Friday, April 27, 2012

Fund the Bills or the Bulls?

Lose the Bills, Help UB

by Bruce Fisher




How Western New York collegiate athletics could thrive again if we stopped subsidizing the NFL







   The Buffalo Bills won’t leave Buffalo for Los Angeles, no matter how small or how large the shakedown the team manages to get from terrified local officials, because there are three other National Football League cities for which Los Angeles is a more credible threat—to the extent that LA or any other alternative venue is a credible threat at all. The State of California is in structural fiscal crisis and is unlikely to support public funding of any stadiums or arenas, but even within the state’s boundaries, the name of America’s second-largest media market is waved before the noses of cowering officials as a threat to get more money from them for subsidies for professional sports. That’s currently the case in Sacramento, California’s state capitol, where the question is whether a new $400 million arena for the National Basketball Association’s Kings franchise will be delivered on time to the family that owns the team, or whether that team will move instead to Anaheim, which is in the Los Angeles megapolitan area. Los Angeles is currently the threatened destination for the Minnesota Vikings, too, just as it is for the struggling franchises in Jacksonville and New Orleans. If taxpayers in St. Louis don’t come up with money for stadium improvements, the media there say, then Los Angeles could get its Rams franchise back.

     Don’t believe the LA threat. Whether or not Erie County and New York State pony up another $200 million handout to the Buffalo Bills so that “our” NFL franchise can export tens of millions of dollars a year to the Detroit owner and to the non-resident athletes who perform here a dozen times a year, Buffalo will remain a prime site for pro football. That’s because Buffalo has a fan base that stretches far beyond its media market—a media market that is huge, if understated, because it catches most of Upstate New York and Southern Ontario. The actual viewing audience of the licensed television stations here encompasses Toronto, Hamilton, and Niagara Falls, as well as Rochester and northern Pennsylvania, making this market, with more than two million viewers of analog and digital TV signals, number 11 among North American markets. By the numbers, the Buffalo media market is bigger than those of Phoenix, Detroit, Seattle, Minneapolis, Tampa, Miami, Denver, Cleveland, San Diego, Charlotte, Baltimore, Indianapolis, and Pittsburgh, to name just a few NFL cities.

     Across the US, easily bamboozled politicians may be waking up to the emptiness of the threat of relocation. Or maybe not. Two weeks ago, state legislators in Minnesota voted against a $975 million package that would build a new stadium for the Minnesota Vikings NFL franchise, a deal that includes the team’s owner pledging $427 million to the project. The downtown Minneapolis stadium would require city residents to pay $188 million in operation and maintenance over the next two decades over and above the $150 million in up-front, city-funded construction. But thriftier and more populist suburban Republican state legislators and a handful of progressive Democrats—angry that the usual citywide referendum rule was waived for this deal—teamed up to vote against the handout on a roll-call vote. Predictably, after the franchise owners began to mutter publicly about Los Angeles, the legislature is expected to cave by Friday. They will take more voice votes rather calling the roll, in the hope that the voice vote will shield members from voter anger over the giveaway.

     Back in Sacramento, which has a Designated Market Area that delivers 1.4 million viewers (half a million less than see Channel 2, 4, or 7 in the Buffalo-Toronto-Rochester-Jamestown viewing area), the shakedown is for a basketball team. But Sacramento is at or near the epicenter of the mortgage-default crisis zone. Sacramento has 12 percent unemployment in a state with a multi-billion-dollar structural deficit. Anybody who believes that an NFL team is going to go to a non-NFL market in California is not paying attention to the crisis in municipal finance that is worse in that state than in any other, but that is widespread across the US.

     Meanwhile, in the very healthy economy of Portland, Oregon, which is not in financial crisis, and which in fact is a metro that continues to grow in both population and wealth, there is an example of a fairly large media market that has only one major-league sport franchise, the NBA’s Trailblazers. Portland has never had a National Football League franchise. Portland has also never had a Major League Baseball franchise.

