III. Fenway Park Revenues In Comparison to New Stadiums

Several baseball stadiums built in the 1990s have been identified as "state of the art" in both a financial and aesthetic sense. These stadiums would include Camden Yards in Baltimore, Jacobs Field in Cleveland, Coors Field in Denver, and the Ballpark at Arlington in Arlington, Texas. In assessing the need for a new ballpark in Boston, it is useful to compare Fenway Park's financial performance to these ballparks that are noteworthy for their success. In fact, Bud Selig, the current Commissioner of Baseball, observed:

Camden Yards may be one of the two or three most powerful events in baseball history. It has changed everything. It really did. I'm not sure people grasp the significance of it. (Houck)

How does Fenway Park stack up to the new generation of stadiums? In Table 1, information is recorded on the Red Sox' total revenues and on total stadium revenues, gate receipts and non-gate revenues generated by Fenway Park as a percentage of those generated by Camden Yards, Jacobs Field, Coors Field, and the Ballpark at Arlington. Non-gate revenues include advertising, concessions, naming rights and other similar income streams.

TABLE 1: Selected Fenway Park Revenues as a Percentage of Those for Other Stadia
Statistic/Year and Stadium	Red Sox total revenues as a percentage of total revenues of other franchises	Fenway Park total stadium revenues as a percentage of total stadium revenues of other venues	Fenway Park non-gate stadium revenues as a percentage of non-gate stadium revenues of other venues	Fenway Park gate receipts as a percentage of gate receipts of other venues
1992 (1) Camden Yards (2) Jacobs Field (3) Coors Field (4) Ballpark at Arlington	(1) 109.0% (2) Not Applicable (3) NA (4) NA	(1) 87.5% (2) NA (3) NA (4) NA	(1) 88% (2) NA (3) NA (4) NA	(1) 87.3% (2) NA (3) NA (4) NA
1993 (1) Camden Yards (2) Jacobs Field (3) Coors Field (4) Ballpark at Arlington	(1) 95.3% (2) NA (3) NA (4) NA	(1) 71.7% (2) NA (3) NA (4) NA	(1) 62.6% (2) NA (3) NA (4) NA	(1) 75.7% (2) NA (3) NA (4) NA
1994 (1) Camden Yards (2) Jacobs Field (3) Coors Field (4) Ballpark at Arlington	(1) 94.0% (2) 121.7% (3) NA (4) 99.6%	(1) 75.1% (2) 88.8% (3) NA (4) 78.6%	(1) 52.2% (2) 69.3% (3) NA (4) 68.0%	(1) 87.1% (2) 97.4% (3) NA (4) 82.6%
1995 (1) Camden Yards (2) Jacobs Field (3) Coors Field (4) Ballpark at Arlington	(1) 90.4% (2) 112.8% (3) 96.6% (4) 109.7%	(1) 77.1% (2) 98.4% (3) 78.7% (4) 97.4%	(1) 78.2% (2) 133.6% (3) 83.5% (4) 71.0%	(1) 76.6% (2) 86.0% (3) 76.3% (4) 122.1%
1996 (1) Camden Yards (2) Jacobs Field (3) Coors Field (4) Ballpark at Arlington	(1) 84.0% (2) 92.7% (3) 92.5% (4) 100.8%	(1) 76.5% (2) 78.1% (3) 79.3% (4) 90.8%	(1) 76.6% (2) 71.6% (3) 68.6% (4) 64.3%	(1) 76.4% (2) 81.3% (3) 84.8% (4) 109.9%
1997 (1) Camden Yards (2) Jacobs Field (3) Coors Field (4) Ballpark at Arlington	(1) 84.7% (2) 83.6% (3) 95.3% (4) 104.3%	(1) Not Available (2) NA (3) NA (4) NA	(1) NA (2) NA (3) NA (4) NA	(1) NA (2) NA (3) NA (4) NA
1998 (1) Camden Yards (2) Jacobs Field (3) Coors Field (4) Ballpark at Arlington	(1) 71.6% (2) 74.9% (3) 80.9% (4) 95.7%	(1) NA (2) NA (3) NA (4) NA	(1) NA (2) NA (3) NA (4) NA	(1) NA (2) NA (3) NA (4) NA
1999 (1) Camden Yards (2) Jacobs Field (3) Coors Field (4) Ballpark at Arlington	(1) 88.8% (2) 81.3% (3) 100.9% (4) 104.9%	(1) NA (2) NA (3) NA (4) NA	(1) NA (2) NA (3) NA (4) NA	(1) NA (2) NA (3) NA (4) NA
Source: Years 1992 to 1996, Financial World Magazine, various issues; 1997 and 1998, Levin, et al., pp. 69 & 73; 1999, Forbes Magazine, June 12, 2000.

