ESTIMATED ECONOMIC & FISCAL IMPACTS ASSOCIATED WITH THE CLEVELAND CAVALIERS & QUICKEN LOANS ARENA PRESENTED TO: PRESENTED BY: DECEMBER 8, 2016 TABLE OF CONTENTS EXECUTIVE SUMMARY ..........................................................i I. INTRODUCTION ....................................................................1 II. FRANCHISE AND ARENA OVERVIEW .................................3 III. ECONOMIC AND FISCAL IMPACT METHODOLOGY ...........7 IV. QUANTITATIVE ECONOMIC AND FISCAL IMPACTS .........13 V. QUALITATIVE IMPACTS ......................................................22 VI. CSL CREDENTIALS ..........................................................24 EXECUTIVE SUMMARY Conventions, Sports & Leisure International (“CSL”) was retained by the Cleveland Cavaliers (“the Cavaliers” or “the Team”) to estimate the economic and fiscal impacts related to the operation of the Cavaliers and Quicken Loans Arena (“the Arena”). The study is designed to assist in identifying the quantifiable economic impacts of the Arena and the Team. This Executive Summary outlines the key highlights of the analyses conducted. The full report should be read in its entirety to obtain the background, methodology and assumptions underlying these findings. Typically, and for the purposes of this report, quantifiable effects are characterized in terms of economic impacts and fiscal impacts. Economic impacts are conveyed through measures of direct spending, total output, personal earnings, and employment. Fiscal impacts denote changes in tax revenues that result due to the operation of the site. The assumptions underlying the historical economic and fiscal impacts presented herein are based on a combination of sources including historical operations, fan intercept surveys, discussions with project representatives and CSL’s industry knowledge, among other sources. Projected economic and fiscal impacts were made by CSL based on the aforementioned sources. KEY HIGHLIGHTS The opening of Quicken Loans Arena in 1994 provided Cleveland with a modern sports and entertainment venue in the heart of the city’s downtown and formed a centerpiece of the Gateway development, which rehabilitated the former Central Market site and spurred an era of economic growth and renewal throughout downtown Cleveland. The Gateway District has been the beneficiary of $1 billion in retail, residential and hotel development since the 1990’s, due largely to the presence of the Arena and the adjacent Jacobs Field, which has been renamed Progressive Field. The operations of the Arena and the Cavaliers provide significant quantifiable benefits to the Cuyahoga County and the City of Cleveland economies. In 2016, the direct spending attributable to Arena and Team operations is estimated to total approximately $245 million within the county, which does not include spending that immediately leaves the economy. This level of direct spending in turn generated approximately $387 million of total output, and 4,800 direct jobs with annual earnings of $196 million. Additionally, this economic activity results in approximately $44 million in state and local tax revenue. i Over the first 23 years of Arena operations, from 1994 through 2016, it is estimated that the Arena and Team will generate the following cumulative economic impacts: o $2.7 billion in Direct Spending; o $4.3 billion in Total Output; o $2.2 billion in Earnings; o An average of 2,500 Jobs; and, o $486 million in State and Local Tax Revenues. The State of Ohio is the largest benefactor of taxes generated as a result of Arena and Team operations, collecting an estimated $263 million in tax revenues from 1994 through 2016. During the same period, the City of Cleveland is estimated to collect $176 million in tax revenues, while Cuyahoga County tax receipts are estimated to approximate $47 million. The estimates of the economic activity are based on an input-output model developed by the Minnesota IMPLAN Group, Inc. The IMPLAN model measures how a given change in output at a firm supports economic activity across many firms and households within a study area. The direct impacts represent operations at the given firm. Indirect effects generally measure the secondary economic activity that is created when the firm purchases goods and services from their suppliers. Induced impacts are a result of the firm paying salaries and wages to its employees, who then spend a portion of their earnings in the local economy for goods and services. When added together, the direct, indirect, and induced impacts create a “multiplier” effect such that the total impacts are greater than the initial value of output of the firm. The IMPLAN model is widely used in academic and professional studies and is judged to offer reasonable, conservative estimates of the impacts of firm activities. The estimates of spending and related impacts are based on the historical operations of the Arena and the Cavaliers since the facility opened in 1994. In addition to the quantifiable economic and fiscal impacts discussed previously, the presence of the Arena and Team has benefited many community groups and non-profit organizations throughout the Greater Cleveland area. ii LEISURE CONVENTIONS QUICKEN LOANS ARENA & PROGRESSIVE FIELD INTRODUCTION The development of the Gateway District in downtown Cleveland is a community and economic development story that begins in the 1990s. Located on the southern end of downtown, the Gateway District is proof how urban planning and economic development strategies have fostered sustained growth in the creation of a dynamic mixed-use neighborhood. Today, the Gateway District consists of 22 residential properties, seven hotels, and over 70 full-service restaurants and eateries that service its nearly 2,500 residents and five million visitors each year. This represents over $1 billion in investment surrounding the Gateway Sports Complex. In 1990, in addition to only six full-service restaurants, there were no (zero) housing units and no (zero) hotel rooms. Today: The Gateway District consists of 22 residential properties with more than 2,500 units in 2016. The Gateway District experienced significant investment in hotel operations leveraged by the Gateway Sports Complex. The development of five new hotel properties has resulted in an inventory of over 1,200 hotel rooms within the Gateway District in 2016. With only six restaurants in 1990, the number of restaurants in the district increased to 17 in 1997 to over 70 full-service restaurants and eateries in 2016. Leveraging the initial hotel and restaurant/entertainment investment in the Gateway District, Euclid Avenue is emerging as a hospitality corridor between Public Square and PlayhouseSquare. 