     How can Portland survive with a single major-league pro sport team? The answer seems to be that amateur sports, particularly collegiate sports, fill the bill in Portlandia—and in many other medium-sized and small markets. And the evidence is that the markets without the major league franchises get a much larger economic return on their public investment when the taxpayer dollar goes into college sports rather than into the pockets of pro sports athletes and owners.


College sports enrich regions

     The University of Wisconsin football team, the Badgers, plays in a stadium that seats 80,321 and has 72 suites, 337 club seats, and 590 varsity indoor seats. In 2005, the stadium attendance record was set when Wisconsin played Minnesota before more than 83,000 fans. There are more than 69,000 season-ticket holders for Badgers football.

     There is no professional football team in Madison, where the Badgers play. There is no professional football team in Columbus, where the Ohio State Buckeyes play. There is no professional football team in Urbana-Champaign, Illinois, or in the entire state of Oregon, or in many of the rest of the college towns where Big Ten, PAC-10, and Southeast Conference college football teams play.

     The economic impact of college football has been measured over and over again, and has been found, by both business reporters and by academics, to be huge. In a seminal and often-cited 2000 study for the Journal of Sports Management, University of Kentucky economist Brian Goff found that “evidence indicates that success, and at times merely participation, in college athletics provides several benefits including direct financial gain and such indirect benefits as increased university exposure and, in turn, increased financial contributions and increased student applications and enrollment.”

     Forbes magazine looked at the cash flows of the 20 top-grossing college football programs and found that they are cash cows for their host universities. The Wisconsin Badgers delivered a $20 million profit to the University of Wisconsin in 2009 on $43 million in revenue. The Ohio State Buckeyes “franchise” was worth $78 million based on 2009 revenue of $61 million and profit of $26 million. The Michigan Wolverines in Ann Arbor brought home a profit of $47 million and the Michigan State Spartans a profit of $28 million, and the story is repeated everywhere from Nebraska to Iowa to Pennsylvania to South Carolina, everywhere that big public universities put forward an entertainment product without having to compete against publicly subsidized National Football League franchises.

     Even when collegiate athletics merely break even, there is a large body of evidence that a college football program that dominates in its media market is a net winner to the host community. Fans who are loyal to the college team are prime donors to the college. Fans who attend home games spend their money at home. Rather than an out-of-town owner and non-resident players and staff exporting revenues to their homes elsewhere, college athletics bring outside money in, and keep it in. Even in small markets, there is big money. The latest numbers for Syracuse University are that Orange basketball brought in $10 million in profit to the University on $18 million in revenue.

     That revenue, even for small programs, stands to grow. The National Collegiate Athletic Association last year concluded a revenue-sharing agreement for televised games, and the numbers that have become public are staggering. The average per-team revenue sharing from televised games for Big 10 schools has been calculated on Kristi Dosh and Alicia Jessop’s the Business of College Sports website (businessofcollegesports.com) to be $17.6 million apiece—over and above the proceeds from ticket sales at the home stadiums. Universities in the Pacific and the Southeast conferences stand to get similar numbers, with the smaller conferences getting less money, but money in the millions estimated from $1.1 to $5.3 million a year for as long as broadcasting continues.

     The key contrast between professional sports money and collegiate sports money is this: In pro sports, the taxpayer-funded stadium subsidies and operating expenditures enhance the profits of private owners, whereas in collegiate sports, the taxpayer money returns to taxpayer-supported educational institutions.


If the Bills go, could college sports here grow?

     Someone should ask the State of New York to do an economic-impact analysis of what would happen were the $200+ million that the Buffalo Bills franchise seems to be demanding of taxpayers were to be redirected into the University at Buffalo so that its collegiate athletics could grow to the size, prominence and market-share of Ohio State, Michigan State, Wisconsin, Oregon or any number of other major southern, Midwestern or western public universities.

