Chapter 9
Facility Financing
Go to the Chapter 9 folder in the Additional Instructor Resources & Solutions folder to find
the Excel spread sheets and other resources that accompany the material in this chapter.
Chapter Overview
I. Introduction
II. Reasons for building new sport facilities
a. Teams and owners
b. Leagues
c. Fans
d. Cities and geographic regions
III. Historical phases of facility financing: Public versus private funding
a. Public and private financing
b. Phase 1 (1880s through Depression)
IV. Public financing
a. Public financing principles
i. Equity principles
1. Vertical equity
1. Price elasticity of demand
b. Public financing sources and techniques
i. General obligation bonds
ii. Certificates of participation
iv. Tax increment financing (TIF) and property taxes
v. Sales taxes
vi. Tourism and food and beverage taxes
vii. Sin taxes
viii. Sale of government assets
1. Payments in lieu of taxes (PILOT)
xiv. Reallocation of existing budget
xv. Indirect sources of public financing
1. Land donations
2. Infrastructure improvements
3. Tax abatements
c. Calculating public payments for stadium financing
V. Private financing
VI. Public/private partnerships
a. Goals of public versus private parties
b. Public policy issues and public/private partnerships
i. Ownership
ii. Voter approval
VII. Conclusion
Key Concepts
When reading this chapter, students should focus on the following key concepts:
1. The various bonds and revenue sources used by the public and private sectors to
fund new stadiums and arenas.
2. Factors that impact the decision to use public, private, or a combination of public
and private dollars to build a facility.
Additional Sidebar
Down Under Stadium Redevelopment: The Adelaide Oval, a Design
and Economic Success
By David Cooke, Practice Director and Architect
The Adelaide Oval, located in the iconic Parklands of the City of Adelaide, South Australia, is
a venue with a rich history. The first cricket match was played at the stadium in 1873, and
The first was to focus on and enhance the rich historic heritage of the venue, building on
the original pavilion-style design, as opposed to replicating the design of modern-day
stadiums. The pavilion style was already intrinsic to The Oval with its surrounding parkland
and The Hill, Family lawns, and Members areas. The division of space offers visitors a variety
of restaurants and bars, areas from which to view the event, and opportunities for viewing
the city and surrounding landscape.
The final element of the design approach focused on enhancing the non-event activities of
the stadium and the surrounding precinct. The Oval provides equitable and free access for
the general public to tour The Oval’s facilities, and venues such as The Hill of Grace
restaurant are open outside of event hours. The corporate areas are also available for use
during conferences and concerts to provide a high level of activity in this precinct at all
times.
Quiz Questions
Multiple Choice
1. Of the following bond types, which is issued by a public entity?
a. General obligation bonds
b. Auction-rate bonds
2. Which of the following is a bond issued by a municipality in which the revenue stream
backing the payment of the bond is an actual lease, not just revenues from a source?
a. General obligation bonds
b. Auction-rate bonds
3. Which type of bond is a form of public finance paid off solely from specific, well-defined
sources such as hotel taxes, ticket taxes, or other sources of public funding?
d. Revenue bonds
e. All of the above
4. Historically, which bond was the most common method used for facility financing?
a. General obligation bonds
b. Auction-rate bonds
5. During which phase of facility construction were most sport facilities built with private
dollars?
d. Phase 4
e. None of the above
6. Which of the following is sold by either a government agency or a non-profit
corporation set up to build a facility?
a. Certificate of participation
b. Tax increment financing
7. During which phase of construction were stadiums built with a mix of public and private
dollars? The stadiums usually only housed one major tenant, not two.
d. Phase 4
e. None of the above
8. Here, a sport team may package together guaranteed or expected revenue streams and
sell bonds based on the assets.
a. Certificate of participation
b. Tax increment financing
9. During which phase of facility construction were sport facilities primarily financed using
general obligation bonds?
c. Phase 3
d. Phase 4
e. None of the above
10. When a team has signed multiyear contracts to receive money, these revenue sources
can be used as collateral to get loans. This is referred to as __________.
d. Asset backed securities
e. None of the above
11. Which of the following is a source of governmental financing that, according to its
proponents, is not paid for by the public?
a. Certificate of participation
b. Tax increment financing
True/False Questions
1. T or F The sale of naming rights has little to do with getting a new stadium
financed and completed.
3. T or F When cities and other political entities invest in a new stadium, the team
using that stadium will receive most, if not all, of the additional revenue
generated within the stadium while paying for only part of its cost.
4. T or F Psychic impact is the emotional impact of having a local sports team.
6. T or F The geographic moniker chosen by a team (e.g., Chicago Cubs, Colorado
Rockies) affects the amount cities are willing to pay to publicly finance their
stadiums.
9. T or F An indirect source of public financing is infrastructure improvements.
10. T or F Asset-backed securities are a public source of stadium financing.
Answers to Quiz Questions
Numbers in parentheses represent where, in the text, you’ll find this discussed.
Multiple Choice
1. e (pp. 229–232)
2. c (p. 232)
True/False
1. F (pp. 247–248)
2. T (p. 248)
Responses
1. How can a stadium or arena be built without putting too much financial burden on a
local government?