In comparison to the total revenues generated by the Baltimore Orioles since they moved to Camden Yards, the Boston Red Sox position has deteriorated, but as of 1999, the Red Sox continued to generate almost 89 percent of the revenues the Orioles generated. There is a similar pattern discernible in comparing Red Sox stadium revenue and gate receipts to that of the Orioles. As of 1996 (data were not available beyond 1996), Red Sox stadium revenues and gate receipts stabilized at about 76 percent of that generated by the Orioles. With Orioles attendance in decline and the Red Sox experiencing record stadium attendance and revenues in 2000, the trend appears to be a clear narrowing of the gap.

In comparison to the total revenues generated by the Cleveland Indians since they moved to Jacobs Field, the Boston Red Sox position has deteriorated slightly, but as of 1999, the Red Sox continued to generate approximately 81 percent of the revenues the Indians generated. There is a similar pattern discernible in comparing Red Sox stadium revenue and gate receipts to that of the Indians, with stadium revenues as of 1996 approximately 78 percent of that generated by the Indians. Gate receipts for the Red Sox, however, remained above 80 percent of that received by the Indians.

In comparison to the total revenues generated by the Colorado Rockies since they moved to Coors Field, the Boston Red Sox position has remained strong. As of 1999, the Red Sox generated approximately 101 percent of the revenues the Rockies generated, which represents a slight increase over previous years. The Red Sox were not performing as well in stadium revenues and gate receipts in comparison to the Rockies. Stadium revenues as of 1996 were approximately 79 percent of those generated by the Rockies. Gate receipts for the Red Sox, however, remained well above 80 percent of that received by the Colorado team.

In comparison to the total revenues generated by the Texas Rangers since they moved to the Ballpark at Arlington, the Boston Red Sox position has improved somewhat, and as of 1999, the Red Sox generated approximately 105 percent of the revenues the Rangers generated. The Red Sox position with respect to gate receipts vis-a-vis the Rangers has improved significantly from 1994 to 1996. By 1996, gate receipts for the Red Sox approximated 110 percent of that received by the Rangers and in 2000 the Red Sox drew nearly the same number of fans as the Rangers while maintaining significantly higher ticket prices. The Red Sox' performance with regard to total stadium revenues remained favorable. In 1996 the Red Sox generated 90.8 percent of the stadium revenues generated by the Rangers.

These comparisons are with teams playing in four of the most successful new parks. The Red Sox currently do much better in comparison with teams playing in the less successful and unsuccessful new stadiums -- stadiums originally projected to be wildly successful income generators. And yet, the teams playing in these new stadiums are far less financially competitive than are the Red Sox playing in Fenway Park.

Overall it is clear that Fenway Park and the Red Sox are performing well with respect to generating total revenues and in terms of gate receipts -- even compared to teams with the most successful new stadiums.

With the exception of 1995, stadium revenues other than gate receipts seem to be the issue for the current Fenway Park. But these stadium revenues are not as important as gate receipts even now. In fact, these stadium revenues averaged less than half of gate receipts (i.e., less than a third of total stadium revenues, and a significantly smaller portion of total team revenues) for MLB franchises in 1996. Due to the fact that stadium revenues exclusive of gate receipts are relatively unimportant, attention must be paid to how much debt it makes financial sense to take on in an attempt to increase them -- especially if more cost effective alternatives (such as selling naming rights, modernizing Fenway to add more income generating amenities, etc.) might exist.

IV. Risk of High Debt Service Threatens Financial Returns

Camden Yards, Jacobs Field, the Ballpark at Arlington and Coors Field cost $234 million, $212 million, $192 million and $231 million to build, respectively. Of course, it would cost more to build those stadiums now, particularly in Boston where construction costs are arguably higher than in Cleveland or Arlington, Texas. Given the costs, the Orioles, Indians, Rangers and Rockies argued that public funds were critical to going forward with their new stadium projects. In fact, only in the case of Cleveland was the public subsidy to build a new stadium less than 80 percent of the construction cost, and in the case of Cleveland the public subsidy constituted 78 percent of the stadium's cost.

