Funding issue stirs arena debate

As other cities already know, the debate Las Vegas is having over the merits of a downtown sports arena will boil down to one question.

Where will the money come from?

Tampa, Fla., agreed to use a hotel room tax and private financing to build the Ice Palace along that city's downtown waterfront. Mike English, a Tampa urban planner, said the home of the NHL's Tampa Bay Lightning has sparked commercial, residential and mass-transit development in the waterfront district.

"Nothing was down there but the Tampa Aquarium, which was beautiful but dying on the vine because there was nothing else to do around there," English said. "The Ice Palace became a catalyst. We're developing an urban center where there wasn't one."

President John Berthoud of the National Taxpayers Union in Alexandria, Va., has a different take on the use of public money to help finance sports facilities. He said downtowns can do better than to sink money into arenas.

"If you're interested in maximizing growth downtown, lower taxes across the board," Berthoud said. "You could cut property taxes."

With Mirage Resorts Chairman Steve Wynn considering the purchase of a professional basketball or hockey team, Las Vegans are now exploring the feasibility of a downtown arena. Similar debates have gripped politicians, sports fans, taxpayer associations and academicians nationwide.

The arenas built in the '90s cost $100 million to $300 million and have roughly 18,000 to 21,000 seats. The debates are mostly over the extent to which the public should help pay for the arenas. This has become an increasingly costly proposition. The antiquated Sports Arena used by the NBA's Los Angeles Clippers cost $8 million when it was built in 1959. The new Staples Center in downtown Los Angeles, which will house the Clippers, NBA Lakers and NHL Kings beginning this fall, cost $300 million.

In addition to inflation, costs have skyrocketed because team owners have demanded more bells and whistles. These include revenue-producing goodies such as luxury boxes, a hit with the corporate set, and club seats that give fans an upscale food menu and waiter service. The added revenues help pay the players' rich contracts.

Community pride, job creation and infusion of dollars into anemic business districts are often cited by proponents as reasons to build an arena. A sports facility such as America West Arena in Phoenix can help revive a downtown by injecting night life into an area that had none.

But critics say that the economic benefits are negligible and that any public support of arenas amounts to corporate welfare for wealthy team owners.

Sales taxes were used to build the Alamodome in San Antonio, Texas, but that facility turned into a boondoggle, not good enough to attract an NFL team as hoped. The Alamodome is even at risk of losing the Spurs, newly crowned champions of the NBA, because the facility lacks amenities provided by other stadiums.

The nation's professional basketball and hockey arenas run the gamut from totally publicly funded to completely privately financed. The public financing typically involves some combination of tax increases on sales, hotel rooms, car rentals, liquor or cigarettes, surcharges on parking fees and game tickets, and free or cheap land. Property tax increases, which require voter referendums in many states, generally are out of the question.

Cities with publicly funded basketball arenas include Houston, Dallas and San Antonio, Orlando, Fla., and Seattle. Public-private partnerships can be found in cities such as Cleveland, Phoenix, Ariz., Salt Lake City, Minneapolis, Milwaukee, and Indianapolis.

The arenas that are privately financed usually are built by the owners of the teams that will play there. One of the builders of the Staples Center, Edward Roski, is also an owner of the Los Angeles Kings. Ascent Entertainment Group, owner of the NBA Nuggets and NHL Avalanche, is also opening the Pepsi Center in Denver this fall. Turner Broadcasting, owner of the NBA's Atlanta Hawks and expansion NHL Thrashers, is helping to build the Philips Arena in that city.

An increasingly popular way to help finance an arena has been to sell its name to the highest corporate bidder. But even if an arena is financed privately, the municipal government is often asked to kick in millions of dollars for roads, sewer lines and mass transit to serve the facility.

Las Vegas does not have the skyscrapers and range of commerce typical of downtowns in major cities. But the proposed location for an arena on land owned by Lehman Bros. Holdings Inc. between the Spaghetti Bowl and the Fremont Street casinos is as close to "downtown" as Las Vegas gets.

With that in mind the Sun queried businessmen and other community leaders in Phoenix, Los Angeles, Denver, Atlanta, and Tampa. Those cities either have downtown arenas or are building them.

Plenty of support

Not surprisingly, chambers of commerce representatives offered effusive praise. They referred to their arenas as magnets that have drawn millions of additional visitors downtown each year and sparked other commercial and residential development.

But they also conceded that the net economic impact of the arenas in their cities has been hard to gauge.

In Phoenix the America West Arena built in 1992 has been credited with playing a major role in downtown revival by attracting at least 2 million visitors a year.