1 GATEWAY DISTRICT BEFORE & AFTER REDEVELOPMENT In order to gain an understanding of the impacts that the operation of the Arena and the Cavaliers have had and, will continue to have, on the local economy, the Cavaliers engaged Conventions, Sports and Leisure International (“CSL”) to develop an independent estimate of the quantifiable impacts generated by the Arena and Team. This report represents an update to a study originally commissioned by Destination Cleveland. Typically, and for the purposes of this report, quantifiable effects are characterized in terms of economic impacts and fiscal impacts. Economic impacts are conveyed through measures of direct spending, total output, personal earnings, and employment. Fiscal impacts denote changes in tax revenues. The assumptions underlying the estimates of economic and fiscal impacts are based on the historical operations of the Arena and Team, the results of 577 random patron-intercept surveys conducted at the Arena, historical and projected operations of the Arena and Team, the use of IMPLAN multipliers, and CSL’s experience in quantifying the economic and fiscal impacts of similar projects. The study’s findings are presented in the following sections: I. Introduction; II. Franchise and Arena Overview; III. Economic and Fiscal Impact Methodology; IV. Quantitative Economic and Fiscal Impacts; V. Qualitative Impacts; and, VI. CSL Credentials. This report outlines the key highlights of the economic and fiscal impact analysis of the historical and future operations of Quicken Loans Arena and the Cleveland Cavaliers. The study is designed to assist Destination Cleveland and the community in understanding the impacts that the Arena and Team have had and will have on the local economy. The report should be read in its entirety to obtain the background, methods and assumptions underlying the findings. 2 I I. 0' 010? ?Au-p: 1 .1001?rcr \?jcde FRANCHISE II. ARENA OVERVIEW FRANCHISE & ARENA OVERVIEW OVERVIEW OF THE CLEVELAND CAVALIERS The Cavaliers joined the National Basketball Association (“NBA”) as an expansion franchise in 1970. During the Team’s first four seasons, home games were played at Cleveland Arena, a 9,800 seat facility built in 1937 and located east of downtown Cleveland. In 1974, the Cavaliers relocated to the newly constructed Richfield Coliseum. Located in suburban Richfield, approximately 20 miles south of downtown Cleveland, the 20,000-seat Coliseum provided the Team with a larger, more modern venue than Cleveland Arena. The franchise enjoyed on-court success during its first few years at the Coliseum before struggling throughout the early 1980’s, a period marked by two franchise ownership changes. In 1980, team founder Nick Mileti sold the franchise to Ted Stepien, who owned the franchise for three years before it was sold to Gordon and George Gund in 1983. The Gund ownership group brought great stability, leadership and growth to the franchise as the Team thrived in the privately-owned and operated Richfield Coliseum, on and off the court. On the court, the team qualified for the playoffs in six of the seven seasons between 1987 and 1994. Off the court, the franchise enjoyed one of the best facility and revenue stream platforms in the NBA and a home court that was also attractively situated in the middle of their marketplace and fan geography. In the midst of this success, however, discussion escalated regarding the need for a new Cleveland Indians MLB stadium and the risk for potential relocation of the Indians to another city. The community searched for a multi-venue solution to help keep the Indians in Cleveland with a new stadium, while also enticing the Cavaliers to move downtown with a new arena. Hence, the Gateway District project was born. The decision to move the Cavaliers downtown was a difficult one for the franchise, as it enjoyed full ownership of its arena and property in Richfield along with the associated revenue streams. Ultimately, the Gateway District effort hinged on the Cavaliers agreeing to join the project. While forgoing what was likely a more financially and geographically attractive operation in Richfield, Cleveland civic pride became a determining factor, and the franchise agreed to join the Gateway District project and relocate to downtown Cleveland. The Cavaliers returned to Cleveland beginning with the 1994-95 season, in the new 20,500-seat Gund Arena. The Team’s on-court success continued in the early years of Gund Arena, with the franchise returning to the playoffs in three of the first four seasons in its new home. While the team struggled on the court in the late 1990’s and early 2000’s, the Cavaliers then headed back to the playoffs in the mid-2000’s, drawing much national media coverage to the Team, the Arena, the City of Cleveland and the region for the remainder of the decade. At the same time, the Team agreed to re-define the terms of its lease agreement with the Gateway Economic Development Corporation (GEDC), in order to keep the GEDC solvent and place the burden of all operating and capital repairs less than $500,000 on the Team. 3 The Team was purchased by a group led by Dan Gilbert, chairman and founder of Quicken Loans in early 2005. The Arena name was changed to Quicken Loans Arena or “The Q” and Gilbert has made over $50 million of private investment to upgrade the Arena, including new seats, scoreboards, video systems, technology and social media systems, as well as upgrades to club entertaining areas, locker rooms and team offices. Mr. Gilbert also built a $25 million state-of-the-art Cavaliers player training and development center in nearby Independence, Ohio. Mr. Gilbert has invested highly in Cleveland and northeast Ohio and in the operation of the Cavaliers franchise and Quicken Loans Arena. His investments now total in excess of $1.5 billion dollars in the marketplace, including