New York Sports and Convention Center: A Definite “False Start” Rajasekharan Pazhaniappan Erica Shinohara Jessica Strong April 30, 2005

Outline Scope of our study Overview of New York Sports and Convention Center (NYSCC) Arguments for / against stadiums Key assumptions and Methodology Cost and Benefits of the project Synthesis Conclusions

Scope of Our Study Brief comparison between NYSCC Developer report and the NYC IBO analysis Critical examination of assumptions made for Cost Benefit computation Analyze the impact of the assumptions made on the reported net benefits Limited to City of New York’s perspective

Jets’ Background Information Since 1984, home games held at the Meadowlands Stadium in New Jersey (shared with the New York Giants) 2004 franchise value = $567 million Current capacity is 80,242 seats  Average attendance from was 65,731 In 2003, average ticket price was $66 per ticket; $368 per game for a family of 4

Hudson Yards Project Background Multi-purpose facility construction and renovation  Construction of new 75,000 seat open-air stadium, exhibition and entertainment center  Expansion and renovation of existing Jacob Javits Convention Center; 1 million new sq.ft.  Extension of No. 7 subway line

Current use of area

Future plans

Proponents argue that stadiums bring economic development to cities Increased revenue through tourism spending, new jobs, and taxes City becomes a “big-league” city through publicity and new businesses Benefits accrue and offset the subsidies so there’s no cost to the city over time

However, detractors say there are definite costs with publicly-subsidized stadiums Benefits and multiplier effects are usually overestimated Gross revenues spent at stadium are substitutes for other entertainment Future popularity of team is uncertain Opportunity cost: money could be spent to increase social welfare in other ways

Key Assumptions in Calculating NPV Number and types of events Attendance Type and mix of visitors Ticket and event prices Multiplier effect Timeframe and discount rate Number of jobs and tax revenue generated

Event & Attendance JetsIBO Stadium events17 Expositions3520 Mega Events22 Plenary Session22 JetsIBO Stadium events (avg. attendees / event) 75,00068,820 75,000 – football events 47,000 – regional events Expositions - (avg. attendees / event) - no. of exhibitors 8,427 n/a 4, Mega Events (avg. attendees / event) 65,000 Plenary Session (avg. attendees / event) 25,000

Visitor Type and Mix JetsIBO Stadium events % of regional visitors % of local visitors 65 % 35 % 65 % 35 % Expositions % of regional daytrip visitors % of regional overnight visitors % of local visitors 27 % 55 % 18 % 27 % 55 % 18 % Mega Events % of regional daytrip visitors % of regional overnight visitors % of local visitors 18 % 65 % 17 % 18 % 65 % 17 % Plenary Session % of regional daytrip visitors % of regional overnight visitors % of local visitors 27 % 55 % 18 % 27 % 55 % 18 %

Ticket and Event Prices JetsIBO Stadium events - Ticket (cost / ticket) - Value add from food & beverages - Value add from other sales $ 66 n/a $ 66 $ 14 $ 4 Expositions - Expenditure / visitor - Expenditure per exhibitor n/a $ 11 $ 304 Mega Events - Ticket (cost / ticket) - Value add from food & beverages - Value add from other $ 66 n/a $ 66 $ 14 $ 4 Plenary Session - Expenditure / visitorn/a$ 11

Multiplier JetsIBO Stadium eventsn/a Expositions4.5 Mega Eventsn/a Plenary Session4.5

Timeframe and Discount Rate Construction Lagged tax benefit from construction Operation Lagged tax benefit from operations Discount Rate = 6%

Jobs and Tax Revenues Generated JetsIBO Employment24,9003,465 Annual Fiscal Impact: Real Property tax Personal Income tax Business Income tax Hotel tax Other taxes n/a Total taxes$36.2$25.5

Methodology

PV Benefits $399 million PV Costs – $306 million NPV $93 million The Basic Math IBO

Challenging Cost Assumptions Costs are grossly understated: Opportunity Cost – foregone property tax Cost of additional public service Costs of additional infrastructure Encumbrance or reduction in City’s bonding capacity

Challenging Benefit Assumptions Benefits are vastly overstated: Optimistic stadium attendance Number of expositions – not incremental Number of jobs and quality of jobs Multiplier – no consideration of leakages Incremental Property Tax Tax revenue growth rate - optimistic

Synthesis Scope – Reexamining crucial assumptions: Opportunity costs Constant revenue growth of 2.5 % Discount rate of 6 % Stadium attendance Number of expositions Incremental property tax Multiplier

Synthesis - Actual Base Case

Synthesis - Opportunity Cost Opportunity cost of foregone property tax revenue

Synthesis - Revenue Growth of 2.5 % Business cycles mean growth and recession

Synthesis - Discount Rate

Synthesis - Stadium Attendance

Synthesis - Number of Expositions

Synthesis - Incremental Property Tax

Synthesis - Multiplier Highly Sensitive

Combined Synthesis - Realistic Scenario

Conclusion Developers greatly exaggerate the benefits to the city Including a convention center does not offset net losses The project is a drain on current and future generation of city taxpayers Stadium politics Alternatives exist