Chapter 13
Public Sector Sport
Chapter Overview
I. Introduction
II. Financial management trends in public sector sport
III. Source of funds
a. Public sources of funds
i. Property tax
iii. Excise taxes
iv. Pay-as-you-go financing
v. Bonds
1. Municipal bond
2. Term bond
3. Serial bond
4. Competitive versus negotiated issue
5. Revenue versus general obligation bonds
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 public agency.
Concept Check Responses
1. What factors will affect the type of bond that a city will choose to issue for
construction of a new recreation facility?
• The municipality or recreation agency must first determine whether the
project will generate enough revenue to retire debt, operate the facility, and
2. What factors will affect the type of bond that a school district will choose to issue
for construction of new athletic facilities?
• The district must first determine whether the project will generate enough
revenue to retire debt, operate the facility, and also maintain the facility.
3. What differences, if any, are there when selecting a bond to construct a
community recreation facility versus a high school athletics facility?
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
6. What pricing paradox do the managers of public recreation centers face?
Managers are expected to maintain affordable pricing for public programs while
at the same time maintain seeing a major source of their revenue―from
7. How should the manager of a public recreation center measure financial success?
Financial success varies from organization to organization. Across all, though,
8. Over the past 30 years, how has the funding of park and recreation agencies and
high school athletic programs changed?
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
9. Explain the process to calculate the millage needed to fund a new recreation
center or high school athletic facility.
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 must be
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?
The rate increases as time increases, to account for the risk of time. The city
11. How does state tax law affect the financing of parks and recreation facilities and
programs?
State tax law varies across the United States. In several states, laws such as
Missouri’s Hancock Amendment set limits on tax growth and governmental
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?
Due to tax restrictions, using general obligation and revenue bonds is difficult in
13. How can an individual’s experiences working in professional sport finance benefit
a park and recreation agency? What problems might arise in the negotiation of a
joint use agreement?
With increasing restrictions on the use of tax revenue, recreation programs are
turning to newer sources of revenue (new for them, that is). These include
Responses to Practice Problems
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
3. For an owner of property with a total assessed value of $15,000, by how much
will property tax increase?
Responses to Case Analysis 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
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
USTA. The USTA states on their website that they pay more than $1.5 million in
rent each year.