the Cavaliers, the Lake Erie Monsters (AHL team), the Cleveland Gladiators (AFL team), Cleveland Clinic Courts (Cavs player training and development center), JACK Casino Cleveland and JACK Thistledown, the Canton Charge (NBA Development League team), Veritix (digital ticketing and marketing company), and Bizdom (startup downtown technology business accelerator). Specifically, the Cavaliers are well positioned for years to come as the 2016 NBA Champions with Finals MVP LeBron James leading the team along with fellow All Stars Kyrie Irving and Kevin Love. The team has roster a very talented and veteran group of additional players as well. Expectations are high for the team to compete for additional championships in the coming years. Meanwhile, the Cavaliers’ business platform and footprint is also expanding with metrics and performance in digital, broadcast, ticket sales, corporate partnership, attendance and game presentation elements all reaching new and higher levels with continued investments into the tens of millions of dollars from the ownership group, led by Mr. Gilbert. OVERVIEW OF QUICKEN LOANS ARENA Quicken Loans Arena is located in the Gateway District at the south end of downtown Cleveland and has served as the home of the Cavaliers since 1994. Two additional tenants have more recently joined the Cavaliers at the Arena: including the American Hockey League (“AHL”) Lake Erie Monsters, who began play in October 2007, and the Cleveland Gladiators, who joined the Arena Football League (“AFL”) for the 2008 season. Past Arena tenants have also included the International Hockey League (“IHL”) Cleveland Lumberjacks (1994-2001), the AHL Cleveland Barons (2001-2006), and the Women’s National Basketball Association (“WNBA”) Cleveland Rockers (1997-2003). The Arena was constructed at a cost of approximately $155.0 million. The project was funded in conjunction with the development of the $230.0 million Jacobs Field, now named Progressive Field. Public investment in the construction of the two facilities totaled approximately $280.0 million financed by bonds issued by Cuyahoga County, as well as various federal and state grants. Approximately $120.0 million of the public funding was estimated to be allocated toward Arena construction, representing approximately 77 percent of total project costs. The remaining funding components consisted of $28.0 million contributed by an organization of 50 local business leaders and a $7.0 million contribution from Team ownership. 4 The Arena is owned by the Gateway Economic Development Corporation of Greater Cleveland, a private, not-for-profit organization formed by the City of Cleveland and Cuyahoga County in 1990 to oversee the financing, planning and construction of the Gateway District sports complex. The Cavaliers signed a 33year lease with the Corporation to operate the building and play its home games therein. The current lease expires following the 2026-2027 season, after which the Team will have the option to extend the lease for three additional periods of five years each. Since opening in 1994, the Arena has provided Cleveland with a multi-faceted sports, entertainment, and event venue, drawing an average of 1.4 million patrons per year. In addition to hosting 44 pre-season and regular season Cavaliers home games, the Arena attracts a wide range of other events annually, including professional hockey, arena football, other sporting events, concerts, family shows, special events, charitable activities, and meetings. Notably, in 2016 the Arena hosted the Republican National Convention. The following chart summarizes the total attendance attracted to the Arena in each full year of operations. ANNUAL QUICKEN LOANS ARENA ATTENDANCE Cavaliers 1,664 1,335 1,396 1,361 1,127 1,185 980 1,071 1,245 2004 Hockey Other Note: Hockey was not played at Quicken Loans Arena for the 2006-07 season due to the Cleveland Barons being relocated following the 2005-06 season. The Lake Erie Monsters began playing for the 2007-08 season. The attendance figures for 2006 and 2007 reflect the Barons’ attendance in the winter of 2006 and the Monsters’ attendance in the fall/winter of 2007. 5 1995 1996 1997 1998 1999 2000 2001 2002 2003 2006 2007 2008 2011 2012 2013 2014 2015 2016 862 1,243 1,288 2005 1,549 1,574 2009 1,539 1,598 2010 1,297 1,116 1,260 1,350 2,096 2,096 2,023 (IN 000’S) A sports and entertainment facility, along with its tenant franchises, is often more than just an entertainment choice or an employer in a diverse industry providing jobs and income. It becomes a core element in the fabric of life of the community. These facilities create economic and social value, and not just for those who directly consume the product. Beyond the importance sports and entertainment play in a community in terms of a major league, world class identity and quality of life, there are also a number of quantifiable economic and fiscal benefits. Especially for facilities located in the urban core, these benefits include increased neighborhood development and economic activity, full- and part-time jobs and increased tax revenues. In addition to the numerous, general economic benefits attributable to the operation of Quicken Loans Arena and the millions of guests that have visited the facility, various community groups and non-profit organizations have also benefited. Contributions by the Cavaliers and Quicken Loans Arena organization have positively impacted many local non-profit organizations and community groups, totaling over $43 million dollars alone since the arena opened in 1994. 6 - - - viz-43? 