Stadium Building Scenario: Final Project
Capital budgeting is a method used by a business to determine which proposed fixed asset acquisitions it should accept or decline; this method gives a rational basis for making the judgment in the process (Bragg).In this scenario, the team owner has proposed the acquisition of a new stadium in the city, or else the National Football League (NFL) team shall be moved to a new city. According to Investopedia, the facility is referred to as a financial assistance program presented by a loaning institution to help a firm obtain operating capital. As the Mayor of Reseda city, it’s my responsibility to use these two techniques to help address whether or not to keep the Reseda team.
The fact that the team is an NFL franchise makes me accept the team owner’s proposal to keep the team in Reseda. The NFL is the most successful American sports league in U.S. history. According to Investopedia, the NFL is a trade association made up of and funded by its 32 member teams. The league’s team has two revenue streams: national revenue and local revenue. National revenue involves T.V. deals, merchandising, and licensing deals, while local revenue, entails ticket sales, concessions, and corporate sponsors. According to the Green Bay Packers’ 2018/2019 annual report, the NFL made over $8.1 billion in national revenue last year; hence each team received approximately $255 million in national revenue from the league. Also, the Packers made $196 million in local revenue (Hansen & Jordan).
Building a new football stadium will be an iconic venue in Reseda. Despite its hosting a majority of football matches, the stadium may also offer more activities, thus contribute to the city’s income. Due to the fact that Reseda is a large city and has more attractions, the NFL team will generate more money. Keeping the team in the city will also boost the Reseda economy by bringing people from outside the city. Besides, in regard to the rapid increase in the population, the football team will bring in more jobs and revenues for the city. According to a study conducted on the NFL’s impacts on the U.K. economy, by Deloitte LLP In 2013. The only two games played in London that year, brought a total of £32 million of extra expenditure on activities correlated to the games, such as expenditure on travel, souvenirs, and food and drinks at pubs broadcasting the tournaments. They also stated that if the team had a full-time residence in London, it would bring an extra £102 million to the U.K. economy throughout the season period. Due to the success history of NFL teams, it is most likely the case in Reseda shall be similar to London’s. Additionally, if the stadium is completed and the team lands a home playoff game, many people/fans shall be drawn in Reseda for the game, hence bringing immense amounts of money to the city, raising the revenues of many businesses.
Building the new state of art football stadium costs approximately $30 million to $300 million; thus, massive funding must be made. Facility financing involves both private and public funding arrangements. Since the stadium will host most of the NFL events, we expect a lot of fans/people to visit the stadium; thus, in regard, the stadium is expected to be technological and also should hold a large capacity of people; around 100,000 seats. The proposed stadium is estimated to cost around $250 million, which the city cannot provide. As the mayor, I will implement the following methods to raise funds. Public funding will include taxes, municipal bonds, certificates of participation, and special authority bonds. While, private funding will entail cash donations, charities, naming rights, concessionaire, sponsorships, lease agreements, luxury, and preferred seating, parking fees, advertising, and gifts shops revenues. Public and private funding will cover 50% and 25%, respectively. The team owner will also provide 25% of the total cost to support the construction.
Despite the arguments made by the community that the city will not get any direct revenue from the stadium and also questions of why pay, I intend to implement the method used in Texas State during the construction of San Antonio Spars. According to the Sports Journal, Texas passed a House Bill 92 funding bill in 1997 that allowed imposing taxes and tapping on sales tax funds to fund economic development projects such as stadiums. Texas increased the sales tax by 0.5%; in regard, implementing the same guidelines in Reseda City, a half-cent sales tax will result in roughly $50 million a year (Academy). The stadium will address the recreation needs of the community and also provide approximately 350 full-time jobs. Additionally, the team will generate revenues three times its cost in business income, which will be used solely by the community in other economic development projects. Implementing the House Bill 92 in Reseda will also authorize imposing of additional public taxes, such as motor vehicle rental tax, event parking tax, hotel occupancy tax and facility use tax, which will permit visiting teams to be charged up to $5,000 per game for the use of the facility (Academy). Municipal bonds are debt securities or loans issued by states to city governments to fund construction of public works and other capital expenses by selling general obligation bonds supported by the city’s tax bases (Investopedia).
Works Cited
Academy, U. S. Sports. “Financing Options and Facility Development.” The Sport Journal, 14 Feb. 2008, thesportjournal.org/article/financing-options-and-facility-development/. Accessed 30 July 202
Bragg, Steven. “AccountingTools.” AccountingTools, 21 Feb. 2018, www.accountingtools.com/articles/what-is-capital-budgeting.html.
Economic Impact of the 2013 NFL International Series for Hanover Communications | Deloitte U.K.” Deloitte United Kingdom, www2.deloitte.com/uk/en/pages/sports-business-group/articles/nfl-international-series-for-hanover-comm.html. Accessed 30 July 2020.
Hansen, Jordan T. “Strategic Audit of the National Football League.” (2019).
How The NFL Makes Money.” Investopedia, 2018, www.investopedia.com/articles/personal-finance/062515/how-nfl-makes-money.asp.