Arena Impact

The loss of a professional sports team to the Sacramento region would do more damage to the city than one may think. Anyone who has flown into Sacramento has seen the open fields surrounding what is, but most people wouldn’t think to be, the capital of California. With Los Angeles being one of the biggest and most popular cities in America, it shadows Sacramento enough so, that the average person might believe Los Angeles to be California’s capital. When the Kings moved to Sacramento in 1985 they were not very good. Going through a few rough seasons before they even made the playoffs and eventually finding those glory years that many people of Sacramento still hold close to them. Twenty-six years later, Sacramento finds itself wondering if this team will even be around next season. A question that could have a lasting effect on the community has yet to be considered to the degree that it should. The answer not just affecting the fans that fill the seat on any given night during the season, but the many other pieces in play that could determine the outcome of the current situation Sacramento find itself in.

Although an entertainment facility/sports complex may not be the political brouhaha of the century, deciding on a way to get a plan drawn up and agreed upon involves a lot of politics. While the Kings would hold just 40 to 55 home games each year, the facility would allow for many other forms of entertainment to come in. That small portion of game time makes up for less than 13 percent of the calendar year; allowing a lot more time for other forms of entertainment to be held in the new facility. Whether it be a concert, Disney on Ice or allow for another professional team to share the building, coming up with the funds to finance an arena will come easier while the sports team is already here.  Those involved include the following: Mayor Kevin Johnson, the Maloof’s (Kings Majority Owners), local businesses, David Stern (NBA commissioner) and the citizens or fans that populate the area. While it would be nice to pick a few million off the money tree and drop an Arena in Cal Expo or the rail yards, the fact is that the plan needs to make sense for all parties involved, and until that happens there is no plan. Mayor Kevin Johnson is looking to do what is best for his city and the people in it. Mayor Kevin Johnson has put together a task force that’s sole purpose is to come up with the plan, with the March 12012 deadline looming. Mayor Johnson, a former NBA star, made a presentation on what he believed to be the best possible selling points to David Stern and his people. Although they aren’t the sole owners of the franchise, the Maloof family took majority ownership soon after purchasing the team in 1998. Soon after coming to Sacrament the family had expressed interest in putting the team in a newer, more up-to-date facility. Thirteen years later they find themselves in the same position, minus a few more tallies in the win column. This inability to come up with an arena plan has pushed them to their breaking point and that was publicized this past summer as they got very close to parting ways with Sacramento. The NBA’s Commissioner, David Stern, has made it known that he wants to keep the team in Sacramento; enough so, that he sent some of his people to Sacramento in order to help with ticket sales and marketing. That move was a success as it boosted season ticket sales noticeable weeks after, but unfortunately for Sacramento, the current lockout has prevented the season from getting started. Like Mayor Kevin Johnson, the local businesses were quick to act, realizing that if the team were to move, much of their money would be lost. Those businesses that realized this pledged a combined 10 million dollars to keep Sacramento here for just one more year, hoping a plan could be met before the deadline passes. While an agreement has yet to be reached regarding a new entertainment facility, it’s common knowledge that each party wants the team to stay in Sacramento. Deciding on the specifics of this plan is where things get interesting.

State of the League

            NBA commissioner David Stern took over the league in the 1980’s and is credited for much of the popularity gained the past three decades. Although players like Shaquille O’Neal, Michael Jordan and Kobe Bryant deserve some of the credit, Stern has been the constant in a league that is continually adding and subtracting players. Television ratings are up by double digits and the average local TV deal for an NBA team around 12 million dollars (Thomsen, p. 12). Income varies from team to team but, but the average NBA team is thought to make in the upwards of $100 million dollars annually, with the Lakers and Knicks bringing in more even if their team is struggling on the court. Sacramento is no New York or Los Angeles when it comes to market size, but the capital of California still has a market bigger than cities like Utah, San Antonio, New Orleans, Indiana and Minnesota. So while some may think that Sacramento is too small to garner the corporate sponsors that they are thought to need, the fact is that they aren’t at the bottom of the league. Sacramento is a middle-tier market. The success of the league has allowed for an increase in improved arenas with a handful of NBA cities either building a new arena or renovating the one they currently have to home their NBA franchise. The same can be said in other professional sport leagues as sixty-four major league facilities have been built between 1991 and 2006 (Robertson, p. 1). The next step for Sacramento is coming up with a plan that works for all sides involved.

