Economics of Sports The 5th Edition Leeds Solutions Manual Visit to download the full and correct content document: https://testbankdeal.com/dow nload/economics-of-sports-the-5th-edition-leeds-solutions-manual/
Chapter 6 The Public Finance of Sports: Who Benefits and How? ◼
Outline
Introduction Learning Objectives 6.1
How Teams Benefit From New Facilities Facilities, Attendance, and Profits
6.2
How Fans Benefit From a New Facility The Size and Shape of Baseball and Football Stadiums The Size and Shape of Basketball and Hockey Arenas Do New Facilities Create Better Teams? Teams as Public Goods
6.3
How Cities Benefit from Teams, Facilities, and Events Positive and Negative Externalities Facilities, Spending and Tax Revenue Direct Benefits Multiplier Effects Studies of Economic Impact Interest Groups and Public Choice Location, Location, Location The Impact of Special Events
Biographical Sketch: Al Davis Summary
◼ Teaching Tips and Additional Examples Chapters 6 and 7 have been completely reorganized and in some instances expanded on since the previous edition. There is still a shift of the general focus from industrial organization to public finance, but the way the material is presented has changed greatly. Chapter 6 focuses on the Benefits of publicly financed stadia while Chapter 7 focuses on the Costs. Much of the material has been moved from one chapter to the next so it may be worth your time to give these two chapters some thought as how you prefer to present the material if you are used to previous editions. The opening discussion about the benefits of a stadium on attendance is a nice application of the concept of diminishing returns. Asking the class to illustrate this on a graph with “time” on the “x” axis and “%∆ in attendance” on the “y” axis can help illustrate this concept. What to focus on is that the short run
benefits diminish as time goes by. You could also split up MLB, NHL, and the NBA into separate lines on the same graph (with MLB having he largest impact as explained in the text). Taken from the previous edition’s Chapter 7 (and expanded on) is a nice discussion on externalities. Taking the time to think about both the positive externalities and the negative externalities can provide insight as to why this topic at times is difficult to quantify. Furthermore this section provides an opportunity to remind the students that this is how market failures can sometimes occur. One way to begin dialogue is to ask what they think about stadium financing before they read the chapter. Most students that are sports fans will be predisposed toward awarding generous public funding to franchises that seek it. Even casual fans should be able to cite the most widely used macroeconomic tool in the course, that of the Multiplier effect. By engaging in a discussion and thinking about how the Marginal Propensity to Consume can change (and the issue of leakage and opportunity cost of those funds) you steer them into a discussion as an economist views them. When discussing form and function, both a discussion of the new “retro feel” venues and some history will prove very useful. If you have an interactive classroom, log on to www.Ballparks.com, or the official sites of teams and their venues, to show the different shapes and sizes of a cross section of buildings from different eras. If your school is in or near a major league city with a venue that many students have visited, include it in your virtual tour or arrange a real visit.
◼ Additional Sources 1.
Although now somewhat dated, the classic text on the public finance of sports is Sports, Jobs and Taxes, (Brookings Institution Press, 1997), a collection of essays edited by Andrew Zimbalist and Roger Noll. This book is notable for its numerous case studies and is among the most highly cited works in the field.
2.
Tim Chapin has an online paper, “An Assessment of the Microarea Impacts of Sports Stadia,” that looks at neighborhood effects of facilities. You can find it at: http://www.asu.edu/caed/ proceedings99/CHAPIN/CHAPIN.HTM
3.
Troy Soos’s Murder at Fenway Park, the first of the Mickey Rawlings mysteries, is a fun, nonacademic look at the issue. Richard North Patterson’s Dark Lady twists a tale of murder and corruption around local politics and the construction of a new Major League Baseball stadium in the fictional metropolis of Steeltown.
4.
A large number of academic papers have addressed the economic impact of stadiums, franchises and events including numerous works by Brad Humphreys and Dennis Coates and Robert Baade and Victor Matheson. While many of their papers are quite technical, most have introductory sections that clearly address why sports boosters’ claims of economic windfalls are overblown, that are quite accessible to lower-level undergraduate classes.
5.
A number of outstanding Web sites devoted to ballparks, past, present, and future can be found online. I believe the best is http://www.ballparks.com.
◼ Solutions to Back-of-Chapter Problems
6.1 Why is the multiplier effect for the Los Angeles Lakers likely to be greater than the multiplier effects for the Sacramento Kings when both are teams in the NBA? Answer:
Los Angeles is much larger than Sacramento, so people are more likely to live and shop in Los Angeles than Sacramento. As a result, the leakages from Los Angeles are much smaller than the leakages from Sacramento, and the multiplier is larger.