Building the stadium envisioned by the Red Sox would entail a completely different scenario. The current price tag on the stadium project stands at $665 million, before any overruns. Of this figure the entire public subsidy -- though the largest in U.S. sports history at $313 million -- would cover not 80 percent but only 47 percent. The $352 million (53 percent) the Sox must finance themselves is 7 to 8 times what the Orioles, Indians and Rockies had to put up themselves, and over 9 times what the Rangers had to put into their new park. The costs of legal challenges and cost overruns associated with land purchase, land preparation and the construction of the stadium itself would mean the Red Sox would have to take on at least 10 times more debt than did these 4 teams playing in the most successful new stadiums. 1

The $352 million provided by the Red Sox would come from naming rights and season ticket deposits ($128 million), ticket sales, concessions, TV/radio rights, suites, parking revenue and MLB ($140 million), and club seats, suite deposits, corporate marketing, etc. ($84 million) (Boston Herald 5/20/00). Even if the state of Massachusetts and the City of Boston contribute $313 million to the project, the revenues that the Red Sox intend to use to pay for the stadium will come in increments. The team, therefore, will need to arrange to finance a good portion of the $352 million in stadium construction costs plus any of the cost overruns mentioned above. It appears that debt service for the new stadium would be a minimum of about $20 million per year. Cost overruns will significantly increase that debt service.

In terms of private financing and debt service, the financial proposal for a new ballpark in Boston most closely resembles the situation in San Francisco where the debt service is estimated to be $18 million per annum. It has been noted that given the financial profile of Pacific Bell Park, the Giants will need to draw crowds in excess of 30,000 for each game for the next twenty years to retire the debt (Bruscas). With their 'successful' new stadium the Giants maintained MLB's eighteenth highest payroll while the Red Sox had baseball's fourth highest payroll in 2000. 2 The message could not be clearer. If the ballpark is financed primarily by private means, the money a new stadium generates will not be going primarily for free agents; rather it will be used to service and retire debt. Unless public funding is significantly increased from current levels _ an extremely dubious prospect given as yet uncontrolled overruns on the Big Dig and the Massachusetts Convention Center and a looming economic downturn -- the new ballpark will actually jeopardize the Red Sox financial position in the league.

The other option available to the Red Sox is to scale down their proposal. The performance of the Fleet Center, however, suggests that a more modest stadium will not be sufficiently distinctive to be an adequate replacement for Fenway Park, either financially or aesthetically. This can lead to reduced net revenues, which in turn affects the team's playing performance. In two seasons during the first five years of playing in the Fleet Center, and again this year, both the Celtics and Bruins failed to make the playoffs, something that did not happen once in their final forty-five years at the Boston Garden.

What do new baseball stadiums offer in the way of incremental revenues? The conventional wisdom is that new stadiums are cash cows capable of transforming even financially moribund teams. The evidence indicates otherwise. A 1997 study commissioned by Forbes Magazine and completed by Coopers & Lybrand about the contribution of baseball parks built since 1990 offered some sobering statistics. Coopers & Lybrand determined that on average baseball stadiums built since 1990 increased gross revenues by $19.1 million and operating income by $12.7 million (Ozanian 1997).3 The $12.7 million income figure nets out debt service. At least two things relating to this statistic should be noted:

1. First, none of the stadiums included in the Coopers and Lybrand study rely on private financing to the extent proposed by the Boston Red Sox. Since 1990 only the San Francisco Giants have relied on private financing to a degree approximating the Red Sox proposal, and, as indicated previously, their debt service is estimated to be $18 million. The annual debt service projected by the Red Sox themselves, coincidentally, approximates the increase in gross revenues specified in the 1997 Coopers & Lybrand study (which does not include San Francisco's new ballpark, since Pac Bell Park opened in 2000). If the Red Sox' new stadium generated the MLB average of an additional $19.1 million in total stadium revenues, the team would actually see their annual income reduced because projected increased annual stadium expenses are far more than $19 million. These include $9 million in operating expenses (Macero), $19 million in annual stadium debt service (Macero), and $7.5 million in additional property taxes (Zimmerman).

2. Second, revenues do not include naming rights or personal seat licenses. These annual up-front payments could be additional income to what the team has now. But there is no reason that these same sources of income could not be used by the Red Sox to generate new income at their present site -- income that would not have to go toward retiring an immense stadium construction debt. Nor is there any reason to expect that a renovated Fenway Park would command less for naming rights than a new ballpark; in fact, it is possible that a renovation of baseball's best-known edifice may command more than a new stadium.