Game Plan

            Everyone involved is of the understanding that an arena is an expensive venture. Many cities building new stadiums costing excess of $200 million, plus infrastructural expenditures and debt service obligations that often double the cost of the project (Rich, p. 58). Knowing what you’re dealing with and how much certain things may cost is a tough game but it has been so many times that the resources are available to find such information. Depending on the assumptions made, one can get wildly different estimates. For instance, two studies were made about the impact of the Colts on the Baltimore economy in 1984. One study found an impact of $30 million and the other an impact of just $200,000 (Rich, p. 62). The Colts eventually lost their team but were lucky enough to get a new team. Mayor Kevin Johnson and his task force are of the understanding that once this team leaves, a new one won’t take their place.  Where exactly the arena will be placed is yet to be determined. Public subsidies make up a large portion of the arenas funding, providing hundreds of millions of subsidies for the construction of these arenas. This is being done through the issuance of bonds. Different taxes enacted specifically for this purpose are usually used to pay off these bonds (Robertson, p. 3). And although many people believe it should be the Maloof’s who anti-up for the new arena, only 30 percent of the sports facilities nationwide are privately owned (Robertson article-Stadiums and Arenas). Sacramento will look to fall in line with the other 70 percent using these specific taxes to find the money to pay for these bonds; whether it be a tax on hotel’s, rental cars or something else that would bring in new money. This new money would allow for the bonds to be paid off sooner rather than later, preventing the citizens to pay for a large portion of the money.

Weighing the Options

            With any decision one may have the positive and negative effects of that decision must be considered. Whether it’s what you decide to wear for the day or whether or not you should spend hundreds of millions of dollars on an entertainment facility. Most decisions can be made based upon the past decisions, or examples made by others. The Sacramento Kings are lucky to have two new examples of how, or how not to build arena, if they decide to stick a shovel in the ground. The Orlando Magic opened the Amway Center in October 2010 and they have felt a direct impact on the surrounding area. In addition to the thousands of jobs created during its construction, there were an additional 3,000 jobs created during the year, whether it is for the Magic games or some other avenue of entertainment. The Barclays Center, which is currently under construction, will lend as an example to the Sacramento task force.  In 2004, a study was done by Brad Humphreys and Dennis Coats that aimed to show prove that there was little to no economic benefits to a new sports facility. They pointed out the substitution effect arguing that “as sport- and stadium related other spending declines because people substitute spending on sports for other spending (Coats and Humphreys, p. 4). A study was performed by Xia Feng and Brad Humphreys (same guy) four years later, looking at the economic effect of housing values. Their results showed that sports facilities have a “significant positive effect on the value of surrounding houses and this positive effect decreases as the distance from the facilities increases (Feng and Humphreys, p. 3). The same study also showed that a new sports facility constructed outside of the center of a large city and unrelated to an urban redevelopment program will have the same positive effect on housing values in upwards of tens of millions of dollars.

With the opportunity for such increases in property value and the potential for lost profits if the team were to move, it’s not hard to understand why 33 local businesses pledged over 10 million dollars to the Sacramento Kings. SMUD (Sacramento Municipal Utility District), committed $250,000 over the next five years after hearing the team may be on its way out. Sutter Health, a nonprofit organization that is one of the region’s largest employers, committed $1 million to the team in it’s first-ever sponsorship with the Kings. The United Auburn Indian Community added an additional $650,000 dollars in sponsorship as the tribe’s Thunder Valley Casino and Resort is one of the primary sponsors of the team (Johnson, p. 2-4). These businesses were quick to react when the news of possible relocation was brought to their attention and hopefully for them their investment works out.