6.2 Why are the negative externalities associated with the newly opened Barclays Centre in Brooklyn likely to be greater than the negative externalities associated with the Staples Center in Los Angeles, which opened in 1999? Answer: This main cause of the difference in the negative externalities is time. The newly opened Barclays Centre will have more negative externalities since it is newer while the negative externalities associated with Staples Center have diminished since 1999. In addition the population around these stadia is probably more densely populated in Brooklyn than Los Angeles. Brooklyn has a population density of approximately 35,000/square mile, while LA has a density of approximately 7,500/square mile. This increase in density in Brooklyn will increase the magnitude of the negative externalities.
6.3 If a majority of people do not want a stadium built, how can building it lead to an improvement in social well-being? Answer: The minority that prefers the stadium may have such a strong preference while the majority that prefers no stadium has a weaker preference. The net effect is a positive influence. This is illustrated by the process known as logrolling. In addition there may be positive externalities associated with the project, and investments in local infrastructure that bring added benefit to the city.
6.4 While football and baseball teams have gone from multipurpose to football- and baseball-only facilities, basketball and hockey continue to share arenas. Why? Answer:
Basketball and hockey still typically share arenas because unlike football and baseball, they utilize surfaces that are similar in shape and size. Although a basketball court is slightly smaller than the ice surface, both sports can be accommodated in a single building without seriously compromising the views of fans in either case. As shown in Figures 6.5 and 6.6, baseball and football are poor complements as stadium partners.
6.5 If the marginal propensity to consume in a municipality is 0.8, what is the value of the simple multiplier? If a new stadium that adds $30 million in new consumption expenditures is built, what is the impact on the economy based on this multiplier? Suppose the Marginal Propensity to Import is 0.3, what happens to the multiplier and to the impact on the economy? Answer:
The simple multiplier 1/(1 MPC). In this case, with MPC 0.8, the multiplier is 5. An initial expenditure of $30 million would have a final impact of $150 million. If we assume an open economy and introduce the MPI such that the MPI=0.3 we recalculate the multiplier as 1/(1-MPC+MPI) which leads to a multiplier of 2. An initial expenditure of $30 million now has a final impact of only $60 million.
6.6 How does your answer change if city residents spend 60 cents of every additional dollar on goods made in other cities or countries? Answer: In this case we would reinterpreted our Marginal Propensity to Import as 0.6. This changes our multiplier to 1/(1-MPC+MPI) = 1/(1-.8+.6) = 1.25. Now the final impact is (30m)(1.25) = $37.5 million.
6.7 Why does the fact that the NFL does not have a franchise in Los Angeles give its teams greater leverage with their host cities than teams in the other sports have? Answer:
Los Angeles has the second largest fan base and second largest media market. The potential profit from the Los Angeles market gives NFL franchises a more lucrative alternative market for franchises that are thinking of moving. Since teams can make a credible threat to move to L.A., this, in turn, gives the NFL teams much more bargaining power with their home cities than teams in other leagues have. In MLB and the NHL, due to recent (over-)expansion, there are few remaining cities that could host a team, therefore when teams threaten to leave, cities can often call their bluff. This is one reason MLB attempted to contract two teams back in the early 2000s. Further evidence of the value of an open market to the NFL comes from the last expansion of the league. The NFL had two lucrative offers of $600 million each from Houston and L.A. during the last expansion. The league easily could have accepted both offers and expanded by two teams but decided that the value to the league of an open market in L.A. exceeded the value of an immediate $600 million paycheck.
6.8 If a new baseball stadium has only a very short-term impact on a team’s attendance, why do MLB teams still pursue them? Answer:
While attendance falls back to previous levels after a few years, the teams still have the potential to increase their profits because of new revenue sources. New stadiums have had far more luxury boxes than the stadiums they have replaced. In addition, teams generally get a larger percentage of the revenue from luxury boxes and other sources of venue revenue, such as parking or concessions. Next, the tickets themselves are generally more expensive in the new facilities. Finally, if the overwhelming majority of the stadium is paid for by taxpayers, even a short-term increase in ticket sales is worth the very small outlay that some teams must provide.
6.9 Why would a Super Bowl played in Detroit probably have more of an impact than a Super Bowl played in Miami, even if both were to draw the same amount of fans? Why would a Super Bowl at Ford Field in Detroit have more of an impact on Detroit than a regular season Detroit Lions game that draws the same number of fans?
Answer:
A Super Bowl in Miami would displace many business travelers and vacationers who would have gone to Miami even if there were no Super Bowl. This reduces the economic impact of the Super Bowl on Miami’s economy. Because far fewer people go to Detroit in January, the net impact of a Super Bowl is much larger for Detroit than for Miami. Even if a Super Bowl drew no more people to Detroit than a regular season game at Ford Field, far more people who go to the Super Bowl are from outside the Detroit area than is true for a typical Lions game. The out-of-towners are likely to stay at area hotels for several days. In addition, the money they spend in Detroit is new expenditure for the local economy, while a portion of the money that local fans spend would have been spent locally even if they did not go to the game. The net impact on the Detroit economy is thus much larger for a Super Bowl than for a regular season game.