Chapter 13
Public Sector Sport
Go to the Chapter 13 folder in the Additional Instructor Resources & Solutions folder
to find the Excel spread sheet that accompanies this chapter’s material.
Chapter Overview
I. Introduction
II. Financial management trends in public sector sport
III. Source of funds
a. Public sources of funds
i. Property tax
ii. Sales tax
1. Use tax
2. Local option sales tax
iii. Excise taxes
iv. Pay-as-you-go financing
v. Bonds
1. Municipal bond
2. Term bond
5. Revenue versus general obligation bonds
a. Public facility authority (PFA) bonds
b. Private sources of funds
i. Fundraising and grants
ii. Advertising and sponsorship
IV. Collaborative financing
V. Conclusion
Key Concepts
When reading this chapter, students should focus on the following key concepts:
1. Financial management in the public sector is as complicated as financial
management in other sectors of sport. The industry faces unique challenges
from for-profit and non-profit agencies offering similar services. Sometimes
these services are offered at a lower price than the pubic agency.
3. Many states and municipalities restrict sales and property tax growth.
Resources are often not available to fund new programs or build new facilities.
Quiz Questions
Multiple Choice
1. Of the following, which is a trend impacting financial management in public
sector sport facilities?
a. Demand for services has increased
b. The type and variety of services and facilities have increased
2. The pricing paradox related to public sector sport is a result of which of the
following?
a. Affordable pricing for public programs combined with lower tax revenues
b. Providing a multitude of affordable programs
3. Land, buildings constructed on land, and improvements made to land are known
as which of the following?
d. All of the above
e. None of the above
4. What does one mill equal?
a. 1/10 of a dollar
b. 1/100 of a dollar
5. Advertising and sponsorship revenues must be sought by parks and recreation
programs according to which state’s laws?
d. Michigan
e. Georgia
6. The Billie Jean King National Tennis Center is an example of which type of public-
private partnership model?
a. Public sector leasing
b. Private sector takeover
7. When taking over the Singer Bowl, what did the USTA offer?
a. To spend a minimum of $5 million at the site
b. To let the city use the facility for 30 days a year
8. Today, the USTA generates __________ through the operation of the Billie Jean
King National Tennis Center for New York City on an annual basis.
d. 10,000,000
e. None of the above
9. Which of the following is the most common tax source used to fund the
construction and operation of public sector sport facilities?
a. Property tax
b. Sales tax
10. When selecting the type of bond to use when building a recreation facility, a
municipality must do which of the following?
a. Determine whether the facility will generate enough revenue to retire
the debt
b. Determine whether the facility will generate enough revenue to operate
the facility
True/False
1. T or F Public facility authority (PFA) bonds are similar to general
obligation bonds (GOB).
4. T or F A use tax is a levy imposed on certain goods and services that are
purchased outside a state and brought into the state.
7. T or F A taxes specifically on the sale of sporting goods products is an
example of an excise taxes.
8. T or F A term bond is paid in a single payment at the end of the loan
period.
10. T or F Joint use agreements and public/private partnerships are
collaborations between the public and private sectors.
Answers to Quiz Questions
Multiple Choice
1. d (p. 342)
2. e (p. 343)
True/False
1. F (p. 353)
2. F (pp. 356–357)
3. T (p. 349)
Responses
1. What factors will affect the type of bond that a city will choose to issue for
construction of a new recreation facility? See page 353.
• The municipality or recreation agency must first determine whether the
project will generate enough revenue to retire debt, operate the facility, and
maintain the facility.
2. What factors will affect the type of bond that a school district will choose to issue
for construction of new athletic facilities? See page 353.
• The district must first determine whether the project will generate enough
revenue to retire debt, operate the facility, and also maintain the facility.
Most likely this will not be the case unless a large naming rights agreement is
in place and the facility is able to host numerous events each year.
3. What differences, if any, are there when selecting a bond to construct a
community recreation facility versus a high school athletics facility?