335551" FISCAL IM PACT ETHODOLOGY CONVENTIONS SPORTS 3E K.) I LEISURE ECONOMIC & FISCAL IMPACT METHODOLOGY The operations of Quicken Loans Arena and the Cleveland Cavaliers provide significant quantifiable benefits to the Cuyahoga County and City of Cleveland economies. Typically, and for the purposes of this report, quantifiable effects are characterized in terms of economic impacts and fiscal impacts. Economic impacts are conveyed through measures of direct spending, total output, personal earnings, and employment. Fiscal impacts denote changes in tax revenues. Each of the measures of economic impact is further described below: DIRECT SPENDING represents spending generated by Arena patrons including in-facility expenditures on admissions, food and beverage, merchandise, hotel rooms, rentals and other areas, as well as outof-facility spending by patrons on hotels, food and beverages, retail, transportation, and entertainment. TOTAL OUTPUT represents the total direct, indirect, and induced spending effects generated by the Arena and the Cavaliers. PERSONAL EARNINGS represent the wages and salaries earned by employees of businesses impacted by Arena and Team operations. EMPLOYMENT is expressed in terms of full- or part-time jobs. DIRECT SPENDING Quicken Loans Arena contributes directly to the local economy by increasing economic activity, jobs and personal earnings. The operations of the Arena and the Cavaliers impact the local economy in a variety of ways. As outlined on the following page, initial direct spending is generated during operations on admissions, concessions, catering, merchandise, parking and in other areas. Additionally, spending occurs throughout local hotel, restaurant, retail, residential and other establishments. It is often difficult to determine the level of spending that may have resulted in the absence of a specific project. In the case of Cavaliers games, it is estimated that nearly 60 percent of attendees do not reside in Cuyahoga County. The percentage even skews higher for other arena events. Fans will go the distance to see major concerts like Katy Perry and Billy Joel, as well as signature sporting events like the Mid-American Conference Championships. Furthermore, if the Arena had not been constructed in Cleveland, it is probable that the fans originating from Cleveland would have exported their associated spending to the municipality that would have accommodated the arena if it were not constructed in Cleveland, a phenomenon that likely occurred when the Cavaliers played in Richfield from 1974 through 1994. 7 DIRECT SPENDING: INITIAL SPENDING SOURCES CONSTRUCTION SPENDING: EVENT SPENDING: • Materials • Team Operations • Equipment • Ticket Sales • Labor • Site Improvements • Premium Seats • Concessions & Merchandise • Sponsorship ANCILLARY COMMUNITY SPENDING: • Lodging • Restaurants • Bars • Service • Retail • Entertainment • Utilities • Parking • Transit • Other • Other • Other In order to accurately quantify initial direct spending, 577 intercept surveys were completed with Arena patrons over a period of time. These surveys were conducted by CSL and by Arena staff. The research instrument was designed to capture primary market data regarding the attendance and spending behaviors of Arena patrons at Cavaliers games. The results of the patron-intercept surveys are the primary basis for developing assumptions related to fan origination and spending. Total initial direct spending flows to various economic entities including the Arena, the Cavaliers, other Arena tenants, restaurants, hotel operators, retail businesses and other such entities. Focusing on the flow of spending is particularly important when analyzing the unique characteristics of the sports and entertainment industry. As some of the spending that occurs in connection with visits by Arena patrons does not fully impact the local area, reductions in the total initial direct spending are made to reflect the amount of spending associated with the Arena that remains locally. The direct impact excludes spending that does not ever impact the local economy. For example, a significant portion of fan spending is used by teams to pay players. However, it is unlikely that a large percentage of that spending directly impacts Cuyahoga County. Other adjustments include payments made to the sports leagues and entertainers/ artists. 8 As illustrated below, the flow of initial direct spending associated with the operation of the Arena and Team is adjusted to reflect only the spending that remains within the local area. The resulting spending, after all adjustments, is referred to throughout the remainder of this analysis as direct spending. GROSS DIRECT SPENDING CONSTRUCTION ANCILLARY COMMUNITY SPENDING EVENT REVENUES • Team Operations • Advertising • Lodging • Entertainment • Labor • Ticket Sales • Concessions • Restaurant • Transit • Other • Premium Seating • Merchandise • Bars • Services • Sponsorship • Other • Retail • Other • Materials SPENDING ADJUSTMENTS Adjustments are made for displacement (spending that would have occurred anyway by local residents) or leakage (spending occurring outside of the County). NET NEW DIRECT SPENDING Represents portion of gross spending that is new to the County and would not have occurred without the presence of the team or other events held at the arena. 9 MULTIPLIER EFFECTS Economic impacts are further increased through re-spending of the direct spending. The total impact is estimated by applying an economic multiplier to initial direct spending to account for the total economic impact. The total output multiplier is used to estimate the aggregate total spending that takes place beginning with direct spending and continuing through each successive round of re-spending. Successive rounds of re-spending are generally discussed in terms of their indirect and induced effects on the surrounding economy. Each is discussed in more detail as follows: Indirect effects consist of the re-spending of the initial or direct expenditures. These indirect impacts extend further as the dollars constituting the direct expenditures continue to change hands. This process, in principle, could continue indefinitely. However, recipients of these expenditures may spend all or part of it on goods and services outside the market area, put part of these earnings into savings, or use them to pay taxes. This spending halts the process of subsequent expenditure flows and does not generate additional spending or impact within the community after a period of time. This progression is termed leakage and reduces the overall economic impact. Indirect impacts occur in a number of areas including the following: Wholesale industry as purchases of food and merchandise products are made; Transportation industry as the products are shipped from purchaser to buyer; Manufacturing industry as products used to service arena, sports franchise(s), vendors and others are produced; Utility industry as the power to produce goods and services is