A 1996 study found that 44 percent of the fans who attended games stopped downtown either before or after to eat a meal or have drinks. The average they spent was $25.60. The average fan of the NBA Phoenix Suns visited downtown nearly 22 times a year for entertainment purposes.

Before the arena existed the only popular downtown venues were a convention center and the Arizona Center, a retail and office complex. Brian Kearney, executive director of the nonprofit Downtown Phoenix Partnership, said downtown was an 8 a.m.-to-5 p.m. area that was abandoned in the summer before the arena was built.

"Most of your ball games are at night, so there's your after-hours crowd," Kearney said. "The Arizona Rattlers of the Arena Football League have sold out virtually all their games and that's a summer activity. And there's the Phoenix Mercury of the WNBA, so we have all these summer activities we didn't have before.

The city, which paid about half of the arena construction bill, did so by raising hotel and car rental taxes. Like other arena cities, Phoenix believed the most palatable taxes were those paid by tourists.

"The major selling point was that it wouldn't compete for the money used to fund general city services," Kearney said.

The Staples Center is being viewed as a major component of an entertainment corridor that stretches from the aging Los Angeles Coliseum to Dodger Stadium. Already the arena has locked up the music industry's Grammy awards ceremony next February as well as next year's Democratic National Convention.

"Early on in the process of developing the Staples Center it was made very clear to our ownership that the city of Los Angeles was not going to fund the development of the arena with public money," Staples spokesman Michael Roth said. "We determined that if we were going to build the arena in Los Angeles, we would have to privately finance it."

The arena is expected to host 200 to 230 events annually.

Next to the city's convention center, the arena is expected to be of primary benefit to downtown restaurants and hotels, said Ezunial Burts, president of the Los Angeles Area Chamber of Commerce. He spoke of a "synergy" between the arena and convention center. Burts said hotels and restaurants are already planning package deals for customers to attend Staples events.

"It's already starting to book full for the next several years," Burts said of Staples. "Hotels are looking forward to the Staples Center opening, not just for the sporting events but for the other events as well. It will not be long before we see a hotel next to the convention center and Staples Center."

Denver had a choice. Build a new downtown arena to replace the 24-year-old, publicly funded McNichols Sports Arena or risk losing the Nuggets and Avalanche. The hockey team's lease was about to expire.

Making a choice

Team owner Ascent Entertainment agreed to build the Pepsi Center after the city agreed to pay for traffic improvements and exempt the arena owner from property taxes. One city councilman didn't like the deal, arguing that it cost the city to host games. But Mayor Wellington Webb endorsed the plan, arguing that it was in the city's best interests to keep the teams.

McNichols marketing director Frankie Hood said, "The prospect of the teams' leaving was something no one wanted to see happen." Ascent Entertainment needed the new arena to keep up with its teams' competitors, she said.

The Pepsi Center will have 95 suites, selling from $90,000 to $185,000 a year. McNichols, which is being torn down, had only 27 suites.

"The owner needed more cash flow and they needed an additional 2,000 to 3,000 seats," Hood said. "We had private boxes, but they were very small."

The new arena, adjacent to the Elitch Gardens amusement park, is also being viewed as a year-round venue that will contribute to the resurgence of lower downtown.

Like Denver, Atlanta was faced with the prospect of losing the NBA Hawks. The city convinced team owner Turner Broadcasting to build the Philips Arena downtown by giving the company permission to plan other commercial and office construction around an adjacent plaza.

The city agreed to contribute $62.5 million from a car rental tax to help pay for the plaza and other surrounding improvements. Atlanta attorney Steve Labovitz, former chief of staff of Mayor Bill Campbell, negotiated the deal for the city.

Labovitz said the deal was good for Atlanta taxpayers because an estimated 90 percent of the car rentals will be made by tourists.

"This was done for downtown revitalization," he said. "It gives Turner impetus to build other things downtown. Now, downtown is on a huge comeback."

The political debate in Tampa was more about where to locate the arena than whether it should be built. The Ice Palace, built in 1996 with the help of hotel room taxes as well as private financing, is situated in downtown's waterfront district near a convention center and aquarium.

Tampa was hungry for other sports teams in addition to the NFL Buccaneers. Neighboring city St. Petersburg opened the domed Tropicana Field in 1990, hoping to lure major league baseball. Instead, the facility hosted the NHL Lightning for three seasons before that franchise switched to the Ice Palace. St. Petersburg didn't get its baseball team, the Tampa Bay Devil Rays, until last year.

