Introduction
The construction of a stadium should be done after carrying out cost-benefit analysis of subject of a project. This paper will discuss the cost-benefit of the Emirates Stadium that was estimated to cost £390 million and create over 1800 work places (Arsenal.com 1). Analyst had examined the impact of such a stadium on economic growth, job creation, increasing income tax revenues, growth of sports and other benefits. However, this will be done by relating to a comparison of the growth rates in other regions without a stadium like the Emirates. The presence of Arsenal football club has had significant impact upon the growth in per capita income on the neighborhood.
New Emirates stadium
The new look of the Emirates Stadium will cost £390 million thereby creating 1800 jobs and enabling the constructions of 2000 homes. The stadium will have direct employment of 1000 workers during the construction and after completion; it will have a capacity of 60,000 people.
Costs benefit analysis
The construction of the Emirates Stadium will have a great benefit in terms of revenue to the club and society. Quantifiable benefits of the stadium will depend on performance of the Arsenal club in the premier league. This analysis has assumed three scenarios, low attendance, medium attendance and high attendance. Each has been assigned probability of occurrence to enable scenario analysis. The excel file has details how the net present value has been arrived at. The data in the excel file concerning the stadium is beneficial because it has net present value of £1,396,617
Qualitative benefit of emirates stadium
Constructing of the Emirates Stadium has economic benefits of such developments. Profits related to the building of the stadium have now become close to and synonymous with the advantages associated with having a football match with Arsenal. The costs depend on not provision of the public funds for a new stadium but threats of losing the right to host the matches of the team to other places. It is known that the main premier league has a large number of franchises because of which there is intense competition amongst large cities that can support professional matches. For this reason, owners of the team can always threaten to shift to another city, probably to the one that is ready to finance a stadium publicly. Leagues have now started demanding that cities that want expansion teams should provide new franchises with a stadium (Rich 27).
Increasing costs in terms of player free agency and the alterations in the tax codes have made team owners to search for the ways to enhance their revenue to be able to keep up with the returns on their investments on the team franchise. An effective means to get revenue is to put up money in grand magnificent stadium with facilities of elaborate concession and luxury boxes. Team owners share the cash collections and outcome emanating from television broadcasting while other revenue from advertising, parking, concessions and luxury boxes enhance profit of the team. Metropolitan areas had grown significantly during the last three decades; this has resulted in the creation of a number of new metro regions that are big enough to support teams for limited or slow growth in the number of professional franchise opportunities. As the demand for teams exceeds the supply, team owners have been able to gain immense bargaining influence from the plausible threats of moving their franchise to upcoming and growing metro regions. Team owners now have the influence to enhance their earnings by taking part in the sharing of expenses on new stadiums.
Stadiums are mostly constructed with combined private and public participation. Municipal corporations generate funds by issuing bonds that increase in value in the coming future, imposing property taxes on redevelopment agencies, implementing temporary room prices and generating overall fund revenues through different varieties of taxes. Redevelopment agencies usually make use of future property tax collections in serving as collateral against the bonds that they issue. In developing new projects, agencies can generate added property tax revenues. In some circumstances, the redevelopment agencies can tap the additional financing and utilize them in serving as collateral to issue bonds to fund the development of sports infrastructures. Such financing is also termed increment funding, whereby future revenue is used in building projects that are expected to create the same streams of revenue. Over and above the special taxes that are collected to provide for the repayment of bonds issued for stadiums projects, the state can also make use of general funds outcomes in paying back against bonds. The general fund of the government is generated through different varieties of taxes that can be utilized at its own discretion. This is referred to as discretionary spending whereby the general funds are the typical sources of financing for most of the government services (Baim 53).
The advantages of building new stadiums through public funding can be recognized from two perspectives, the quality of life benefits and the economic development advantages. The progress of economic development can be measured in terms of changes in the economic results such as incomes, jobs and profits. Benefits relating to quality of life can be considered in terms of intangible social advantages that affect the way the community looks at itself, the pattern according to which its members behave and the contentment derived by them.