consumed; and, Other such industries. Induced effects consist of the positive changes in spending, employment, earnings and tax collections generated by personal income associated with the operations of the various facilities. Specifically, as the economic impact process continues, wages and salaries are earned, increased employment and population are generated, and spending occurs in virtually all business, household, and governmental sectors. This represents the induced spending impacts generated by direct expenditures. The appropriate multipliers to be used are dependent upon certain regional characteristics and also the nature of the expenditure. An area which is capable of producing a wide range of goods and services within its border will have high multipliers, a positive correlation existing between the self-sufficiency of an area’s economy and the higher probability of re-spending occurring within the region. If a high proportion of the expenditures must be imported from another geographical region, lower multipliers will result. The following graphic illustrates the flow of direct spending through the successive rounds of re-spending including indirect and induced effects on the local economy. 10 • Business Services • Household Spending • Governmental Spending • All Other Economic Sectors N INDU CE DS INDI PE RE CT NE W N SP ET E DI RE C G IN G DIN ND EN SP NG DI • Food & Merchandise Wholesaler • Transport Company • Manufacturers T • Energy/Utilities • Numerous Other Industries • Construction Spending • Event Revenues • Ancillary Community Spending • Team-Related Spending The multiplier estimates used in this analysis are based on the IMPLAN system. IMPLAN, which stands for Impact Analyses and Planning, is a computer software package that consists of procedures for estimating local input-output models and associated databases. Input-output models are a technique for quantifying interactions between firms, industries and social institutions within a local economy. IMPLAN was originally developed by the U.S. Forest Service in cooperation with the Federal Emergency Management Agency and the U.S. Department of the Interior’s Bureau of Land Management to assist in land and resource management planning. Since 1993, the IMPLAN system has been developed under exclusive rights by the Minnesota Implan Group, Inc. which licenses and distributes the software to users. Currently, there are hundreds of licensed users in the United States including universities, government agencies, and private companies. The economic data for IMPLAN comes from the system of national accounts for the United States based on data collected by the U.S. Department of Commerce, the U.S. Bureau of Labor Statistics, and other federal and state government agencies. Data are collected for 440 distinct producing industry sectors of the national economy corresponding to the Standard Industrial Categories (SICs). Industry sectors are classified on the basis of the primary commodity or service produced. Corresponding data sets are also produced for each county in the United States, allowing analyses at the county level and for geographic aggregations such as clusters of contiguous counties, individual states, or groups of states. For purposes of this analysis, economic multipliers specific to Cuyahoga County were used. Data provided for each industry sector include outputs and inputs from other sectors, value added, employment, wages and business taxes paid, imports and exports, final demand by households and government, capital investment, business inventories, marketing margins, and inflation factors (deflators). These data are provided both for the 440 producing sectors at the national level and for the corresponding sectors at the county level. Data on the technological mix of inputs and levels of transactions between producing sectors are taken from detailed input-output tables of the national economy. National and county level data are the basis for IMPLAN calculations of input-output tables and multipliers for local areas. The IMPLAN software package allows the estimation of the multiplier effects of changes in final demand for one industry on all other industries within a local economic area. 11 FISCAL IMPACTS In addition to the economic impacts generated throughout the local market by Arena and Team operations, the State of Ohio, Cuyahoga County and the City of Cleveland capture higher taxes from ticket sales, merchandise and food and beverages sold at the Arena and surrounding establishment, personal income taxes paid by Arena and Team employees, business income taxes collected from the Arena, Team and surrounding business owners and other such tax revenue streams. In preparing estimates of fiscal impacts, total tax revenues attributable to the direct, indirect and induced spending were examined. Tax revenues examined and estimated herein include state sales tax, City and County hotel taxes, City and State personal income taxes, State corporate income taxes, City parking and admissions taxes and County personal property taxes. Other taxes may apply, but have not been included in this report. Direct tax impacts were calculated using the statutory tax rates and bases presented in the following table. STATUTORY TAX RATES AND BASES TAX RATE RATE APPLIED TO: OHIO STATE TAXES Sales 5.50% - 6.00% (1) Personal Income 3.96% Corporate Income 0.20% - 0.36% (2) Taxable direct spending by arena patrons taking place inside and outside of the arena; taxable indirect spending generated by arena and team operations Salaries of Cavaliers players and staff; personal earnings generated by presence of arena and team Total output generated by presence of arena and team CUYAHOGA COUNTY TAXES County Sales 1.00% - 1.25% (3) RTA Sales 1.00% Hotel 4.50% Personal Property 0.00% - 8.00% (4) Taxable direct spending by arena patrons taking place inside and outside of the arena; taxable indirect spending generated by arena and team operations Taxable direct spending by arena patrons taking place inside and outside of the arena; taxable indirect spending generated by arena and team operations Taxable lodging expenditures made by arena patrons in Cuyahoga county Estimated value of taxable arena and team property CITY OF CLEVELAND TAXES Hotel 3.00% Taxable lodging expenditures