Creating a Revenue Model
A financial model is often called a “model of models.” This is because there are several parameters which go through a series of complex calculations themselves. Revenue is a perfect example of one such parameter. For the financial model as a whole, the revenue number is just one of the many inputs required for the […]
Building a Startup Team
When people think about how startup founders invest their time, most of them think about dealing with investors or managing the operations of the firm. Almost, no one imagines that the founder of a startup company spends a considerable amount of their time in building a team. This is because hiring is not considered to […]
Start-Ups and Public Relations
Almost every start-up firm tries to increase its sales. However, convincing more customers can be a very difficult task. It is common for start-up companies to have significant marketing budgets. However, most of the budget is utilized for direct marketing. There are very few start-up companies that believe that public relations can help them achieve […]
Prospect Theory
Prospect Theory is probably the most important piece of literature in behavioral finance. The conclusions made in prospect theory underlie a lot of aversions and biases, which have been discussed in different articles. Hence, in order to understand all those biases and the behavioral finance theory in general, it is important to understand what the […]
Cultural Influences on Financial Decisions
The financial decisions made by an investor are actually influenced by several factors that are present in their thought process. We have discussed about the rational aspects of traditional financial theory. We have also discussed about emotional aspects and behavioral biases in the previous articles. However, emotions are not the only thing that impact behavior. […]
In the previous article, we have already come across some of the reasons why the government should not encourage funding of stadiums that are to be used by private franchises.
We have already seen that the entire mechanism of government funding ends up being a regressive tax on the citizens of a particular city who end up subsidizing a particular team.
There are many people who do not clearly understand the economic rationale behind not building stadiums. However, they are well aware of the fact that a lot of professional sports franchises are owned by billionaires and if there was any possibility of obtaining a profit by running these facilities, then the franchise owners have enough resources to do so themselves.
The fact that some of these billionaires are insisting that public resources should be used to build the stadium can be considered evidence that the stadium is not a viable financial project.
However, in order to make the economic logic clearer, we need to spell out the exact logical fallacies in the muddled reasoning and obfuscation provided to the general public. The common arguments given in favor of government funding of such projects have been debunked below.
The bottom-level workers who work in the offices as well as at the stadiums are not paid much. Hence, the end result is that most of the money which is accumulated from fans of the team who are present in the city is sent to the bank accounts of these top personnel.
It is likely that most of the players as well as the management do not stay in the cities in which they play. It is also possible that they do not spend most of the money they receive as remuneration in the local economy. Hence, if a government builds a stadium, it is actually assisting the team in transferring their economic resources to other cities.
In the absence of such a stadium, the money would probably have been spent locally and would have helped local businesses. Hence, it can be said that not only does funding a stadium not help in creating economic wealth for the host city, but it can actually lead to the destruction of such economic wealth.
The additional money that they have not spent keeps on piling up on the balance sheet of these sporting franchises. This increases the notional value of these franchises which many billionaire owners are able to realize once they put the franchise up for sale.
Tourists who watch such matches generally do not visit the city primarily for sports events. Instead, most of the tourists are already in town for business purposes or to visit their family and end up visiting the stadium. Hence, it would not be appropriate to say that any additional revenue is generated on account of the presence of the stadium.
It has to be taken in relation to the other projects. As a result, there is almost no rationale for investing public money in stadiums. Public money needs to be invested either to obtain maximum returns or for social service.
If the money is being used to build stadiums, then the end result is that sub-optimal returns are being generated. Also, the government is not doing any public service by undertaking these projects. Instead, they are helping the rich become richer.
On the other hand, branding and image benefits are intangible and hence cannot be used to quantify the outcomes. The proponents of government funding in sporting facilities end up using this vagueness to their advantage.
The bottom line is that if billionaire owners as well as star players have to hold the local municipality at ransom and threaten to relocate to another city, then the project certainly isn’t a good investment.
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