The Ice Palace experience has been smoother, since it didn't have to wait for a franchise. Like other arenas using public funds, Tampa demanded that the Lightning sign a long-term lease agreement or risk paying off the Ice Palace's debt should the team go elsewhere. The owner of the team also agreed to operate the arena.

"We looked at it from the standpoint that we could have a public building and own it, but we didn't want to have a role in the operational end of it," said Ed Hunzeker, assistant administrator of Tampa's Hillsborough County.

The Ice Palace drew 1.3 million visitors last year and books 150 to 200 events a year. In addition to sporting events, the arena has been used for concerts, circuses and inspirational speakers. An electric trolley is being planned that will connect the arena with other downtown amenities. Housing developments have also sprung up near the arena and new hotels are about to open.

"Land values all along the waterfront are going up," Hunzeker said.

Host cities get 41 regular season homes dates a year with NBA teams and 40 with NHL franchises. But proponents argue that because indoor arenas can also be used year-round for other activities, they typically have 100 to 200 events a year. A 20,000-seat arena would have to sell out 100 events to reach 2 million visitors.

The most popular baseball teams can draw 3 million fans a year, but those crowds are concentrated over an 81-game home schedule. Most baseball stadiums are also designed strictly for baseball so they're not as flexible as arenas and aren't used for as many days during the year.

Football stadiums are also relatively inflexible and book even fewer dates than baseball parks. A National Football League team, for instance, plays only eight regular season home games.

One argument against public funding of arenas is that sports franchises will sometimes bolt to other markets with more lucrative offers once their leases have expired. Since 1968 six franchises in both the 29-team NBA and 27-team NHL have moved to new markets. One NHL victim, Denver, got a new team and fellow victim Atlanta is getting an expansion franchise. The biggest loser has been Kansas City, Mo., which lost teams from both leagues.

There is also a wide range of attendance and arena revenues, according to Forbes magazine. In the 1997-98 NBA season the home attendance ranged from 983,444 for the then-champion Chicago Bulls to 408,699 for the lowly Los Angeles Clippers. In the NHL that season, the Montreal Canadiens drew 851,645, compared to 372,519 for the Carolina Hurricanes, its first season in Raleigh, N.C.

New York's Knicks of the NBA and Rangers of the NHL led their respective leagues with arena revenues of $34.6 million and $32.4 million respectively. At the other end of the spectrum were the NBA's Atlanta Hawks and NHL's Colorado Avalanche, which received only $700,000 and $1.8 million respectively. Both teams fought for new arenas and are getting them this fall.

But economist Robert Baade of Lake Forest College in Illinois said many cities have rejected sports facilities because they refuse to raise taxes. Voters in Birmingham, Ala., rejected a proposed sales tax hike in 1998 to build a stadium. San Franciscans repeatedly defeated voter initiatives for the Giants before the baseball team was able to get city land subsidies for its new stadium.

When baseball's Minnesota Twins failed to convince that state to build a new ballpark the team threatened to move to North Carolina. But Carolina voters also rejected a stadium proposal in 1998. Seattle voters rejected a tax hike proposal in 1995 to build a new baseball stadium for the Mariners, though the state Legislature approved the funding later that year.

"It becomes particularly sensitive when it comes to using taxes to line the pockets of sports moguls," Baade said. "You've got people being asked to foot the bill for an arena when they might not be interested in the arena at all.

"There has been resistance against raising sales taxes because they are regressive. The resistance comes from the notion that you don't want people of modest financial means lining the pockets of those who are financially privileged."

Economic impact debated

Baade and fellow economist Andrew Zimbalist of Smith College in Massachusetts also argued that the economic impact of arenas was negligible. They said the money fans spend on game tickets and arena food is merely discretionary income diverted from other forms of entertainment and dining elsewhere in the city.

"Most of the modern arenas are built like walled cities where all the retail activity is in one area," Zimbalist said.

"Why would you want to build a restaurant nearby when the arena might be open only one-ninth of the year? If you want to build a restaurant build it next to an office building where people come all year long."

Baade said the only businesses that thrive around arenas are bars, sports paraphernalia shops and parking lots. Other businesses actually object to arenas because they overcrowd the streets on game days and often take up all surrounding parking, Baade said.

He also said economic impact from tourists would occur only if those out-of-town fans came specifically for the game. Otherwise, they are merely diverting money they would have spent on another activity.

Baade also warned against raising room taxes to fund a stadium, noting that convention customers might look elsewhere if the rates become too high. He added that car rental taxes hit local residents and nonprofit organizations as well as tourists.

"New York City raised room taxes and then lost a lot of business, so they lowered them back down in order to be competitive," Baade said. "If you raise room taxes too high, you'll discourage people from coming."

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