made by arena patrons in the city of Cleveland Personal Income 2.00% Salaries of Cavaliers players and staff; personal earnings generated by presence of arena and team Admissions 8.00% Gate receipts revenue generated by arena events Parking 3.00% Estimated parking expenditures made by arena patrons (1) State tax rate increased from 5.5% to 6.0% from 7/1/03 through 6/30/05, after which it returned to 5.5%. On 9/1/13, the tax rate increased from 5.5% to 5.75%. (2) Estimated effective tax rate based on historical collections. Rate has varied from year to year due to changes in corporate tax laws. (3) County sales tax rate increased from 1.0% to 1.25% effective 10/1/07. (4) Rates for 2001 through 2005 imputed based on State-wide tax base and tax collections. Prior years estimated based on average rate from 2001-05. Tax was being phased out between 2006 and 2009, so the imputed rate is decreased over that period. No tax has been assumed in years following 2009. 12 IV. QUANTITATIVE ECONOMIC FISCAL IMPACTS CONVENTIONS SPORTS LEISURE QUANTITATIVE ECONOMIC & FISCAL IMPACTS The operations of Quicken Loans Arena and the Cleveland Cavaliers provide quantifiable benefits to Cuyahoga County and the City of Cleveland. Typically, and for the purposes of this report, quantifiable effects are characterized in terms of economic impacts and fiscal impacts. Economic impacts are conveyed through measures of direct spending, total output, employment and personal earnings. Fiscal impacts denote changes in tax revenues. A summary of the quantified economic and fiscal impacts generated by the Arena and Team is presented in the following section of the report. The construction phase of the Arena from 1992 to 1994 represents a significant one-time impact on the local economy. Typically, construction impacts are based on the volume and nature of the construction expenditures. Direct spending on construction typically consists primarily of a large number of purchases of materials and labor. Since these large purchases tend to take place in a relatively short timeframe, a distinct and visible impact on the community is typically created during construction phases. These construction period impacts are included in the estimated economic impacts presented herein. In addition to the one-time impacts related to facility construction, the operations of the Arena and Team create annually recurring benefits in the local economy. Annual operating period impacts are often significant, as these impacts represent a permanent change in the economy. The economic and fiscal impact estimates are presented in two distinct stages of Arena and Team history, as follows: 1990 THROUGH 1993 – Impacts generated in Cuyahoga County as a result of Cavaliers operations during the Team’s final four years playing home games at the Richfield Coliseum. These impacts were generally limited, as Richfield is located outside of Cuyahoga County. 1994 THROUGH 2016 – Impacts generated as a result of Arena and Team operations during the Team’s first 23 years at Quicken Loans Arena. The table on the following page illustrates the estimated historical economic and fiscal impacts generated by the operations of the Arena and the Cavaliers. The estimated impacts are presented in actual year dollars. In addition, the annualized impacts are presented. 13 As shown, it is estimated that the Arena and Team generated approximately $245 million in direct spending in Cuyahoga County in 2016. This level of spending was estimated to produce approximately $387 million in total output, support 4,800 full- and part-time jobs that create approximately $196 million in personal earnings, and generate approximately $44 million in State and local tax revenues. ADJUSTED ECONOMIC & FISCAL IMPACT SUMMARY QUICKEN LOANS ARENA & THE CLEVELAND CAVALIERS ($ MILLIONS) DIRECT SPENDING TOTAL OUTPUT (1) JOBS (2) PERSONAL EARNINGS (3) TAX REVENUE 4,800 $196 $44 1990 to 1993 (estimated) 1994 to 2016 (estimated) Total Impacts 1990-2016 CUMULATIVE - ACTUAL YEAR DOLLARS $37 $60 200 $2,699 $4,258 2,500 $2,736 $4,318 N/A $35 $2,168 $2,203 $6 $486 $493 1990 to 1993 (estimated) 1994 to 2016 (estimated) ANNUALIZED - ACTUAL YEAR DOLLARS $9 $15 200 $117 $185 2,500 $9 $94 $2 $21 2016 Estimates $245 ANNUAL: $387 (1) Includes direct spending, as well as indirect and induced spending that occurs as money is re-spent in the local economy. Because total output includes direct spending, the direct spending and total output numbers should not be considered additive. (2) Represents the average jobs supported per year during each of the time periods analyzed. (3) Personal earnings generated by the economic activity associated with arena and team operations. Should not be considered additive with direct spending or total output. It should be noted that the economic impact estimates presented in the previous table and throughout the remainder of this report have not been adjusted to account for spending related to the Arena and Team that would have taken place in Cuyahoga County if the Arena and Team did not exist. It is likely that a portion of the expenditures made by Arena patrons would be made on other entertainment options or products if they were not spent on Arena-related activities, and a portion of this spending would likely occur within Cuyahoga County. Similarly, a portion of the corporate spending related to the Arena and Team would likely still have been spent locally if the Arena and Team did not exist. For example, a corporation may purchase a suite at another local sports venue or allocate advertising dollars toward another medium in the market. Based on factors such as the percentage of Arena patrons who reside in the County, the number of local versus non-local corporate partners of the Arena and Team, it is estimated that approximately 25 to 30 percent of the direct spending associated with Arena and Team operations would take place locally regardless of the presence of the Arena and Team. Therefore, the “Net New” spending and impacts, defined as those impacts attributable solely to the presence of the Arena and Team, are estimated to be approximately 70 to 75 percent of the impacts presented herein. 