The construction costs associated with a new stadium could put the Red Sox in a precarious financial position. If we use Forbes Magazine's franchise value statistics (Ozanian 1997), the current debt of the Boston Red Sox equals 13 percent of the team's current value. Only the Atlanta Braves and Los Angeles Dodgers exhibit smaller debt-value percentages. If the new stadium increases debt by $300 million while increasing the franchise value to that of the highest team in MLB (the New York Yankees) as measured in 1999, debt as a percent of franchise value will increase to 61.5 percent which, as of 1999, was exceeded only by seven teams. It is unclear if financial institutions will loan the Red Sox money given the debt-value ratio of the team following the construction of a new ballpark. If financing is available, what will the interest rate be for what financial institutions have identified as a high-risk loan?

V. Operating Income

This past year MLB commissioned a report on the financial state of baseball (Levin). The Blue Ribbon Panel consisted of Paul Volcker, former Chairman of the Federal Reserve Board of Governors, George Will, political columnist, George Mitchell, former U.S. Senator, and Richard Levin, President of Yale University. The Panel concluded that only three MLB teams were profitable during the period 1995 through 1999.4 Although the Red Sox reportedly lost $5.43 million over that period, their losses were far less than those identified for the Baltimore Orioles (-$10.03 million) and the Texas Rangers (-$38.96 million). The Cleveland Indians ($45.92 million) and Colorado Rockies ($12.44 million) were identified as two of the three teams that made money (Rovell 2000). Overall the Red Sox ranked sixth among teams in MLB in terms of profitability. It is likely that the Panel used statistics supplied by teams, and one could question the profit (loss) figures the teams computed, but other statistics would indicate that at least the Red Sox' ranking is close to reality. Forbes Magazine reported revenues and operating income of MLB teams in 1999, and the Red Sox ranked sixth in revenues ($123.3 million) and eleventh (tie) in operating income ($2.4 million).

These statistics raise several interesting questions. First, if Camden Yards is incapable of making the Orioles profitable, is it reasonable to expect that a privately financed stadium for the Boston Red Sox can make the Red Sox more profitable? Financial World Magazine, while it was still publishing, estimated, on an annual basis, statistics on operating income for MLB teams. During the period 1990 through 1999, the Red Sox ranked between third (1995) and eleventh (1993 and 1999) according to the statistics compiled by Financial World Magazine and Forbes Magazine.5 There is no distinct pattern with regard to whether the Red Sox' position is improving or deteriorating. Given the team's current financial strength, even in relation to franchises with the most successful new stadiums, it is not reasonable to expect that a Red Sox team burdened by substantial stadium debt could improve its standing with respect to finances.

VI. A Wild Card: Revenue Sharing

The Blue Ribbon Panel's report is a warning about the financial health now and in the future for MLB. The Panel's findings dovetailed quite nicely with Commissioner Bud Selig's call for collective financial action among MLB teams to ameliorate their problems. Arguably, the most important component of Commissioner Selig's blueprint for alleviating financial stress is revenue sharing. If 40 percent of all revenues were shared, it is clear that the value of a new stadium for the Red Sox will have to be discounted by a considerable amount. What might appear to be substantial new revenue streams will diminish in importance if the Red Sox must share these revenues with less affluent teams. Of course, this has negative implications for existing Fenway Park, a renovated Fenway Park, or a new stadium. Given the more fragile financial picture for a new stadium, greater revenue sharing will likely have a more substantial negative effect on the Red Sox if a new stadium is built.

An example can give an indication of how this works: Assuming the Red Sox net an additional $17 million dollars annually from a new stadium as they have claimed (Macero) -- an assumption not at all supported by this analysis. Under the Blue Ribbon Commission's recommendations for sharing local revenues, the team would be required to share half of that revenue with MLB (Levin, p. 38), bringing the $17 million net increase down to $8.5 million. And because the Red Sox also carry one of baseball's highest payrolls, they would have to share half of the remaining $8.5 million with MLB as well (Levin, p. 39), leaving a net increase of only $4.25 million. The financial risk involved in taking on debt for a new stadium does not seem to be justified by such a small potential return for a team with a current annual payroll of more than $100 million.

What is the likelihood that a more comprehensive revenue sharing scheme will materialize? If only three teams are making money as the Blue Ribbon Panel reported, then there should be little problem in securing the necessary super-majority vote of the current owners to ratify a more comprehensive revenue sharing scheme. Further, in the event that there is no extension of revenue sharing, the Red Sox suffer from being in the same division as the New York Yankees, whose revenues easily outpace any additional income the Red Sox may receive from a new stadium. By taking a smaller profit and applying more revenues to salaries, the Yankees, whose cable TV revenues are several times that of the Red Sox, can always stay ahead of the Red Sox' spending. With or without revenue sharing, therefore, additional stadium revenues will do little to improve the team's competitiveness. The burdens of a large stadium debt can, however, have a serious negative impact on team finances.

