Chapter 9
Facility Financing
Go to the Chapter 9 folder in the Additional Instructor Resources & Solutions folder to find
the Excel spreadsheets 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
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
ii. Efficiency principle
1. Price elasticity of demand
b. Public financing sources and techniques
i. General obligation bonds
ii. Certificates of participation
vii. Sin taxes
viii. Sale of government assets
ix. State appropriations
x. Revenues from tickets and parking
c. Calculating public payments for stadium financing
V. Private financing
a. Private return on new facilities
b. Private financing sources and techniques
i. Contractually obligated income
ii. Asset-backed securities
VI. Public/private partnerships
a. Goals of public versus private parties
b. Public policy issues and public/private partnerships
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 unique city setting and surrounding park environment make The Oval one of the
prettiest venues in world cricket. Traditionally used as a multisport venue, football [soccer]
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
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.
Concept Check 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
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
3. When the construction ends up costing more than initial projections, should the local
government be responsible for paying the additional costs?
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 owner), and
4. Of the following list of public financing sources, which ones satisfy the principles of
horizontal equity, vertical equity, the benefit principle, and efficiency?
General obligation bonds, certificates of participation, revenue bonds, tax increment
financing and property taxes, sales tax, tourism and food and beverage taxes, sin taxes,
sale of government assets, state appropriations, ticket tax/surcharge or parking
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
costly to set up, so they are not that efficient. Indirectly, users of the facility pay for
COPs.
marginal taxes, there is likely a deadweight loss. See a principles of economics textbook;
for example, this is a good discussion of the topic.
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.
Response to Practice Problem
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 the Chapter 9 Excel Spreadsheets found in the Additional Instructor Resources &
Solutions folder.
One way to calculate this is to use Excel’s PMT function.
Responses to Case Analysis Questions
This case analysis asks students to devise a public financing plan for a new baseball stadium
in Oakland, CA to host the Oakland A’s. Similar to the exhibits in the chapter, students
should create a table showing the various sources and to what extent they’ll cover the cost
of construction. Additionally, students need to measure the total payments to show that
they can calculate the interest, etc.
1. 35% of $750 million is $262.5 million. That is the principal cost that the public must pay.
If the public chooses to pay for this out of current general fund, then that is the total
2. In an Excel spread sheet, show a sample financing plan that uses property taxes, sales
taxes, and hotel taxes. The final worksheet calculates the annual payments needed to
3. 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 Oakland and Alameda County is 9.25%. The State of
California gets 7.25% of that.