SBJ/June 20 - 26, 2005/SBJ In Depth

Tight public money forces teams to get creative with stadium finance plans

Mike Bennett comes across as a feisty character, an electrical contractor back in Bradenton doubling as a state senator in the Florida Legislature. And arguably the worst nightmare for a sports team owner in the market for taxpayer subsidies to build a new stadium.

These days, you could argue Bennett is right in tune with the populace, which, judging from opinion polls and surveys, isn’t thrilled about seeing tax dollars go to build sports facilities.

It doesn’t seem to matter if you look to the bright lights of New York, the dim of Louisiana or down in the Sunshine State, where Bennett successfully fought last month to kill legislation that would have provided millions, including seed money for new venues for the Florida Marlins and Orlando Magic.

“I just don’t believe the taxpayers should be funding professional stadiums,” Bennett said. “If you can afford to pay somebody $53 million to throw a baseball 90 feet, you can afford your own damn stadium. I believe you should support your business and I’ll support mine. Nobody ever gave me a handout. What kind of deal is that?”

The Republican lawmaker added: “You’re going to see a drastic change in the way these things are financed. People are finally fed up. And so I think the Marlins and others will be funding their own projects in the future.”

That may ring true of the South Florida baseball team, if ownership isn’t up to being courted by Las Vegas, but it’s a bit early to be talking trends. Case in point: While Florida and Missouri shot down bills earmarking funds for stadium projects, Arlington, Texas, recently committed $325 million to help build new digs for the Dallas Cowboys. And taxpayers are footing most of the $581 million stadium tab for the Washington Nationals.

Like anything else, it often boils down to who has leverage and who doesn’t. NFL franchises in Indianapolis or Phoenix can calmly, without needing to utter a threat, play the Los Angeles card to get public financing. You find subsidies more readily available in these secondary cities looking to keep their name on the map or where they fear an owner pulling out of town in the middle of the night.

But the difference between the building boom of the 1990s and today is that a fair number of state governments that once were churning out surpluses now face deficits. Changes in federal government policy also have forced state and local governments to cover a greater cost of social programs, leaving them reluctant to subsidize projects viewed as marginal or frivolous.

New approaches

And so, municipalities find themselves being more creative in how they fund stadium projects while team ownership is increasingly left to find greater sources of private financing.

See related data:
Hot sports: Where are sports facility projects facing the toughest resistance?
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One of the hottest trends is packaging stadiums as part of larger redevelopment projects. Petco Park in San Diego, for example, is part of an overall project designed to attract office and retail space, hotels and housing.

Elected local officials also continue trying to shift the burden off residents and onto visitors in the form of taxes on car rentals and hotel-motel rooms. More than a third of the professional sports venues built since 1990 have been funded in part by tourism taxes, according to Rutgers University professor Judith Grant Long.

A chunk of the $700 million in public money for the sports venues in Houston, as an example, is derived from an additional 2 percent tax on hotels and a 5 percent car rental tax. Atlanta officials signed off on a 3 percent rental surcharge to help finance Philips Arena.

Consider these recent developments:

Indianapolis: After tossing up trial balloons like a tax on player salaries — the NFLPA, as one might assume, lobbied hard against it — and tapping revenue from slot machines that exist across the state, the legislature and Gov. Mitch Daniels signed off on a bill doubling to 2 percent a food and beverage tax already in place to fund the original RCA Dome, as well as an additional 1 percent food and beverage tax in seven surrounding counties.

The $500 million home for the Colts is touted as being part of a grander convention center, though an even more integral factor in selling the project may be a sweet agreement with the hometown NCAA to guarantee Indy a series of high-profile NCAA events through 2039, including the Men’s Final Four, Women’s Final Four, Division I men’s championship first- and second-round or regional games, the Division I women’s championship first- and second-round or regional games, and the annual NCAA convention.

“We’re the only city in the country to have this blockbuster deal with the NCAA,” said Indianapolis Deputy Mayor Steve Campbell. “The driving factors behind us wanting to build a stadium were wanting to keep the Colts and the NCAA [events].”

Campbell said the Colts are kicking in $100 million of the total facility cost, with their share coming from money generated off the building — specifically naming-rights fees and the lease of luxury suites.

Arizona: Cardinals owner Bill Bidwill is on the hook for $104 million of the estimated $448 million to build a new stadium for his NFL club. Industry experts suggest Bidwill may find one-time seat licenses a tricky sell in the soft market, though potential revenue from the team’s seat inventory, which includes 88 suites and 7,400 club seats, should go a long way toward repaying the debt. The club also could hit fans with a ticket surcharge.

The Arizona Sports and Tourism Authority is responsible for the remaining money, which is expected to be derived from a variety of consumer taxes, including car rental and hotel-motel.

Kansas City: The proposed Sprint Center continues to shop for an NHL or NBA tenant, but what can be taken to the bank, along with an apparent naming-rights deal, is a $50 million pledge from Los Angeles-based management firm Anschutz Entertainment Group as well as a $10 million commitment from the National Association of College Basketball Coaches. (The facility would house the college basketball hall of fame.)

The public commitment for the downtown arena approaches $125 million, with most coming in taxes on car rentals and hotel-motel rooms.

Voters in Arlington, Texas, decided to provide $325 million to cover half of the cost to build a new stadium for the Dallas Cowboys.
Dallas: Wanting a new home for “America’s Team,” Cowboys owner Jerry Jones is putting up half of the estimated $650 construction cost — though hardly a dime of his own cash. Instead, the club is selling one-time-only seat licenses to season-ticket holders, which industry analysts predict will generate $100 million to $125 million, and also is likely to fill the coffers with a 5 percent ticket surcharge and lucrative naming-rights agreement. Initially, the club is expected to receive $100 million to $150 million through the NFL’s G-3 loan program, which affords cheap money for stadium construction.