VII. Benefits to Boston

The evidence compiled during more than a decade of research strongly suggests a new baseball stadium will exercise little if any economic impact on the metropolitan Boston economy. Baade (1996) and Noll and Zimbalist (1997) are examples of academic research that strongly support this assertion. Economic impact studies commissioned by teams and cities that have a financial or political stake in the outcome of the stadium debate naturally will offer quite a different appraisal. The promotional report commissioned by the Boston Chamber of Commerce in support of the Red Sox' new stadium proposal, for example, has been termed "fatally flawed" by economist Professor Andrew Zimbalist of Smith College (Nader). In resolving this debate, one should consider if there will be anything new beneath Boston's economic sun once the construction phase of the project is over. Indeed, the loss of a historically significant landmark may well mean that a new stadium will provide less of an economic boost than the current Fenway Park does through its ability to attract large numbers of outside visitors. One could logically argue that the value of the old Fenway Park will increase over time as the old ballparks disappear.

VIII. Conclusions

The Red Sox favor the construction of a new ballpark. The financial data indicates that the Red Sox by almost any measure are already financially competitive with other teams in MLB. The cost of a new stadium will likely burden the Red Sox with debt that will jeopardize their financial standing within the League. Stadium construction costs, along with overruns on land acquisition and site preparation will account for a substantial portion of the debt the Red Sox will assume. To a considerable extent, these costs can be obviated by simply maintaining the current site and stadium.

The projected $19 million dollar debt service approximates the revenue increment that is typically provided by a new stadium. Rather than spending increased revenues on players, the Red Sox will be retiring debt. The long-term implications are worrisome. If the Red Sox are increasingly less competitive on the field, the revenues the team projects a new stadium will generate will be far less likely to materialize. If the new stadium lacks the distinctive character of the old, what will bring fans to the ballpark? The high baseball ticket prices in Boston may well begin to exercise an impact on gate receipts as the team slips toward mediocrity. In short, the assumption of a stadium debt that is abnormal by MLB standards could exercise a deleterious effect both in the shorter and longer term on the financial health of the Red Sox.

On the other hand, even if the team should flounder, a Fenway Park that is growing in historical significance will continue to be a magnet for fans from within and beyond Boston's borders. Wrigley Field in Chicago continues to attract fans despite the team's below average performance. Given growing fan alienation inspired by the commercial excesses characteristic of professional sport, this is a significant tribute to the appeal of the old ballparks that Boston would be unwise to ignore.

Bibliography

• Baade, Robert A., "Professional Sports As Catalysts for Metropolitan Economic Development," Journal of Urban Affairs, . April 1996 (Vol.18, No. 1, pp. 1-17.).

• Bruscas, Angelo, "Safeco's Glitter Diminishes as Spotlight Turns on Pac Bell," Seattle Post-Intelligencer, April 3, 2000.

• Houck, Jeff, "Designated Money Maker: Baseball Teams Financially Hooked on New Stadiums," FoxSportsBiz.com, April 3, 2000.

• Krupa, Gregg and Vaillancourt, Meg, "Fenway: A New Pitch," Boston Globe, May 16, 1999, p. A1.

• Levin, Richard C., et al., "The Report of the Independent Members of the Commissioner's Blue Ribbon Panel on Baseball Economics," July 2000.

• Macero, Cosmo, "Sox Seek $275 Million Public Subsidy for Park," Boston Herald, May 20, 2000.

• Nader, Ralph, "Stadium Subsidies Scalp the Public," Boston Globe, March 27, 2000. P. A15.

• Noll, Roger and Zimbalist, Andrew, editors, Sports, Jobs & Taxes (Washington, DC: Brookings Institution, 1997).

• Ozanian, Michael K., "Fields of Debt," Forbes Magazine, December 15, 1997.

• Ozanian, Michael K., "Too Much to Lose," Forbes Magazine, June 12, 2000.

• Rovell, Darren, "Baseball Owners, Reports of Your Debt are Greatly Exaggerated." ESPN.com, July 31, 2000.

• Vaillancourt, Meg, "Questions Spur Red Sox to Eye New Revenue Ideas," Boston Globe, September 20, 2000, p. E1.

• Zimmerman, Dennis, "The Fenway Park Ballpark Site: The Cost to the City of Boston," November 2000.