September 1, 2008

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Bringing It Home

Sports Franchises Score Big for Utah's Economy

Gretta Spendlove, Katie Peterson

September 1, 2008

You could say something as simple as a round orange ball helps score a lot of points for Utah’s economy, as well as volleyballs, soccer balls and footballs to name a few. “Some 20,000 people pack the Energy Solutions Arena for each of the 41 games of the regular Jazz season,” says Randy Rigby, president of Larry H. Miller Sports Entertainment Group. “For many ticket holders that event becomes an evening on the town including dining and shopping. Additionally, about 10 percent of Utah’s population watches each Jazz game on TV as they order pizza and view commercials by national companies like Coca-Cola and local ones like R.C. Willey. And at least another 2,000 people service and work in the arena.” The Jazz, in short, generate a lot of economic activity for Utah. Rigby emphasizes that sports franchises provide the state many economic advantages including jobs and advertising venues for local restaurants. Sports franchises provide social benefits, as well. “Our market research shows that 80 percent of our market—primarily Utahns—view themselves as avid to average fans of the Jazz team. They follow the team, they enjoy it,” Rigby says. “Sports is a great tool to get people to rally behind something together. The Jazz is a team everyone can cheer for.” Money Machines James Wood, director of the University of Utah Bureau of Economic and Business Research, agrees that the Jazz and other sports franchises are civic assets and help maintain Utah’s economy. He says he is less sure however, based on recent research he performed for the Utah Sports Commission, that sports franchises make Utah’s economy grow. “It’s just very, very hard to measure the economic impact of sports franchises,” Wood says. “Most of the economic activity is generated in-state, as Salt Lake or Provo residents spend their money on attending a Jazz game in Salt Lake.” That in-state money is recirculated within the state while local sports franchises generate few dollars from outside of Utah. Wood also questions whether spending on Jazz and other franchise games is “additional” money spent or “substitute” money. In other words, there may be fewer people spending money at Utah movie theaters or buying expensive clothes at Utah stores because they are at Jazz games instead. “It’s important to distinguish economic activity from economic impact,” Wood says. Economic activity occurs each time a ticket is sold or a restaurant meal is purchased. Economic impact occurs only when there is net growth or loss in the Utah economy. Growth in the state economy usually requires bringing in sales and services from out-of-state, in addition to the sales and services already occurring within the state. Some aspects of sports franchises, such as constructing stadiums, clearly have an economic impact, but the effect of the games themselves is much more subtle. Views on Value “Sports venues are a very important aspect of urban growth and development, along with restaurants and arts,” says Kelly Matthews, Wells Fargo economist. “For many people, having a major league or professional franchise is an important component in answering the question, ‘Is Salt Lake a city that competes with Portland and Seattle? Or do we compete with smaller cities like Boise and Provo?’ Just to have the Jazz listed in the sports section around the country every day says we’re one of the biggest and the best. When the franchise does as well as it has, it gives an even higher status.” Matthews recognizes, as does Wood, that the economic impact of sports franchises is hard to measure, but believes that the impact is nevertheless real and important. The impact is even greater when combined with other Utah team sports events, such as BYU and University of Utah games. “A few years ago, the University of Utah had the number one professional league draft picks in both football and basketball, Alex Smith and Andrew Bogut. BYU packs 65,000 fans into its football stadium for every game. Combine all of that with the Jazz and the Salt Lake Olympics, and there is a synergy which makes it easier to attract events like the recent Junior Olympic Boys Volleyball event,” Matthews says. Jeff Robbins, president of the Utah Sports Commission, estimates that the volleyball event brought $35 million new dollars into Utah which were not displaced from other spending. Spokesmen for the Jazz and REAL Salt Lake soccer emphasize the regional, national and even global aspects of their franchises. Eric Gelfand, senior vice president of SCP Worldwide and owner of REAL Salt Lake, states, “Part of our philosophy is to expose people to the international flavor of the sport. Having a soccer team puts Salt Lake City on par with international cities like Barcelona, Madrid and London. Two or three times a year, we bring in players from abroad, such as David Beckham. Those visits let the fans experience how soccer is a world game. When we brought REAL Madrid to Salt Lake, it generated $15 million for the region, if you include nights in hotel rooms, restaurants in the valley and money in the shops. In addition, the game was broadcast in 100 countries.” REAL Salt Lake has been awarded the 2009 MLS (Major League Soccer) All-Star Game. According to Gelfand, the Utah Sports Commission estimates that the game alone will generate $4 million for Utah. When the U.S. national soccer team played Costa Rica at