Good Team, Good Investment

            The Sacramento Kings have been rebuilding for the past few years missing the playoffs every season since 2006. The Maloof’s have taken a few body shots of their own to keep the team, selling their beer distributorship last year while also selling a stake to their Palms Casino and Hotel. They have reiterated that they would like the team to stay in Sacramento but their patience is wearing thin. If the team were to get an arena the Maloof’s would have to open up their pocket books as their public interest would take a shot if they promised to be the spenders in free agency that they said they would be. The team has shown promise with some of the young talent they have but it will take a few more pieces to reach the playoffs once again. Among the factors already stated is the sense of civic pride and unity a team can have on a community. Many fans and businesses took to Twitter and Facebook organizing meets and “Purple Fridays”, which allowed fans to show their team pride by wearing purple to work. There was a study done that demonstrated how a team’s success increases the personal income in the metropolitan area from which the winning team comes (Davis and End, p. 49). “The performance of sport teams predict the extent to which fans identify with the teams. Team performance affects personal reactions and, thus, may have real consequences for the economy,” (Davis and End, p. 39). The study was done focusing on NFL teams but they included baseball and basketball in their study. The study showed that a Super Bowl victory had the greatest effect on the individuals in the city for which the team is from but solid play from a NBA team has a similar effect just to a lesser degree. The better the team plays, the better off the city is.

Conclusion

            The city has until March 1, 2012 to reach an agreement. Giving the sides involved enough time to decide what exactly they want to do. Deciding on the where and how, while keeping those involved happy. The Maloof’s want to make sure they make a wise business decision. Mayor Kevin Johnson wants to keep the team in town, but getting that done in a way that will keep the citizens happy. David Stern wants the Kings to stay put but not at the expense of the league. And lastly, the citizens want to have a new entertainment facility just as long as it affects them in a positive light. Based on the studies shown it is possible to come up with a reasonable plan that goes along with the interests of both sides. Some compromises may have to be made by those involved but the plan won’t formulate by itself. It comes down to how much each side wants it and the quality-of-life benefits one can justify with the large public spending. These kind of benefits are hard to include in the debate on subsidizing sports facilities because they are so difficult to gauge. It is clear that if the Maloof’s and the team pack up and leave Sacramento it won’t do Sacramento any good. There won’t be as many jobs and that civic pride that few cities can hold onto will be lost. As nice as it would be to look and a crystal ball to see the city the ultimate affect this arena has, the simple fact is that it isn’t that easy. But it’s a different kind of ball that if taken away, could lend itself to more problems than this city currently has.

Works Cited

COATS, D. and HUMPHREYS, B. “Caught Stealing: Debunking the Economic Case for D.C. Baseball.” CATO Institute Briefing Papers (2004): 1-12. Web. 6 Nov. 2011.

END, CHRISTIAN and DAVIS, MICHAEL. “A Winning Proposition: The economic impact of successful National Football League franchises.” Economic Inquiry, Vol. 48 (2010): p 39-50. Web. 6 Nov. 2011.

FENG, XIA and HUMPHREYS, BRAD. “Assessing the Economic Impact of Sports Facilities on Residential Property Values: A Spatial Hedonic Approach.” IASE/NAASE Working Paper Series (2008): 1-19. Web. 6 Nov. 2011.

JOHNSON, KELLY. “NBA cutting deals with Kings sponsors.” Sacramento Business Journal (2011): 1-6. Web. 6 Nov. 2011.

RICH, WILBUR C. “The Economics and Politics of Sports Facilities.” (2000): 1-248. Web. 6 Nov. 2011

ROBERTSON, ROBBY. “The Economic Impact of Sports Facilities.” The Sport Digest (2008): 1-4. Web. 6 Nov. 2011.

THOMSEN, IAN. “NBA’s Future: Star-crossed.” Sports Illustrated, Vol. 114 Issue 10 (2011): 12-13. Web. 6 Nov. 2011.

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