Economic benefits primarily relate to profits derived by owners of the franchise because they save a lot of money when they are not required to fund the entire costs of the new stadium. Experience has shown that the income of individual sports franchises are increased by amounts that range from £10 to £49 million for every new stadium that is established. The new sports facilities will create new jobs and enhanced incomes. Extra work places will be created in constructing and operating the stadium after it is completed and in other related businesses. There will be a growth in the number of restaurants and hotels that starts operating from the vicinity of the stadium. In the other hand, those that already exist will have a significant increase in the stream of customers that visit them. Personal income levels of the community will also grow with the increase in the number of available jobs. Tax revenues in terms of sales tax and income charge collections will shoot up because of the enhanced spending patterns near the stadium and high personal incomes.
A major reason for the improving of the quality of life will be the consumer surplus arising due to increased attendance of the sporting events. In this context, consumer surplus is defined as the difference between what a spectator is willing to pay for a place in the stadium and the kind of satisfaction and utility that he or she derives from the same. Although measuring the consumer surplus is a difficult task, it is a significantly big advantage to consider the effectiveness of different parameters. The local sports franchise can provide benefits for sports fans that have not attended a single game. Such fans can follow the footsteps of the franchisee on platforms of the media, for example, and discuss them with colleagues, relatives and friends. The local sports clubs create a strong sense of civic pride by prominently putting the city on the sporting map and cities that have sport franchises are viewed as world class and major cities (Rich 26).
The tangible and intangible advantages associated with professional sports stadiums are usually accompanied with both economic costs and quality of life costs. There is an opportunity cost of public pounds because in spending public money on stadiums, the government has to forego expenses that can be made in other areas of social utilities and government services. The evaluation of public investments on sports stadiums is done on the same basis as it is done for other public projects. The biggest issue in this regard concerns whether the returns on investments made on sports stadiums are more than the outcomes of the same inputs made in other areas, including measures to reduce taxes.
Since families and individuals have to allocate their relatively fixed entertainment budgets amongst different means of entertainment, a larger spending at new stadiums will imply low levels of spending on other modes of entertainment, such as museums, amusement parks, etc. Thus, people that are used to attend games in stadiums can stop spending on other entertainment activities, thus creating a loss for these sectors. People who live in cities that have a professional sports franchise will be in an advantageous position by being in close proximity to the stadium. Moreover, they will be thus ready to accept lower incomes on account of living closer to the football club’s location. For instance, a college graduate could be ready to work at a lower salary in a center that has a professional sports franchise as compared to a city that does not have a sports club.
Most franchises and local commercial associations deploy professional consulting companies to ascertain the economic benefits that will accrue to a particular city or metropolitan area. Such studies are able to ascertain the concrete benefits resulting from building stadiums by way of the number of jobs that will be created and the amount of growth in tax revenues that will result from the construction and operation of the developed stadium. Because of the recent patterns of increase in government subsidies for sport stadiums, a number of autonomous, academic economists have started researching the impact on economic development. The research material that is available in this regard is clearly indicative of the fact that there are not much economic benefits and growth from the development of professional sports franchises and stadiums. Some areas of experiential economic studies have offered the same conclusions although autonomous efforts in researching the economic effects of arenas and stadiums have consistently concluded that there is no significant statistical relationship amongst the construction of sports facilities and economic growth.
The money invested in sports stadiums is quite substantial in view of the combined contribution of revenues by the industry to the economy. Economists hold that sports stadiums generate substantial tax revenues from the sale of services that they provide. But the biggest question pertains to whether the outcomes they generate exceed over and above what could have been generated if the same amounts would have been invested in other sectors of the same region. In addressing such questions, the proposals of using taxpayer’s money are regularly made to undergo economic impact studies. A number of assumptions are made in such studies regarding the income that will be probably generated and the number of jobs that will result from the new projects. However, in most cases, these data cannot be substantiated and explained by economic theory. Moreover, the values of the subsidies received by the teams when the city incurs the bills for new stadiums mostly reveal high team resale prices that eventually end up in the pockets of clubs’ owners (Baim 56).