     Doubtless, there is some value to having a professional football franchise in Buffalo—but the consensus among academic economists is that that value cannot be measured in actual dollars, as the Buffalo Bills do not add economic value to the regional economy, but rather subtract value, and export it. Any economic analysis should include the impact of the ticket-buying fans spending somewhat less on collegiate sports tickets—a season ticket to the Wisconsin Badgers costs $294 for the seven-game home season, compared to $320 to $640 for a lower-level outdoor eight-game Buffalo Bills season ticket. Such an analysis should also collate the numbers when fans, and non-fans alike, spend many tens of millions of dollars less on annual subsidies to the professional sports franchise. Slightly fewer sales tax dollars would be generated if 80,000 tickets were each sold for seven college football games compared to eight professional football games and the odd pre-season game, but then all the revenue from concessions, parking, jerseys with team insignia and other sources would go to the University and not to out-of-state owners were the fans to turn out for UB rather than the Bills. The substitution effect is pretty straightforward: in markets without pro football, football fans buy college football. And then some of them stick around to support basketball, and then other sports, too.
     The obstacle that keeps the University of Buffalo’s Division I football team from becoming a popular, profitable, well-known attractor of new donations to a major research university is simply that there is a taxpayer-funded competitor in the media market called the Buffalo Bills. Apparently, there simply isn’t enough taxpayer money in the community to support both the college sports product and the professional sports product.

     But the studies show that the college or university that sponsors the team delivers a return to the host community. This is because whatever public money is required to run the stadium, pay the coaches, and to equip and subsidize the athletes, is overwhelmingly overmatched by the income—including alumni and corporate support—that the university gets in return. Where college football programs fail to deliver big profits to their hometowns is in markets dominated by the National Football League. Compare the Big 10 teams in Wisconsin, Iowa, central Illinois, Nebraska and Indiana to Northwestern University. Everybody profits, but Northwestern brings in far less money in a media market dominated by Da Bears.

     The University of Wisconsin Badgers play in a stadium known as Camp Randall, named for the Civil War-era mustering point from which Wisconsin volunteers went forth to conquer the Confederacy and rescue the Union. In 2005, the University of Wisconsin finished a $109.5 million renovation of the stadium that made the place a palace for collegiate athletics. The ongoing stream of profits from the Badgers helps to fund one of the most comprehensive athletics programs in the country on a university campus that is at once an intellectual and research powerhouse, a major employer, and a country club for its 42,500 students. Among public universities in 2009, the University of Wisconsin ranks fourth in federally funded research, second in total science and engineering research, and second in overall research expenditures, and brings in over $479 million in federal research grants to add to the $209 million in gifts it obtained just for research.

     One can only wonder what would happen if our politicians decided that the next dollar of stadium-upgrade financing for luxury suites, indoor seating, locker rooms, practice fields, and associated construction would go to a sports franchise already owned by the taxpayers—a franchise that puts money back into the regional economy rather than draining it.

     It’s pie-in-the-sky to expect that the UB Bulls could quickly build a program as profitable as the University of Texas Longhorns, which in 2011 produced a profit of $68.3 million on revenue of $93.9 million. But Syracuse University earned over $3 million in profit from its football team last year. And except for the money spent on materials imported from outside the Syracuse region, the $19 million in revenues stayed inside the Syracuse region.

     The question the NFL would like taxpayers here to ask is how much we intend to give to the NFL for the privilege of keeping the Bills. The question we should ask ourselves is something quite different: What prevents college sports from doing for UB, Buffalo State, Canisius, and the other Catholic colleges what college sports do for the Big Ten schools, for Syracuse, and for all those other schools that thrive on the revenue, the institutional PR, and the buzz of non-professional sports? The answer is not one that the NFL wants you to hear, which is that in a medium-sized market like Buffalo, it makes no economic sense to subsidize professional sports when professional sports probably starves collegiate athletics.

Wednesday, April 25, 2012

NFL Shakedown

Buffalo, The NFL, and Deja Vu


by Bruce Fisher




Another $200 million for football but not for ECC?