Minneapolis: Assuming the Minnesota Legislature signs off, revenue generated by an additional 0.15 percent sales tax (which excludes groceries, medical and clothing costs) in Hennepin County will be dedicated to repaying the construction debt on a $478 million downtown ballpark for the Twins. Club owner Carl Pohlad would bear responsibility for $125 million of the cost.

East Rutherford, N.J.: New York Giants ownership is privately financing much of the $750 million project for a new stadium in the Meadowlands, and likely will be able to tap into the league’s G-3 loan program. Industry experts project the club will pledge revenue generated from operation of the facility toward debt retirement — including naming rights, luxury suites and club seats, as well as a possible ticket surcharge.

Meanwhile, the rival New York Jets, who also currently call Giants Stadium home, had been counting on $300 million each from the state and New York City as part of plans for a downtown stadium that also was to serve as the centerpiece for an Olympic Games bid. But state officials have refused to approve their share of what at last report was a $2.2 billion project. With the project uncertain at best, the Jets are talking with the Giants about sharing their new venue. And the city is now pitching a new stadium for the Mets on Queens that would double as an Olympic venue.

Pitching a bigger plan

The public partnership behind Petco Park in San Diego could be to finance strategy what Baltimore’s Camden Yard was to stadium design in the early 1990s. Though public funds accounted for nearly two-thirds of the $474 million price tag, San Diego received a binding, $150 million commitment for residential real estate development as part of the deal and Padres owner John Moores, alone, has pumped $550 million into residential, hotel and retail development around the park.

New York City residents have protested plans to use tax dollars on stadiums.
Rising out of what was the depressed East Village section, the ballpark is now a linchpin or anchor for a much larger economic development project as opposed to solely an entertainment venue.

Similar approaches have been undertaken for the ballpark under construction for the St. Louis Cardinals and the NHL hockey venue in the Phoenix suburb of Glendale, and have been broached by ownership of both the San Francisco 49ers and Oakland A’s.

“The city of San Diego is using what is called Tax Increment Financing as a way to provide the public dollars for development,” explained Dennis Howard, professor at the University of Oregon’s Warsaw Sports Marketing Center and co-author of “Financing Sport.”

“What happens is you take an area that is struggling, freeze the tax base and provide all these stimuli, including the ballpark, and private developers build around it,” Howard said. “As the value of the property is enhanced, property tax moneys that can be imposed will also grow. The bonds you used to pay for infrastructure are paid off by incremental property tax revenue realized from this enhanced area. So there is no new tax dollars [spent] and it is paying for itself.”

Howard disputes the premise that more private money is going into stadium projects, claiming that the six current or proposed projects actually have as large, if not a greater, percentage of taxpayer money as those built in the boom years of 1995 to 2003. Where there is increased private funding, he contends it’s offset by construction costs that have almost doubled in the last five years. The city of Arlington’s contribution of $325 million to the Cowboys’ proposed stadium, alone, is more than the total cost of Heinz Field or PNC Park in Pittsburgh.

Howard’s argument is further strengthened by the decision of Washington, D.C., leaders to foot nearly the entire $581 million to build a stadium for the Nationals, the still-for-sale club owned by Major League Baseball.

The flip side is the availability of capital and opportunities for private financing are probably greater than 10 to 15 years ago, factoring in elements like stadium naming rights and other sponsorships. And then, there’s the willingness of people to attend more games and spend more on concessions, accompanied by the emerging trend to turn stadiums into, as Stanford economist Roger Noll suggests, shopping centers.

“The stadium is best thought of when the team is the anchor tenant and gets a low-rent deal and then other people pay a lot to be around the anchor tenant,” Noll said. “If you look at stadiums, the capacity hasn’t changed much. What is changed is the area around the stadium, which is most evident in Fenway Park and closing down the street outside. What the Red Sox weren’t so much interested in was expansion of the stadium, but outside and putting restaurants and bars out of business. As this continues, you get the single anchor tenant getting more satellite tenants paying to come in and be there.”

Quick fact
SportsBusiness Journal projects that more than $660 million in public money will be spent this year on stadiums and arenas that are scheduled to open as homes to professional sports teams. That figure represents approximately 82 percent of the total money spent on these new facilities.
Even then, you still get politicians pondering where to come down on the issue. You find Bennett crusading against taxpayers chipping in for Florida sports facilities, while fellow Republican Charles Shields just as strongly champions a failed plan in Missouri that would have helped fund renovations to Arrowhead Stadium and Kauffman Stadium in Kansas City.

“Sports franchises are a limited resource and communities across the country compete for them,” said Shields, the Senate majority leader. “But sometimes they get treated like second-class citizens from a business standpoint.

“The fight we just went through in Missouri, if you said Ford or General Motors, it wouldn’t even be a discussion. But the fact it was stadiums that professional sports franchises play in ended the discussion.”

Show-Me State lawmakers weren’t even debating whether to raise taxes, just to divert about half of the $30 million a year collected from a tax imposed on athletes and entertainers. Some of the tax money in the past went to sports facilities, but since a budget crisis three years ago all of it has gone into the general state budget. But Kansas City-area voters struck down the proposal.

Because the Chiefs and Royals can exercise an escape clause in their leases with the Jackson County Sports Authority next year if the stadiums aren’t refurbished to state-of-the-art status, Shields worries about the small-market city being at risk of losing one or both franchises.

“It’s just tough to do anything until you hear of a crisis,” Shields said. “Well, we may be almost there. You may now hear the Kansas City Chiefs mentioned with Los Angeles.”

And so, the financing debate will continue when the lawmakers convene again.

Mike Fish is a writer in Georgia.

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