SBJ/June 6-12, 2011/Opinion

How a stadium, surrounding area can boost a team’s revenue

In the context of acquiring a professional sports franchise, purchasers are devoting more and more energy toward understanding the sporting event experience and contemplating how to improve upon it. By controlling the experience, a purchaser can maximize the potential point-of-sale opportunities that arise at the stadium, in the surrounding stadium area and in the course of a spectator’s arrival and departure from the stadium. Boosting these point-of-sale opportunities results in increased spectator-driven revenue and the purchaser’s ability to retain that revenue.

During the due diligence process, specialists (attorneys, land-use planners, contractors, etc.) can assist a potential franchise buyer in assessing the following considerations in how to improve the event experience and increase revenue:

Stadium ownership

Understand the stadium agreements. What property is included in the stadium agreements: ballpark, parking, exterior retail? Who owns the stadium — city, sports authority, privately owned? A comprehensive understanding of the stadium agreements will provide insight into potential future opportunities and/or limitations. For example, availability of public financing tools for capital improvements, the property tax impact of such improvements, or what, if any, revenue is shared with the public or merchandisers and concessionaires.

If the facility is leased from public sector:

• How much time is left on the lease term?

• Under what conditions can the lease be terminated?

• Who is responsible for maintenance and repair?

• Is there a capital improvement fund in place?

• What are your rights to make improvements?

Zoning/local ordinances

Understand the underlying zoning requirements and local ordinances that affect the stadium, the surrounding area, and any other land the purchaser is looking to acquire with an eye toward development. Are there minimum parking requirements? Are there any ordinances in place to regulate street vendors or ambush advertising? The city of Arlington, Texas, enacted an anti-ambush ordinance in connection with the 2010 NBA All-Star Game, and vendor rules govern the area surrounding the Washington Nationals’ ballpark. Does the zoning prohibit certain types of establishments in the stadium area? Are there height restrictions on new development?

A purchaser should also know if that land is part of a planned development. A planned development is an area of land located within a municipality that is subject to a stand-alone set of zoning requirements. With limited exceptions, those regulations are wholly independent of the surrounding property’s zoning regulations. Note that if a stadium and its surrounding land is subject to a planned development, it is probable that the planned development was established to address stadium operations and development. If the target land does not allow the type of development desired, the purchaser should determine the type of zoning amendments required, the likelihood of having them adopted by the municipality and the expected timing of such action.

Acquisition possibilities

COURTESY OF PATRIOT PLACE
A prospective owner should know whether enough land is included for a development like Patriot Place.
Understand the type and amount of property being acquired as part of the franchise acquisition, and determine whether the acquired land is sufficient for its operations and future development. Is there enough parking? Does the client want or need to build ancillary development similar to Patriot Place, the Inner Harbor by Camden Yards, or the proposed Ballpark Village in St. Louis to justify purchase price or business plan objectives, and is there land available for that purpose? If the answer is no, additional diligence regarding surrounding properties is necessary to determine what, if any, other property is available to satisfy the purchaser’s needs. Also, is there land available for a third-party to construct a development that could cut into the client’s revenue or improve the fan experience/attendance? If so, is acquiring that land to preclude (or encourage) that development in the client’s best interest?

Surrounding property ownership or control

Determine who owns and/or controls the properties surrounding the stadium. How is the land currently being used? What are the potential uses? Does the team have an option to acquire any such property? Any identified property should be subjected to the zoning review described above.

Physical condition/capital improvements

Investigate the current physical condition of the stadium. In particular, the purchaser should know:

• The current age of the stadium.

• The life expectancy of the facility and its component parts.

• Recent capital improvements.

• Planned improvements the franchise has committed to.

• Necessary capital improvements and related schedule.

Public entitlement/financing

Develop an overview of available public entitlement and public assistance to support the facility and the team. For example, if the stadium area is located in an economically distressed region, a series of incentives may be available including tax credits, low-interest loans and redevelopment funds to develop and/or drive the purchaser’s future vision for the fan experience.

Communicate with the municipality

Devise a strategy to communicate with the municipality regarding the purchaser’s development plans. Is it necessary or desirable? How does the current franchise owner interact with the municipality (contact persons, frequency, friendliness of relationship, etc.)?

Accessibility to public transportation/infrastructure

Understand the public transportation system and infrastructure system supporting the stadium, the surrounding area, and any other land the purchaser is looking to acquire with an eye toward development. What ability, if any, is there to increase those systems’ respective capacities? Can new systems be created? The purchaser should also confirm what public transportation and infrastructure improvements have already been funded, even if not yet constructed.

Keeping all of the above-listed considerations in mind while trying to acquire a professional sports franchise can be overwhelming for a purchaser. The sooner the purchaser has a firm handle on these considerations, however, the sooner it will be able to develop a well-designed strategy that affects the purchaser’s revenue generation and the fan’s sports experience.

Irwin Raij (iraij@foley.com) is a partner and vice chair of the sports industry team and Erick Harris (esharris@foley.com) is an associate and a member of the sports industry team with Foley & Lardner LLP.


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