Guest Post: Comparing Gwinnett to Rome

When word of the Gwinnett Braves deal broke, I asked my friend Frank Stephenson what he thought of the deal compared to the deal in Rome. Frank is the chair of the economics department at Berry College, which is located in Rome. You may also know Frank from his blog contributions at Division of Labour.

Frank did some digging and now has a post on the Rome Braves (Low-A) stadium agreement.

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The interest in the Gwinnett Giveaway raises an obvious question: How has the Macon Braves’ 2003 move to Rome worked out? That’s the question I’ll address in this guest post.

The Rome Braves play in a $14.9 million stadium (including $2.2 million for the land upon which it sits). Construction was financed by a special purpose local option sales tax effective from April 1, 2002 to June 30, 2003. (The SPLOST referendum passed with 50.5% support.) The Braves contributed an additional $850,000 to pay for upgrades including 6 additional suites, the restaurant and kitchen build-out, fixed seats, and additional concession areas. Hence, we see an immediate contrast between the Rome and Gwinnett stadiums—the Rome stadium was much less expensive.

Not surprisingly, one factor in the cost difference is the higher land price ($5 million vs. $2.2 million) in more densely populated Gwinnett County. The primary difference, however, is the construction cost of the stadium—approximately $13.5 million in Rome (including the add-ons paid for by the Braves) versus an anticipated $40 million in Gwinnett. Some of the cost difference arises from the Gwinnett stadium having 10,000 seats (plus an outfield area) while the Rome stadium seats 4,000 (plus an outfield berm). However, the number of suites is similar (16 for Gwinnett vs. 14 in Rome), and other stadium features (e.g., team offices) should also be similar for the two projects. Part of the cost difference for the Gwinnett deal is also the increased price for construction material such as steel and cement over the past five years (data here; click on chart labeled “Producer Price Index”).

Let’s turn now to the Braves lease provisions. The team agreed to an 18 year lease with three options to extend the agreement for four additional years. The lease has no provisions for a 31st season; presumably the team and Floyd County would negotiate an extension at or near the end of the 30 years if there is mutual interest in having the team continue to play in Rome.

All payments made by the Braves go into a capital maintenance fund for stadium repairs (e.g., HVAC, plumbing, etc.). The Braves payments for use the stadium consist of a $15,000 per year fee, a share of their season ticket revenue, and a share of naming rights. The season ticket share payment is calculated as 35% of any season ticket revenue between $175,000 and $350,000 per year and 25% of any season ticket revenue between $350,000 and $525,000 per year. (The thresholds are adjusted annually using the CPI.) The Braves keep all season ticket revenue below $175,000 and above $525,000. The season ticket share payments for the team’s first five years in Rome have ranged from $105,000 to $117,003 with a total of $554,999. Note that there is a potential loophole in the season ticket revenue sharing provision of the lease—the Braves could game the system by enticing customers to buy single game rather than season tickets. This possibility, however, seems rather unlikely as the team probably has a strong preference for the stable revenue streams generated by season ticket commitments.

Regarding naming rights, the stadium name was purchased by locally-headquartered State Mutual Insurance Company. The lease calls for naming rights revenue, net of any perks such as tickets and advertising provided by the Braves to State Mutual, to be shared 60/40 between the team and the county’s maintenance fund. The county’s 40% share of the net has been $8,286 for each of the first five years. Media reports (the Rome News-Tribune, July 1, 2003) indicate that State Mutual pays $65,000 per year for naming rights with a net of $20,714 after perks. The $65,000 per year amount seems reasonable in comparison to a $100,000 per year rights deal for Chattanooga’s stadium; it even seems lucrative compared to a $20,000 per year deal for the naming rights for the Kannapolis NC ballpark. (Note that these figures suggest that Gwinnett’s hope for $850,000 annually in naming rights might be overly optimistic.) However, the provision for net revenues to be split 60/40 is problematic. This provision essentially allows the Braves to capture a large portion of the naming rights by providing State Mutual with complimentary tickets and other items. While the team does incur costs for some of these items (e.g., $5,000 per year of giveaways and $1,486 for signage), others are pure profit (e.g., tickets that would have been unused otherwise). Stated differently, the naming rights deal can be viewed as naming the stadium for State Mutual in exchange for State Mutual making a large, multi-year purchase of tickets, advertising, and a suite. Floyd County might have been better served by a 60/40 split of gross revenue.

Adding together the $15,000 annual fee, the season ticket revenue split, and the naming rights, the Braves have paid $671,429 for their first five years in the stadium. A sensible way to compare this figure to the $14.9 million cost of the stadium is to think about the opportunity cost that taxpayers incur by having their $14.9 million tied up in a stadium rather than having it available for other uses. Economists typically measure such opportunity costs via an interest rate. Taking a conservative interest rate of 3%, taxpayers are sacrificing about $450,000 per year in interest in order to construct the baseball stadium. (Higher interest rates would imply a larger opportunity cost.) Since the Braves annual payments have averaged about $134,000 per year, they’ve paid a bit under one-third of the taxpayers annual cost of the stadium. Of course, the taxpayers aren’t really being repaid since the Braves payments go into the capital maintenance fund.

Let me touch on a few other issues. First, Floyd County is allowed to use the stadium up to 30 days per year (vs. 10 days for Gwinnett); however, all net proceeds of county sponsored events are deposited into the capital maintenance fund. (My impression is that Floyd County has used the stadium much less than 30 days per year and that few of the events had significant revenue potential.) Second, what about the stadium’s economic impact? Anecdotes about Camden Yards and other ballparks notwithstanding, the sports economics literature provides strong evidence that stadiums are not engines of economic development. (Phil Porter of the University of South Florida, in a recent interview on NPR, noted that the Super Bowl leaves “no footprint … in any of the measurable statistics.”) There’s no reason to think Rome’s experience has been any different; a Fuddrucker’s has been built across from the stadium but all of the outparcels at the stadium site remain empty (the local Hooters plans to relocate to one of the stadium parcels). Finally, what about the benefits Romans derive from baseball consumption? Measuring such benefits is notoriously speculative, but it’s possible that constructing the stadium and bringing the Braves to Rome has generated consumption benefits greater than the $316,000 average annual subsidy to the team. For example, the team has averaged over 225,000 in annual attendance. If each of these fans received about a dollar and a half in consumer surplus from attending, their aggregate benefit would outweigh the annual subsidy. Such reasoning, of course, begs the question of why taxpayers should fund a stadium that customers would be willing to pay for in the form of higher ticket prices.

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Thanks to Frank for an informative comparison.

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