Public vs. Private Financed Arenas November 6, 2009
Posted by Michael McCarthy in : Uncategorized , trackbackDesigning your product for monetization first, and people second will probably leave you with neither.
-Tara Hunt
Last week, I talked about the documentary Sonicsgate and how the public battle over the Sonics would likely cause a team trouble if it relocated to Seattle. This week, I will examine the issue at the heart of the Sonics move, the public financing of NBA arenas. In Seattle, both Howard Schultz and Clay Bennett’s ownership groups called KeyArena obsolete and asked the city to finance a new arena for the Sonics. When the city refused, Clay Bennett took the team to Oklahoma City.
Over the last decade, the NBA, led by David Stern, has been pushing cities to publicly finance new arenas for NBA teams, with the threat of relocation if they do not. Of the last 8 arenas built (including the new Amway Center for the Orlando Magic, set to open next season), 7 arenas have had at least 50% public financing. The question is, with legislatures throughout the country tightening their budgets, can the NBA keep pursuing this line of strategy?
The main benefit to the NBA for public financing is the bonds used for financing are usually tax-exempt, saving the NBA a lot of money. However, in the wake of the Sonics ordeal, the NBA needs to reevaluate its strategy since the battle for public financing may produce more drawbacks than advantages. Tax payers in the cities are now organizing to prevent their tax dollars from being spent on NBA arenas. For example, in Seattle, the “Citizens for More Important Things” led an effective campaign against the NBA. These citizens would rather spend tax dollars on things like healthcare, especially as the budgets get tighter and tighter. The NBA’s only legitimate argument against these groups was that an NBA team would provide an economic benefit to a city. However, in the trial in Seattle, the NBA undermined its own claim. Clay Bennett’s group (which had the support of the NBA) had expert witness Brad Humphreys, an associate professor of economics at the University of Alberta, testify that the Sonics leaving “won’t have an impact on Seattle’s economy,” that the money not spent on an NBA team would just be spent elsewhere.
So, going forward, the NBA needs to be careful about its overt push for public financing. Since statistically, there is no difference between public and privately financed arenas, in terms of revenue, income or franchise value, the NBA does not need public financing. By pushing the issue, the NBA risks tarnishing its image, making it seem a greedy enterprise that does not have the fans interests in mind. This will turn off casual fans, a key demographic for the future viability of the NBA, which may cause more losses than they would save through tax-exempt bonds.
Next week, I plan to take a look at the early part of the season, highlighting important stories and trends.
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