14 The following pages of this report summarize the annual and cumulative direct spending, total output, wage earnings, number of jobs created and the fiscal impacts generated by the Arena and Team over the first 23 years of Arena operations, from 1994 to 2016: $2.7 billion in cumulative Direct Spending; $4.3 billion in cumulative Total Output; $2.2 billion in cumulative Personal Income generated by jobs supported; 2,500 approximate average of Full- and Part-Time Jobs per year that the Arena operations is estimated to support; and, $486 million in cumulative State and Local Tax Revenues. 15 As shown below, it is estimated that the cumulative direct spending generated by the Arena and Team through 2016 will total approximately $2.7 billion. Quicken Loans Arena andand Cleveland Cavaliers Quicken Loans Arena Cleveland Cavaliers Direct Spending in Millions Direct Spending in Millions 19941994   to 2016 to  2016 $245.3 2016 2015 2016 2014 2015 2013 2014 2012 2013 2011 2012 2010 2011 2009 2010 2008 2009 2007 2008 2006 2005 2004 2003 2002 2001 2000 1999 1998 $182.6 $152.1 $147.3 $110.3 $142.9 $136.7 $142.9 $96.4 $102.4 $92.0 $87.7 $96.4 $102.4 CUMULATIVE DIRECT Cumulative Direct Spending SPENDING 1994-2016: 1994 - 2016: $92.0 $72.4 $2.7 billion $2.7 BILLION $87.7 $72.7 $62.6 $111.0 $72.4 $81.2 $72.7 $62.6 $81.2 1997 1999 1996 1998 1995 1997 1994 1996 $88.0 $105.3 1995 $81.4 $88.0 $81.2 $81.4 $81.2 (1) Includes direct spending related to arena construction. (1) 1994 $150.9 $143.2 $111.0 2004 2000 $153.0 $143.2 $136.7 2005 2001 $153.0 $150.9 2006 2002 $147.3 $110.3 2007 2003 $182.6 $152.1 $105.3 (1) Includes direct spending related to arena construction. 16 $245.3 The chart below summarizes the total output generated by Quicken Loans Arena and the Cavaliers from 1994 through 2016. It is estimated that the cumulative total output generated by the Arena and Team through 2016 will total approximately $4.3 billion. Quicken LoansLoans Arena and Arena Cleveland Cavaliers Quicken and Cleveland Cavaliers Total Output in Millions Total Output in Millions 1994 to 2016 1994 to 2016 $386.9 $386.9 2016 2016 2015 2015 $289.5 $289.5 $240.4 $240.4 $233.1 $233.1 2014 2014 2013 2013 $174.0 $174.0 2012 2012 2011 2011 $242.5 $242.5 $238.1 $238.1 $225.8 $225.8 2010 2010 2009 2009 $215.7 $215.7 $225.8 $225.8 2008 2008 2007 2007 $175.3 $175.3 $151.8 $151.8 $161.8 $161.8 2006 2006 2005 2005 2004 2004 2003 2003 CUMULATIVE OUTPUT Cumulative Output 1994 2016: 1994-2016: $146.1 $146.1 $138.7 $138.7 2002 2002 2001 2001 $4.3 billion $4.3 BILLION $114.3 $114.3 $114.3 $114.3 2000 2000 1999 1999 $98.2 $98.2 1998 1998 1997 1997 $127.7 $127.7 $127.8 $127.8 1996 1996 1995 1995 $138.2 $138.2 $128.5 $128.5 1994 1994 (1) $163.9 $163.9 (1) (1)Includes Includesoutput outputrelated relatedtotoarena arenaconstruction. construction. 17 The following chart summarizes the full- and part-time jobs supported by the economic activity associated with the operations of Quicken Loans Arena and the Cavaliers. As shown, Arena and Team operations are estimated to help support an average of approximately 2,500 jobs per year in Cuyahoga County over the first 23 years of Arena operations. Quicken and Cleveland Cavaliers Quicken Loans Loans Arena Arena and Cleveland Cavaliers Fulland Part-Time Full- and Part-Time Jobs Jobs 1994 to1994 2016to 2016 2016 2016 2015 2015 2014 2014 2013 2013 2012 2012 2011 2011 2010 2010 2009 2009 2008 2008 2007 2007 2006 2006 2005 2005 2004 2004 2003 2003 2002 2002 2001 2001 2000 2000 1999 1999 1998 1998 1997 1997 1996 1996 1995 1995 1994 1994 (1) $4,820.2 $2,969.8 $2,851.5 $2,851.5 $2,173.6 $2,173.6 $2,937.2 $2,972.8 $2,937.2 $2,972.8 $2,823.4 $2,823.4 $2,692.9 $3,497.7 $2,969.8 $4,820.2 $3,497.7 $2,692.9 $2,790.8 $2,790.8 $2,178.5 $2,178.5 $1,968.7 $1,968.7 $2,127.8 $2,127.8 $1,898.8 AVERAGE SUPPORTED AverageJOBS Jobs Supported 1994 - 2016: 1994-2016: $1,898.8 $1,916.8 $1,916.8 $1,645.2 $1,645.2 $1,738.1 $1,561.3 2,500 $2,500 $1,738.1 $1,561.3 $2,053.8 $2,053.8 $2,114.1 $2,114.1 $2,383.1 $2,217.5 $2,383.1 $2,217.5 $2,745.0 $2,745.0 (1)related Includes related to arena construction. (1) Includes jobs to jobs arena construction. 18 As illustrated below, it is estimated that the cumulative personal income generated by jobs supported by Arena and Team operations will total approximately $2.2 billion from 1994 through 2016. Quicken Loans Arena and Cleveland Cavaliers Quicken Loans Arena and Cleveland Cavaliers Personal Earnings in Millions Personal Earnings in Millions 1994 to 2016 1994 to 2016 2016 $195.7 2016 2015 2015 2014 2014 2013 2013 2012 2012 2011 2011 2010 2010 2009 2009 2008 2008 2007 2007 2006 2006 2005 2005 2004 2004 2003 2003 2002 2002 2001 2001 2000 2000 $151.7 $123.5 $120.8 $88.5 $114.7 $109.7 $82.8 $58.4 1998 $64.0 $64.0 1997 1997 $64.0 $64.0 1995 1994 1994 (1) CUMULATIVE EARNINGS Cumulative Earnings 1994 - 2016: 1994-2016: $57.1 1998 1996 $82.8 $77.6 $71.7 $2.2BILLION billion $2.2 $48.3 $68.5 $65.4 $68.5 $65.4 $75.6 $116.0 $89.6 $58.4 $57.1 $48.3 $114.7 $76.7 $77.6 $71.7 $126.8 $121.2 $109.7 $116.0 $89.6 1999 1995 $88.5 $126.8 1999 1996 $120.8 $121.2 $76.7 $151.7 $123.5 $75.6 (1) Includes earnings related to arena construction. (1) Includes earnings related to arena construction. 19 $195.7 In terms of fiscal impacts, the operations of the Arena and Team are estimated to generate approximately $486 million in cumulative tax revenues from 1994 through 2016. Quicken andCavaliers Cleveland Cavaliers Quicken Loans Loans ArenaArena and Cleveland Tax Revenues Tax Revenues in Millions in Millions 1994 to 1994 2016 2016 2015 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 to 2016 $43.6 2016 $34.7 2015 $26.2 2014 $23.4 2013 $18.7 2012 $18.7 $27.1 $27.1 $28.5 $28.5 $27.3 $27.3 $26.6 $26.6 $26.8 $26.8 2010 2009 2008 $22.3 2006 $19.6 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 $17.7 $15.2 $15.4 $14.1 $26.2 $23.4 2011 2007 $43.6 $34.7 $22.3 $19.6 $17.7 CUMULATIVE REVENUE Cumulative TAX Tax Revenue 1994-2016: 1994-2016: $15.2 $15.4 $486MILLION million $486 $14.1 $15.1 $15.1 $14.1 $14.1 $15.2 $15.2 $14.9 $14.9 $14.7 $14.7 $13.4 $13.4 $11.8 $11.8 20 The following table presents additional detail related to the fiscal impacts estimated to be generated by Arena and Team operations, including the tax revenues collected by the State of Ohio, Cuyahoga County and the City of Cleveland. ESTIMATED FISCAL IMPACTS BY JURISDICTION (IN THOUSANDS OF