     Back when there were 17 of them, Greg Olma was one of only two Erie County legislators to vote against former Erie County Executive Dennis Gorski’s $202 million subsidy deal with the Buffalo Bills. Gorski’s 1997 deal guaranteed Ralph Wilson’s house, which means that Wilson would receive all the money he’d get from selling all his seats whether or not his firm actually filled all the seats in the county-owned stadium. Gorski also “negotiated” free public safety for the Buffalo Bills provided by the Erie County Sheriff, plus frequent stadium improvements, plus all the parking and game-day refreshment revenue generated there. The deal has been an uncontested part of each Erie County budget since then, as durable as any bond covenant; back in 2005 when the Legislature wouldn’t give the county executive the revenue his budget required, everything but bond payments and the Buffalo Bills got cut. Gorski’s deal has been a boon to the television stations and to the daily newspaper, too, which have given the Buffalo Bills almost daily coverage, relying as they do on the advertising revenue they generate by delivering their audiences of sports fans. Current County Executive Mark Poloncarz hired Gorski’s staff to negotiate the new long-term Buffalo Bills lease deal. The question today is not whether the new county executive will offer up the equivalent of an entire year’s Erie County property tax to the Buffalo Bills just as Gorski did, but whether the new county executive will offer up even more public money than Gorski did.

     Looking at the current Erie County Legislature, which has shrunk by six seats, it’s hard to imagine any legislator, even one with a pro-labor, pro-environment, and pro-urban voting record, challenging the idea that the citizens of Erie County should continue to give one elderly Detroit-area businessman more than $14 million a year for the next 15 years, as Gorski and his team did for the past 15 years, in return for that Detroit-area businessman keeping his business here.

     The only challenge to the multi-billion-dollar international practice of handouts to privately owned professional sports franchises comes from a handful of academic economists who speak truth to all that power in journals and on websites like the Sports Economist (thesportseconomist.com).    Summing up their findings is pretty easy, because they pretty much all conclude that public subsidies for these private enterprises create no new jobs and add no additional regional economic growth in the regions where they operate, nor do they add net wage increases for workers in the hospitality and food-service industries that serve them, nor meaningful additional value to real estate near the stadiums and arenas where professional athletes play. The economists concede that the subsidies do indeed pump some money into construction for as long as it takes to build or augment a stadium or arena, but, then, so does every other kind of construction.

     What is also true, though, is that fans who purchase tickets to professional sports games spend less on restaurants and other entertainment. Economists call this the “substitution effect,” meaning, in plain English, that people who have limited disposable income make choices, and that when they choose one set of amusements on which to spend their money, they don’t have the wherewithal to buy another set of amusements.

     In sum, whether or not you like professional football, you and everybody else in the Buffalo metro region help to write that annual check of about $14 million directly to Ralph Wilson and his Buffalo Bills, even after the stadium where his team plays received almost $70 million in state-funded improvements—mainly so that Wilson’s organization could lease luxury boxes starting at around $30,000 per year, plus the price of tickets, paid by area businesses big enough to buy them.

     And your elected county executive, and his colleagues in the Erie County Legislature, will soon sign you up for another 15 years of sending checks to Ralph Wilson, or to whomsoever succeeds him should he not be able to personally accept your money.

     This annual cash transfer to Ralph Wilson is more than twice what you spend to subsidize the zoo, plus the orchestra, plus the historical and science museums, plus the art galleries and plus 30 or so theaters, dance troupes, bands, and other arts and cultural organizations, none of which is a protected monopoly, and all of whose employees live and pay taxes here in this community. Actually, the football franchise gets almost three times what all those arts and cultural organizations receive from taxpayers combined.

     This is how the National Football League likes it. But this arrangement doesn’t happen everywhere the NFL has a franchise. In other markets, owners have to pitch in. In some big places, they and their fans are the ones who actually have to foot their own bills.

Big money from state, city—and owner

     This very week in Minnesota, home of the Minnesota Vikings professional football franchise, a Democratic governor is trying to get his state legislature to enact a $975 million deal that would see about $550 million in public funds and $427 million from the owner’s wallet going toward building a new Vikings stadium. But state legislators are balking. A Republican asked, at a hearing this past Monday evening, the following question: “Why should the state of Minnesota contribute to a stadium for a billionaire” owner?

     A committee of the Minnesota state legislature ultimately voted the package down, with both Republicans and Democrats concluding that it was a bad deal for taxpayers.

