SBJ/February 20-26, 2017/Finance

Strength of MLS evident in stadium lending

Sumitomo and JPMorgan Chase lent roughly $80 million for Orlando City SC’s new stadium.
Photo by: ORLANDO BUSINESS JOURNAL
When Orlando City SC’s new stadium swings open the doors for the first time later this week, Major League Soccer, as it enters its 22nd season, will cross a significant threshold: boasting its first venue to open with private stadium financing.

Sumitomo and JPMorgan Chase lent roughly $80 million late last year to the owners to build the stadium, financial sources said. Previous loans for MLS stadiums were backed by owners willing to step in and assume the debt if necessary. The Orlando City loan is structured like a traditional stadium loan in the major sports, backed by stadium revenue. Were the cash not to emerge as projected, the banks have no recourse to the owners.

Orlando is not alone, or even the first in MLS to win what in finance lingo is known as “project finance.” Goldman Sachs last year lent $145 million to LAFC for its new stadium, scheduled to open next year, as well as $35 million to the club.

D.C. United is looking to be the third MLS team to score project finance. It’s in the process of borrowing more than $100 million from Goldman for its new stadium. Minnesota United is also thought to be in the market for project finance.

“We are big believers in MLS, the growth of it, the league has been around for 21 years, the owners that have been in the league,” said Greg Carey, Goldman Sachs managing director, discussing why his firm lent to LAFC when it won’t kick its first ball until 2018.

Carey also cited MLS’s soccer-specific stadiums creating fan excitement, and, in LAFC’s case, its location near the Los Angeles Memorial Coliseum adding to the buzz.

Tom Penn, LAFC president and co-owner, described the loan as a “historic financing deal for MLS in that we’re being treated in a market like Los Angeles the same way the NFL, NBA, MLB and NHL are treated when they go to build a venue. That the business is being viewed as substantial enough on its own, and the assurance of revenue coming in would cover the debt …[is] a great indicator of the growth of MLS.”

When MLS launched in 1996, it used cavernous multipurpose stadiums. In 1999 the Columbus Crew built what is now known as Mapfre Stadium, ushering in a wave of soccer-specific stadiums tailor-made for the sport’s smaller crowds. Fifteen of the league’s 22 teams play in soccer-specific stadiums, not counting the projects under development in Minnesota and Washington, D.C.

However, until recently the revenue for MLS was not enough to convince lenders that they didn’t also need, in addition to the pledge of stadium revenue as collateral, a guarantee from ownership to step in if needed. MLS may still not have the mega-size media contract that other sports leagues do, but it is bringing in significant stadium revenue streams, like naming rights.

Mark Abbott, MLS deputy commissioner, said that recent developments around the league, such as increasing the number of events at the stadium outside of MLS matches, more premium seating and an increasingly robust market for naming rights have provided the additional revenue streams that allow for these kinds of levels of debt.

Banc of California is naming the LAFC venue, and Audi is doing the same with the building that D.C. United is planning.

MLS is also benefiting from a larger financing trend: Sports debt more broadly is highly coveted. Lenders are looking for secure credits that will pay even a few percentage points more than the minimal returns available on government bonds. Sports, which carries a low risk, given its large supplies of contracted revenue, is attracting great attention.

Expect to see private debt as part of MLS stadium funding packages in the future, Abbott said. Any stadium-related debt requires the approval of MLS Commissioner Don Garber and the league’s finance committee.

The JPMorgan Chase and Sumitomo Orlando City loan — split evenly between the two banks — is for two years only. The banks’ expectation is they will be able to refinance into longer-term debt before the loan matures, sources said.

Orlando City, which plays its first game in the new stadium March 5, did not reply for comment.

D.C. United is building a $300 million, 19,400-seat facility, targeted to open next year. The soccer team just last week announced the Audi deal, which is for at least 10 years and $4 million annually. It too did not reply for comment on a potential loan.

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