Some analysts argue that money that is spent on stadiums should be diverted for use in better ways. For example, the large amounts can be used in giving tax incentives to local small businesses in the region in question. The money could be also used by cities to attract larger number of different industries. Such ideas can result in the creation of a larger number of jobs and the benefits in this case will influence the life of the local population and remain within the community for several years. However, at the same time, it is a difficult job getting the public to reconcile in allowing their local teams to lose. There have been examples of cities that did not initially invest in stadiums but because of the strong emotions connected with sporting events, authorities had to yield to the public demand and build stadiums at much higher costs than what they would have incurred if they were built earlier. Most people love sports, and professional sporting events are a great means of entertainment in addition to encouraging civic pride for residents. However, things have to be kept in perspective, and in establishing a stadium, several parameters should be considered by the civic authorities to make the development a viable and satisfying venture (Baade 105).
The strongest argument as to why public funds should be used to construct stadiums is that the community values the teams that thrive in cities and hence they have a basis in rewarding them. Sporting teams need new stadiums, and the owners do not have sufficient capital to build them. They run teams that have lot of fans who love to attend games if the matches are played in new environments. Additionally, a new stadium implies that it will be a better place to play games and may eventually become a strong reason for more talented players to join the teams in the future. The financial burden of the stadium cannot be borne by the owners alone, and hence some other entities have to maintain the place at least until the adverse impacts start to work. Even if the new stadium is constructed, there is no assurance that more fans will be attracted to the games nor is there any guarantee that the teams will become more competent.
Sports such as premier league are big businesses, and if fans do not perceive them, they often end up in being disappointed every time they go to the stadium. They enjoy the games and the competition at so many different levels. Eventually, there are more gains in stadiums being built with public funding although a number of things ought to change. There must be a salary cap imposed on all sporting events in order to enable smaller market teams to remain within the competitive environment. Otherwise, small teams will be deprived of the opportunity to promote their level of the game. Mostly, it appears that everything is balanced but at the end of the day, it figures out that smaller teams are distinctly separated from the larger ones. In such an environment, it becomes difficult for smaller market clubs to survive the competition. The public should foot the bills for stadiums after teams are given adequate options by way of a referendum whether the stadium should be built. If the referendum goes through, players should have some stake in the earnings since they need to become a larger part of the community and to have a sense of giving to the community that pays their salaries. If players are concerned only about the money that they earn, the team eventually suffers in the long term, and the same is true for franchises and their owners. They must reveal to the community that they eventually work towards the public interests and should not engage in threats about shifting elsewhere if they do not get immediate rewards in the short term (Kern, 28).
Conclusion
Public funding of the new Emirate stadiums should be done only when the public is assured of getting back in return what they seek for, namely, entertainment, enjoyment and a sense of pride, which are more important than huge economic benefits alone. If a team eventually performs and behaves in a manner that allows the market forces to gain a lot of money automatically pumped into the city’s economy, the public funding of the stadium will prove to be a good venture. It should never be done if the owners of the team start diverting all the money into their own pockets. Sometimes, people do not keep track of the factors that make playing of such games great, and in such circumstances, it is the duty of all sporting fans to hold the teams accountable for such outcomes. It is also required to ensure that franchises put up collaterals at the same time as the public. Essentially, public funding of stadiums should be done only if the public is adequately compensated for the same in terms of satisfaction and entertainment.
Works Cited
Arsenal.com. Emirates stadium-key facts. Arsenal.com. 2011. Web.
Baade Richard. Professional Sports as Catalysts for Metropolitan Economic Development. Journal of Urban Affairs, 18.2 (2005): 1-18. Print.
Baim, Dean. The Sports Stadium as a Municipal Investment. Westport: Greenwood Press, 2003. Print.
Kern, William. The Economics of Sport. New York: W. E. Upjohn Institute, 2000. Print.
Rich, Wilbur. The Economics and Politics of Sports Facilities. New York: Praeger, 2000. Print.