New York Sports and Convention

Center:A Definite “False Start”

Rajasekharan PazhaniappanErica ShinoharaJessica 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 1983-2004 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 & AttendanceJets IBO

Stadium events 17 17

Expositions 35 20

Mega Events 2 2

Plenary Session 2 2

Jets IBOStadium events(avg. attendees / event)

75,000 68,82075,000 – football events47,000 – regional events

Expositions - (avg. attendees / event)- no. of exhibitors

8,427n/a

4,400242

Mega Events(avg. attendees / event)

65,000 65,000

Plenary Session(avg. attendees / event)

25,000 25,000

Visitor Type and MixJets IBO

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

Jets IBO

Stadium events- Ticket (cost / ticket)- Value add from food & beverages- Value add from other sales

$ 66n/an/a

$ 66$ 14$ 4

Expositions - Expenditure / visitor- Expenditure per exhibitor

n/an/a

$ 11$ 304

Mega Events- Ticket (cost / ticket)- Value add from food & beverages- Value add from other

$ 66n/an/a

$ 66$ 14$ 4

Plenary Session- Expenditure / visitor n/a $ 11

Multiplier

Jets IBO

Stadium events n/a n/a

Expositions 4.5 4.5

Mega Events n/a n/a

Plenary Session 4.5 4.5

Timeframe and Discount Rate20

06

2043

2009

2015

2010

2036

Construction Lagged tax

benefitfrom

construction

Operation

Lagged tax benefit

from operations

Discount Rate = 6%

Jobs and Tax Revenues Generated

Jets IBO

Employment 24,900 3,465

Annual Fiscal Impact: Real Property tax Personal Income tax Business Income tax Hotel tax Other taxes

17.36.35.5n/a3.93.2

12.33.72.02.83.41.3

Total taxes $36.2 $25.5

Methodology

PV Benefits $399 million

PV Costs – $306 million

NPV $93 million

The Basic Math

IBO

Challenging Cost AssumptionsCosts 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 AssumptionsBenefits 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

SynthesisScope – 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