Municipalities wrestling with complex stadium and arena financing deals
7 min read
Tapping public money streams to build stadiums and arenas for privately-owned sports teams is a thriving part of the municipal market despite the fact that it routinely generates controversy about the ultimate value to taxpayers.
“The problem is, you’re trying to do a mathematical equation over thirty years,” said David Abrams, a banker with Inner Circle Sports and an associate professor of sports management at NYU’s Tisch Institute for Sports Management. “It’s hard to predict what the results will be.”
“If you want to measure the value of the investment, you’d have to take the present value of all future revenues attributable to that entity and equate that to the upfront capital investment.”
Inner Circle Sports
A number of academic studies, books, and papers have concluded that states, counties and cities who finance sports facilities are making bad bets. Despite the evidence,
Numbers showing that bond-financed facilities don’t pan out are opposed by a heady mix of fandom, promised construction jobs, and political peer pressure.
“It’s not about mayors thinking this is better for their cities, careers, or campaign budgets,” said Neil deMause, author and webmaster of “Field of Schemes.”
“If all the lobbyists saying, ‘when are you going to do something about this stadium situation?’ The (mayors) are hearing that from the business community, and other local politicians. It starts to feel like, ‘this is what everybody’s saying I should be doing and who cares what those economists say?'”
The current trend of stadium or arena financing has municipalities using them as anchor stores and surrounding them with mixed-used development that typically includes, bars, restaurants, hotels, and residences.
Nationals Park, in Washington D.C., which hosts Major League Baseball’s Nationals was built from scratch in 2008 for a total cost of $783.5 million which included $535 million in municipal bonds.
“The Ballpark Revenue Bonds are secured by several diverse revenue streams that have provided a consistent, stable revenue base,” said Natalie Wilson, spokesperson for the D.C. Office of the Chief Financial Officer.
The stadium is in what was then considered an underused section of the city, near public transit. It’s now surrounded by mixed-use development with an average attendance of about 24,000 per game, which in 2024 puts in 22nd place of 30 teams.
“Revenue receipts have exceeded amounts necessary to meet required debt service payments and since 2016 the district has used the excess revenue to retire callable Ballpark Revenue Bonds ahead of their scheduled maturity dates,” said Wilson.
The Battery in Cobb County, Georgia is about ten miles north of downtown Atlanta and is the current home of MLB’s Braves. The $1.3 billion mixed-used development project opened in 2017 and was partially funded with $300 million in public debt.
Corporate partners at The Battery include Comcast, Live Nation, and Omni Hotels and Resorts. The Braves rank 5th in attendance in MLB with an average attendance over 37,000 and the development is generally considered a success.
In April the county touted the numbers by saying that property values soared from “$5 million in 2014 before the Braves’ development to $767 million in 2023.”
“The amount of property tax paid by the Braves and Battery Atlanta complex more than exceeded the amount of general fund property taxes contributed to the debt service,” said Chief Financial Officer Bill Volckmann.
The claims of stadium financial success have been disputed by John Charles Bradbury, an economics professor at Kennesaw State University. In 2022 he wrote, “The evidence does not support the widespread claim that the $300 million invested by the county to fund the stadium was a sound financial investment.”
“Available financial figures demonstrate that the stadium runs significant annual deficits, which will likely continue for the remaining 25 years of the County’s commitment.”
Separating stadium or arena costs and revenues from what’s happening around them appears as a bone of contention in the ongoing debate.
“If the revenue from the mixed-use project can pay for the mixed-use project, then just build the mixed-use project,” said deMause.
“Even a successful arena is active half the nights a year. You would be much better off building a hospital that actually has people there all the time and then building an entertainment district next to that.”
Opponents often point out that municipalities are issuing debt to build facilities for billionaire team owners while questioning why they don’t build their own stadiums.
“If the building is governmentally owned, it’s more than likely exempt from real estate taxes, which is a big drag on the cost of running these buildings,” said Abrams.
Tax laws helped spur the construction of stadiums as municipalities are allowed to issue tax-exempt bonds to fund them. The financial loophole was tightened by the Tax Reform Act of 1986 when Congress decided that using private activity bonds for financing sports facilities was no longer eligible for federal tax exemption.
But issuers found they could continue to qualify for the tax exemption by being more careful about the use of proceeds. Stadium bonds must now be structured so that no more than 10% of debt service is secured by interest in the stadium and no more than 10% of the bond proceeds are from payments derived from the stadium.
Corporate America has moved into arenas and stadiums looking for naming rights, distinctive architecture, private luxury suites, valet parking, and better food as construction costs soared into astronomical numbers.
“The first stadium I ever worked on might have been in the$100-million-dollar range for a football stadium,” said Abrams. “Now we’re talking about two to three billion for an NFL stadium, one and a half to one and three quarters for baseball. A new arena, depending on what you build, is going to be a billion or more dollars.”
Numbers that large ring up financing costs that may be out of reach, even for billionaires.
“Government has access to capital and its cost is lower,” said Abrams. “Typically, access may be a little bit easier and they’re using tourism related taxes or sales taxes to support it.”
Profit may also play a role. “You can make more money when you don’t spend your money,” said deMause. “You always want somebody else footing the bill. The whole thing is about socializing costs and privatizing profit. That’s basically the how you make money in sports these days.”
The large role played by public finance and stadium and arena funding continues to evolve and mutate into customized public private partnerships using a basic playbook.
“The modern P3 is shifting operating risk, insurance risk and the future capital expenditures to maintain the building to the private sector,” said Abrams.
“This is an area where the public sector should should step away and say, ‘We’re not an operator. We may be an owner. We may see the benefit in having a sports facility in our town, but we don’t want to be the ones that are on the hook for operating costs.'”
Earlier this week D.C.’s mayor Muriel Bowser announced plans for the city to buy Capital One Arena, home to the NBA’s Wizards and the National Hockey League’s Capitals for $87.5 million.
The money is coming from a $515 million bond issuance that was announced in
Monumental will manage the facility while making rent payments of $1.5 million to $2.3 million a year. The contract includes a non-relocation covenant, meaning the teams can’t move to another venue until 2045.
Both teams tried to make such a move in December 2023 when they head faked a jump across the river to a proposed new $2 billion P3 financed arena complex to be built in Alexandria. That deal was stuffed by a combination of public and legislative opposition.
Teams moving out of facilities before the debt has been paid off has happened in the past. Giants Stadium in New Jersey and the Kingdome in Seattle serve as the poster children for stadium deals gone bad.
The NFL’s Raiders and MLB’s Athletics have both vacated Oakland for Las Vegas. The Los Angeles Rams went from LA to St. Louis and then back to LA after the team’s owner Stan Kroenke financed the building of the $5 billion SoFi stadium and development that covers nearly 300 acres.
Part of that money was borrowed from the league, as the NFL and MLB are also moving into stadium financing deals as lenders.
Coming up with a winning formula for financing sports facilities with bonds and convincing the detractors might need to include a bonus for the taxpayers.
“If that’s something that serves public interest that’s fine,” said deMause. “But you should be getting something back, whether it’s in terms of revenues, a share of equity in the team, or a cut of the sale price if the team gets sold,”
Proponents also point to the intangible value attached to hometown teams and their place in the community.
“Nobody ever says, ‘why are we doing this?’ about the Metropolitan Museum in New York,” said Abrams. “It’s part of the fabric of the community. Could you imagine New York without the Yankees and the Mets, or the Giants and Jets, even though they play in New Jersey?”