The process is the same. Most likely, less revenue will be generated through
programming at the high school venue so revenue bonds would be less likely to
be used.
4. In your hometown, how have local recreation facilities been financed?
Most cities and counties have information available on their websites related to
the financing of recreation facilities. Sometimes students will have to dig into
county or city budgets to pull out recreation related information (i.e., Fenton,
5. What are the main sources of revenue for your hometown’s recreation center?
Questions 4 and 5 can be combined for student presentations. Here, students
have to analyze data collected in Question 4. For example, the Fenton, Missouri,
6. What pricing paradox do the managers of public recreation centers face?
See page 343. Managers are expected to maintain affordable pricing for public
programs while at the same time maintain seeing a major source of their
revenue―from taxes―decrease. This is difficult if a balanced budget is to be
7. How should the manager of a public recreation center measure financial success?
See pages 343 through 344. Financial success varies from organization to
organization. Across all, though, achievement is compared to goals. The goals are
8. Over the past 30 years, how has the funding of park and recreation agencies and
high school athletic programs changed?
See pages 343 through 344. Thirty years ago, recreation pricing centered on
keeping public recreation activities affordable. Activities and memberships were
nominally priced or even free. Programs were funded through tax receipts or
transfers from the city’s general fund. Over time, as programs were diversified
9. Explain the process to calculate the millage needed to fund a new recreation
center or high school athletic facility.
See page 346. The tax rate is the required tax divided by the net assessed value.
The tax rate is then multiplied by 1000 to get the total number of mills. Millage
10. The debt service schedules for Fenton, Missouri are found in Exhibits 13.6 and
13.7. In Exhibit 13.7, why does the rate of interest that the city pays increase
overtime? Why does the city make two interest payments and one principal
payment, in most years?
See pages 354 through 355. The rate increases as time increases, to account for
the risk of time. The city makes two interest payments per year, with one
principal payment, as it lowers the total amount of interest paid on the debt.
11. How does state tax law affect the financing of parks and recreation facilities and
programs?
See pages 3543 through 354. State tax law varies across the United States. In
several states, laws such as Missouri’s Hancock Amendment set limits on tax
12. For the funding of projects, why are municipalities moving from the use of
general obligation bonds to revenue bonds, PFA bonds, and certificates of
participation?
See page 353. Due to tax restrictions, using general obligation and revenue
bonds is difficult in many states. PFAs and certificates of participation allow
13. How can an individual’s experiences working in professional sport finance benefit
a park and recreation agency?
See page 357. With increasing restrictions on the use of tax revenue, recreation
programs are turning to newer sources of revenue (new for them, that is). These
14. What problems might arise in the negotiation of a joint use agreement?
See pages 358 through 359. The main problems relate to usage and
maintenance, as the payment issues are usually set early on. The joint use
agreement must specify who has access to each facility or field, who maintains
each facility or field, and when each party will have access to facilities and fields.
Responses
1. Calculate the amount that must be set aside each year to meet the bond’s
principal and interest obligations over 30 years.
The amount that needs to be set aside each year is equal to the bond’s payment,
2. Calculate the additional millage required to cover the project’s debt service.
Tax rate = required tax/net assessed value
From Problem 1, the required tax is $1,548,121.27; from the problem’s
instructions, net assessed value is $725 million.
Mills = Tax rate 1,000
3. For an owner of property with a total assessed value of $15,000, by how much
will property tax increase?
Responses to Questions
1. What benefits did the USTA receive when it entered the partnership with the city?
The USTA received land, an old stadium, and a great location to hold the
tournament. The USTA leased the land for 15 years and received the right to
exclusively use the site for 60 days each year.
2. What benefits did the city receive?
The city received one of the best public tennis facilities in the world. The USTA
3. Do the benefits to both parties seem equal? Why or why not?
From a financial standpoint, the USTA seems to have benefited more through
the partnership. In 2012, the tournament generated $130 million in profit for the