Rice-Eccles stadium in a qualifier match, that game generated $12 million. Again, the actual impact on economic growth in Utah may be less than the amount generated, depending on how much money are “new funds” which wouldn’t otherwise have been spent in the state. “I estimate 10 to 15 percent of our Jazz ticketholders, on any given night, are from out-of-state,” says Rigby. “We have a solid base of fans from southern Idaho and Wyoming, and many convention visitors attend our games.” Rigby also points out that the visiting teams—“15 millionaires plus the team and NBA trainers and staff”—bring significant income into the state. In addition, TV and press coverage of Jazz events have economic value to the state (although, again, hard to measure). As Dennis Haslam, recently retired Jazz president, says, “I’ve been all over the world—in Costa Rica, tiny Caribbean islands, the most out-of-the way places—and people who heard I was from Utah or with the Jazz said, ‘Yes, I know Stockton to Malone.’” Franchise Growth In 1985, the Jazz franchise was in financial trouble. To keep the franchise in Utah, Larry Miller bought a half interest for $8 million, and soon picked up the other half for another $14 million. “Larry wanted to help legitimize Salt Lake as a big city,” says Haslam, who worked with Miller for more than 25 years as his attorney and, finally, Jazz president. “He felt that having a professional basketball team would help, along with the other arts, the entertainment and religious assets which Salt Lake City has.” Miller has kept the Jazz in Salt Lake for the last 23 years, despite the challenges of keeping athletes’ salaries competitive with Los Angeles and Chicago teams without bringing the same revenue as owners in larger markets. “In tight years, the Jazz didn’t make a profit, but Larry kept it anyway,” Haslam said. “Larry plays high stakes in business, and the Jazz is one area in which he’s risked a lot.” What is the Jazz’s current value? “The Phoenix franchise sold for over $400 million four to five years ago,” Haslam points out. “The Jazz is probably worth between $350 million and $400 million.” Haslam notes that most Salt Lakers probably couldn’t afford a basketball franchise at that price, not to mention the $500 million to $1 billion that an NFL football franchise would cost. The cost of an arena to house the franchise is another major expense. “The Energy Solutions Arena was built in 1991 for $66 million, but today it would cost $200 million to $300 million,” Haslam says. “An NFL stadium could exceed the cost of the franchise itself.” The cost of soccer franchises has also risen dramatically. “The cost of the Salt Lake City franchise four years ago was below $10 million,” says Gelfand. “Now franchisees have to pay over $40 million.” Mixing It Up Salt Lake’s range of sports franchises appeals to different niches of sports fans. Jazz tickets average around $75 per game, with an older clientele than the supporters of REAL Salt Lake soccer. “Soccer is the highest played sport for youth in America,” notes Gelfand. “Kids who played youth soccer in Salt Lake now want to root for a Salt Lake team.” REAL Salt Lake tickets are in the $25 range. The Bees baseball franchise, also owned by Larry Miller and his companies, has lower ticket costs and appeals to families. However, with 72 games played each season, the Bees games are still the second most popular sporting event in Utah, based on total attendance, led only by Jazz games. The Blaze brings an arena football franchise to Utah, and the Grizzlies bring professional hockey. Changing Direction Robbins notes that it may be at least five or 10 years before Salt Lake grows into another major league sports franchise. In the meantime, the Utah Sports Commission is promoting action and adventure sports, in addition to professional team sports like basketball, soccer, baseball and hockey. The Red Bull avionics show in Monument Valley generated $8 to $10 million for Utah, resulting from three 747 planes delivering show gear to Phoenix, which was then trucked north to Monument Valley. Primal Quest Utah, held in Moab in 2006, was broadcast over ESPN and ABC for five days. It generated $3 million in economic impact for Moab and another $4 million in media value for the state. “The Miller Motor Sports Park is a world class venue for motor sports,” says Robbins, “and we are also developing our Olympic venues by attracting USSA and other events. We’re not stagnating by not acquiring more sports franchises right now. We’re just moving in a different direction. Utah has a very robust sports scene.” The Jazz is rebuilding new stars and a strong bench after the departure of Karl Malone and John Stockton. “The quickness with which the Jazz rebounded after the loss of Stockton and Malone speaks to the quality of Jazz management,” notes Matthews. “The years that the Jazz went to the finals with Stockton and Malone, we became one of the very best franchises, and we’re back near the top again. That excellence is huge for defining the quality of life among a lot of people.” REAL Salt Lake will move into its new stadium in Sandy next season. “Having our own field will be a remarkable advantage,” says Gelfand. “The team can play on a pristine field and, from a business viewpoint, we can control all the revenues, the signage and the parking concessions. It will be easier to create a fan-friendly atmosphere. We think of the stadium as a community place that will create wonderful, lasting memories.”
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