Perhaps the most burdensome financial instrument would be to pay for the facility right
out of the General Fund without adding any new source of funding. This would directly
compete with existing government programs. Or, the local government could sell
general obligation bonds (thus creating the initial funding, but then how will those
bonds be paid off?). Also, the total amount of outstanding debt related to GOBs is
usually capped for a local government.
2. How does location affect the costs of a stadium or arena project? What are the pros and
cons of locating a stadium downtown versus out near a highway?
The cost of land is usually a major portion of the cost of a facility. Downtown stadiums
and arenas have more expensive land requirements. They often have more expensive
infrastructure costs, like widening streets, putting in parking, adding an exit ramp to the
nearest freeway, and so on. Most of these are less expensive when done away from
downtown areas.
3. When the construction ends up costing more than initial projections, should the local
government be responsible for paying the additional costs?
See page 247. At a minimum, this issue needs to be worked out in detail as part of any
deal. One common issue is that there are at least two parties (government and team
“change orders,” which are infamous in construction. The team owner (usually) wants to
make a change at some point in the construction process. In the latter case, the team
4. Of the list of public financing sources shown on page 249, which ones satisfy the
principles of horizontal equity, vertical equity, the benefits principle, and efficiency? A
source of financing can be assigned to more than one of the principles.
See pages 226 through 227 and generally 226 through 240 (public financing sources).
General obligation bonds, certificates of participation, revenue bonds, tax increment
financing and property taxes, sales tax, tourism and food and beverage taxes, sin taxes,
General obligation bonds: Generally spread the cost out across all of the general
government revenue raising sources (e.g., sales tax, local income tax, property tax). It
does not satisfy the benefits principle because it affects many non-sports fans. It is
Certificates of participation: In many cases, these are paid off through payments
related directly to the facility; thus they satisfy the benefits principle. They are fairly
Revenue bonds: The degree to which these satisfy the principles depend on what
Tax increment financing and property taxes: This can satisfy the benefits principle in
that property around the stadium that increases in value pays more for the stadium.
Sales tax: This spreads the cost out, so everyone pays. It is somewhat horizontal and
Tourism taxes: Easy politically but not generally paid for by those who benefit.
Food and beverage taxes: If these are concentrated around the sports facility, then
Sin taxes: This does not satisfy the benefits principle or horizontal equity or typically
vertical equity. It may be efficient if the tax is already set up. However, as with all
Sale of government assets: This is similar to land donation, below. This may benefit
the locality in general if the assets were underused prior to sale. What were the assets
being used for?
State appropriations: Non-local state residents help pay for this. Do they benefit?
This is fairly efficient because mechanisms are already in place.
Player income taxes: This is often a political winner because there are so few
professional athletes to stop this from passing. The players benefit from the facility and
pay for it (via this source), so it satisfies the benefits principle. Those with higher
incomes (athletes) pay these taxes, so it satisfies vertical equity. It targets a certain
group of high income earners, so not horizontal equity.
Reallocate existing budget: This harms whichever government program was going to
receive the budget. This is efficient in the sense that the money is there already.
Tax abatements: This is a cost to the general fund usually (property tax abatement
or sales tax abatement). This is similar to a GOB.
Response
Calculate the savings in total construction costs from issuing a $100 million GOB paying out
at 5% rather than a revenue bond paying out at 7%, both with a 25-year maturity.
See page 241 in the text, as well as the Chapter 9 Excel Spread Sheets found in the
Additional Instructor Resources & Solutions folder.
One way to calculate this is to use Excel’s PMT function.
Just multiply the result of the PMT calculation by 25 for the total number of years; for a 5%
interest, the total payments are $177,381,143.25. For the 7% interest rate, it is
Responses to Questions
This case analysis asks students to devise a public financing plan for an NBA arena in
Sacramento, California. Similar to the exhibits in the chapter (e.g., Exhibits. 9.9, 9.10),
students should create a table showing the various sources and to what extent they’ll cover
the cost of construction. Additionally, students needs to measure (see Question 5) the total
payments to show that they can calculate the interest, etc.
See the resources for Chapter 9 in the Additional Instructor Resources & Solutions folder;
specifically, see Chapter 9 Excel Spread Sheet and Case Study PDFs.
2. In the Excel spread sheet (found in the Additional Instructor Resources & Solutions
folder), one worksheet shows a sample financing plan that uses property taxes, sales
taxes, and hotel taxes. The final worksheet calculates the annual payments needed to
3. Also in the Additional Instructor Resources & Solutions folder are some case study
documents for this chapter (in PDF format); they show some of the information needed
to make the calculations. For example, what is the current sales tax rate, and how much
would it need to be raised to generate a certain amount of additional revenue? I’ve
highlighted some of the relevant pages in yellow. The instructor can either expect the
4. The 7% chosen for the revenue bond is just an example. The instructor could choose a
different number.
A Few Facts:
▪ The sales tax rate in the City of Sacramento and Sacramento County is 8.75%. The State
▪ The property tax rate in Sacramento County (in California, counties assess and collect
property taxes) is 1.0%. Most cities and special districts tack on some additional taxes.
▪ Hotel or Transient Occupancy Tax is 12% in Sacramento. It generated $20.3 million in
2008–2009. Only $3.3 million goes to the general fund (the rest goes to the Community