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Reversal of Fortune or Glaring Misallocation: Is a New Football Stadium Worth the Cost to a University?

Author

Listed:
  • Joel G. Maxcy

    () (Drexel University)

  • Daniel J. Larson

    () (University of Oklahoma)

Abstract

American universities, belatedly following their professional sports counterparts, are constructing new stadiums. A portion of the funds typically provided to athletic departments are drawn from general university resources. Besides increased revenue flows, indirect benefits that contribute to university objectives are typically cited as part of the demand for a new college stadium. Examples of these spillover benefits are an enhanced campus community, a higher quality student body, and more alumni donations. We analyze a university’s stadium proposal and apply standard capital budgeting techniques to the proposed stadium’s estimated cash flows. It is revealed that the project is a sound financial investment only under the most optimistic circumstances. Yet, the investment can be worthwhile to the university if the net value of the spillover benefits exceeds the financial loss. We consider all likely spillovers, and conclude that it is more likely the desired spillover benefits can be more efficiently achieved with other investment choices.

Suggested Citation

  • Joel G. Maxcy & Daniel J. Larson, 2015. "Reversal of Fortune or Glaring Misallocation: Is a New Football Stadium Worth the Cost to a University?," International Journal of Sport Finance, Fitness Information Technology, vol. 10(1), pages 62-86, February.
  • Handle: RePEc:jsf:intjsf:v:10:y:2015:i:1:p:62-86
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    More about this item

    Keywords

    stadium finance; capital budgeting; externalities; university objectives; intercollegiate athletics;

    JEL classification:

    • L83 - Industrial Organization - - Industry Studies: Services - - - Sports; Gambling; Restaurants; Recreation; Tourism

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