like San Diego.
This is a high cost STATE, which is why, adjusted for COL, we have the highest poverty rate in the nation. San Diegans are often “house poor” — spending so much on a home (and taxes, utilities, etc.) that they lack the discretionary income (to buy tickets) that might be found in other areas with a lower number of $100K households.
When years ago I was in the field of financial planning serving upper middle income clients, I found that people in other states with lower incomes had MORE discretionary (investment) funds than did my San Diego neighbors. While it’s been years since I have offered such economic wisdom to others, I suspect this “cash poor” problem still exists in places like San Diego.