DOLLARS) CUMULATIVE 1990-1993 1994-2016 ANNUALIZED 1990-1993 1994-2016 CITY OF CLEVELAND Hotel - $712 - $31 Personal Income - 64,807 - 2,818 Parking - 4,461 - 194 Admissions - 106,429 - 4,627 Subtotal - $176,409 - $7,670 CUYAHOGA COUNTY Sales $277 $23,336 $69 $1,015 RTA Sales 277 20,704 69 900 Hotel 18 1,225 5 53 Personal Property 450 1,635 112 71 $1,022 $46,899 $256 $2,039 Subtotal STATE OF OHIO Sales $1,524 $115,983 $381 $5,043 Personal Income 3,469 135,877 867 5,908 Corporate Income 130 11,265 32 490 $5,123 $263,124 $1,281 $11,440 $6,145 $486,431 $1,536 $21,149 Subtotal TOTAL TAX REVENUES As shown, the State has been the largest benefactor of taxes generated as a result of Arena and Team operations, with cumulative collections from 1994 through 2016 estimated to total approximately $263 million. The City of Cleveland has also collected significant tax revenues since the opening of the Arena, due primarily to personal income and admissions taxes. Cuyahoga County has collected significantly lower tax revenues than the City and State, with general and RTA sales taxes comprising the County’s primary sources of fiscal impacts. 21 V. QUALITATIVE IMPACTS CONVENTIONS SPORTS LEISURE QUALITATIVE IMPACTS A sports venue and its franchises create direct and indirect economic benefits in the geographical area in which it is located. As previously described, many of those benefits are explicit, and their impact can be accurately estimated. In addition to these benefits, there are certain non-quantifiable benefits that must be considered in a review of the economic benefits derived from a sports venue and its franchises. The presence of Quicken Loans Arena and the Cleveland Cavaliers has benefited many community groups and non-profit organizations throughout the Greater Cleveland area. Since its inception, the Cavalier organization’s charitable arm, now called the Cavaliers Youth Fund, has made grants totalling over $23 million back to deserving non-profits and charitable groups. In addition, the Cavaliers have provided more than $19 million in community gifts and contributions for a number of non-profit organizations, including Flashes of Hope, the United Way of Greater Cleveland and Habitat for Humanity. With over $43 million in community, civic and charitable giving, combined with the financial and personal contributions by Quicken Loans Arena, Cavaliers players, coaches and staff, a wide range of local non-profit organizations and charities have been positively impacted. Current charitable, non-profit and community activities supported by the Cavaliers include: 6th Man employee volunteer program All-Star Kids & Head of the Class student and teacher recognition programs Awareness Nights (in-game) Black Heritage Celebration Cavaliers Holiday Toy Drive Cavaliers Youth Fund, a fund of the Cleveland Foundation Green Week Fit As A Pro youth health initiative Harvest for Hunger Food & Funds Drive Holiday Hospital Visit Legacy Projects (court refurbishments, family rooms at the Cleveland Clinic Children’s Rehab Hospital and Ronald McDonald House of Greater Cleveland) Merchandise donations for schools and non-profit fundraisers 22 NBA Math Hoops Cavs Academy summer camps and clinics Player ticket program (players purchase and donate tickets and food vouchers to non-profit organizations) Read to Achieve youth education initiative Reading & Learning Centers Season of Giving Straight “A” All-Stars youth education initiative Cavs and Monsters Toy Drive In addition to team-wide initiatives, players and coaches also host a number of their own events with support from the team, including Thanksgiving dinner giveaways, holiday shopping sprees and special outings for children in need. The summary of charitable efforts and similar activities provided herein is not an exhaustive list and represents only a portion of the community-oriented activities undertaken by the Arena and Team. In addition to those listed, there are numerous other local charities and community activities supported by the teams’ foundations, individual players, coaches and Arena staff. 23 VI. CSL CREDENTIALS CONVENTIONS SPORTS SE K4 I LEISURE CSL CREDENTIALS Conventions, Sports, & Leisure International is an industry-leading advisory firm specializing in the analysis of the development and operations of sports, convention, amusement, entertainment and leisure facilities. CSL was specifically established to provide focused consulting services unique to these industries. As such, CSL has gained a reputation for providing our clients with professional, thorough and timely handson consulting services. One of the primary strengths of CSL is our experience. The CSL team brings to each project a perspective gained through more than 120 years of collective experience in consulting, participating in more than 500 projects. We assist our clients from the earliest stages of project planning, ensuring that all decisions are informed ones. Our consultants provide in-depth information, creative solutions to underlying issues, a thorough analysis of financial implications, and various measurements of risk and return surrounding alternative courses of action. CSL has assisted numerous public bodies and private sector clients with the analysis of the benefits associated with facilities similar to Quicken Loans Arena. Specifically, CSL has assisted clients in evaluating the impact of the following selected franchises or facilities: Arizona Cardinals / University of Phoenix Stadium Houston Texans / Reliant Park New York Giants / New Stadium Carolina Panthers / Bank of America Stadium New York Islanders / Nassau Coliseum Dallas Cowboys / Texas Stadium New York Mets / Citi Field Dallas Mavericks / American Airlines Center NY/NJ Metrostars / New Stadium DC Baseball Team / New Stadium Orlando Magic / New Arena Detroit Lions / Ford Field Philadelphia Eagles / Veterans Stadium FC Dallas / Pizza Hut Park San Antonio Spurs / AT&T Center Florida Marlins / New Stadium San Francisco 49ers / New Stadium Green Bay Packers / Renovated Lambeau Field Texas Rangers / Rangers Ballpark in Arlington Houston Rockets / Toyota Center CSL maintains offices in Dallas and Minneapolis. For more information regarding the services provided by CSL or questions about the study, please contact Bill Rhoda at (972) 491-6900. 24