     But in the small- and medium-sized metros around the country, the answer from the politicians has so far been, mainly, yes—except when it gets too rich. What galled the Minnesota legislators most was a requirement that the citizens of Minneapolis give up their right to a referendum on the big new public construction. And even though the NFL and the Vikings franchise owner were going to kick in $427 million of the $975 million cost, the proposed deal would have committed taxpayers of the city of Minneapolis to about $188 million in operating costs over the next 30 years.

     Predictably, Vikings spokesmen are rumbling about the team leaving.

     But where would they go? Perhaps to Los Angeles, where proponents of a new football stadium know that there is no way that the politicians will provide taxpayer money, and where stadium backers nevertheless are arranging private financing. There was no taxpayer funding for the new $1.6 billion Meadowlands stadium for the New York Giants and Jets. The San Francisco 49ers’ planned $1.02 billion stadium includes zero taxpayer subsidy.

     In smaller markets, however, professional sports teams routinely go to the political class for taxpayer money. And they get it. Jacksonville, Cincinnati, Tampa Bay, St. Louis, and Baltimore taxpayers all paid more than 85 percent of the cost of their new or improved football stadiums. In the eight smallest markets, at least 80 percent of the cost of stadiums has been borne by taxpayers. Buffalo is the second-smallest media market, and taxpayers will pick up the tab.

What money can buy

     One senior business leader here told me that he likes the idea of spending more money to keep the Bills here because “football keeps the social classes together.” He thinks it’s insane, however, to go all-out and build a Minneapolis-style domed stadium on the NFTA’s 120 acres of waterfront brownfields that politicians relentlessly exclaim are the key to Buffalo’s economic future. Somewhere between the domed stadium that would consume Governor Andrew Cuomo’s entire $1 billion pledge to Buffalo and the $202 million that Dennis Gorski gave Ralph Wilson and the Buffalo Bills lies the number that politicians will endorse on our behalf.

     Meanwhile, however, Erie County policymakers have stated in public meetings that the county does not have the money to build a new, consolidated Erie Community College campus downtown, even though the 15-year capital cost of maintaining three separate campuses would cost about the same as a new consolidated campus—and less than handing the Buffalo Bills a reprise of the deal Dennis Gorski gave them.

     The new Regional Economic Development Council, headed by UB President Satish Tripathi and businessman Howard Zemsky, issued a detailed set of recommendations for the first $75 million installment of Albany’s economic development assistance to Western New York, and were adamant that money needed to be focused on worker-retraining programs located where displaced workers are most numerous, and most in need, i.e., inside the city limits of Buffalo, where public transit access is quickest and most readily available.

     The economists who criticize subsidies to NFL franchises will be ignored here just as they are everywhere else. Hundreds of millions of dollars will almost certainly keep flowing to Detroit from Erie County taxpayers, and not just from people who purchase tickets to Buffalo Bills games. Were the Buffalo Bills franchise no longer here, however, the substitution effect in terms of disposable, discretionary income would kick in, redirecting the money currently shipped out-of-market to where the Buffalo Bills team is owned into other entertainment options here.

     Taxpayer money, however, isn’t subject to that same sort of automatic substitution effect. The $14 million a year that is sent by Erie County government to an individual out-of-town business owner wouldn’t necessarily get reprogrammed into fixing a broken worker-training system, or even into a construction project that could bring 12,000 or more new faculty, staff, and students—mainly training-hungry adult workers—into downtown Buffalo on a daily basis. Investing public money so that it serves the regional economy won’t happen without a reasoned decision to change that money’s destination.

     But if there’s entertainment money enough to send to Detroit for the next 15 years, then the least we should ask ourselves is whether we can afford training money for Buffalo, too, for the next 15 years.

 Bruce Fisher is director of the the Center for Economic and Policy Studies at Buffalo State College. His new book is Borderland: Essays from the US-Canada Divide, available at bookstores or at www.sunypress.edu.

The business of College Sports

Check out this link to a blog run by two attorneys who follow the money: