Tariffs Threaten to Increase Stadium Construction Costs, Temporarily Halt Development Plans

Tariffs Threaten to Increase Stadium Construction Costs, Temporarily Halt Development Plans

Big four sports teams and leagues would seem to be –at least, on the surface– largely unaffected by Donald Trump’s tariff policies. Their core product (i.e. the games) is produced domestically.

But the uncertainty surrounding trade with China, and in the U.S. treasury market, will impact clubs and owners intending to build new venues should it continue beyond the 90-day pause period—enough to temporarily halt development plans.

Meaningful increases in hard construction costs and in annual interest payments on debt financing could drive the price of a state-of-the-art NFL stadium upwards by several hundred million dollars.

“It’s definitely a factor [to consider],” former New York Jets president and NFL executive Neil Glat said.

It’s hard to predict the likeliness of Trump’s tariff plan remaining in place long-term. Few understand the administration’s approach or end game, and he’s already backed off talk of sweeping reciprocal tariffs after trillions of dollars evaporated from the public markets.

However, at the same time, the President doubled down and hiked levies on China to 125%, and the PRC has since retaliated by raising its tariffs on U.S. goods to the same level. 

A trade war with China feels like a no-win situation, even if most would agree that the trade imbalance was unsustainable. 

While the ongoing macro-economic situation does not threaten domestic rights owners’ day-to-day business, those thinking about or in the process of building a new multi-billion-dollar venue now have another variable to consider. The uncertainty surrounding international trade has driven treasury rates to their highest levels since February. 

The 10-year treasury yield was 3.86% on April 4. It rose to 4.4% as of the following Monday morning.

“Sports team owners and municipalities are facing two cost risks when it comes to stadium and arena projects under development–interest rates and tariffs,” Stacy Sonnenberg (managing director, head of global sports finance, Goldman Sachs) said. “Higher interest rates would increase interest costs during construction that are typically capitalized as well as the ongoing interest expense once the project is operational.”

Annual interest payments increase by $5 million/year for every 50 basis points moved on $1bn of debt. So, a club with $1bn in debt would have to pay $15mm in additional borrowing costs on a three-year construction loan—and $5 million more per year on an ongoing basis until its permanent financing loan was paid off.

Then there is the increase in hard costs.

“At the same time, tariffs could have an impact on the costs associated with construction materials imported from around the globe, including steel and certain roofing materials,” Sonnenberg said.

Some clubs have historically sourced steel for stadium and arena construction from China. 

Or at least they did. If an extended trade war emerges, that will have to change.

Alternatively, clubs could face a notable increase in total construction costs (perhaps 5%+).

It will take time to set up trade deals with alternative countries and/or rebuild the U.S. manufacturing industry to meet existing demand. And even when that happens, the products are still going to cost more to import/produce than before the trade war began.

As we saw with COVID, moments of inflation are rarely offset.

It’s worth noting Trump stated last week that he does not want U.S. Steel to ‘go to Japan’. That declaration came just days after the President ordered a new review on Nippon Steel’s proposed acquisition of the company.

On a related note, 47 has threatened to eliminate ‘special tax breaks for billionaire team owners’, potentially impacting the ability for stadiums and arenas to receive public monies from the sale of tax-exempt bonds if H.R. 2434 becomes law.

Skeptics will note that politicians have long talked about ending venue-related tax breaks for billionaires. It’s been a topic since at least the late 1990s.

But at least some believe the political willpower may finally exist to push change through. Doing so would add hundreds of millions to IRS coffers over the next several years depending on the scope of changes.

Logic would suggest that at least one pro sports owner would be powerful enough to influence Trump and keep the stadium/arena gravy train running. But remember, the former New Jersey Generals owner sought to purchase an NFL team on more than one occasion and was never successful. 

At this moment, sports teams are proceeding with new stadium construction projects as planned. Those with signed agreements and guaranteed maximum price (or GMP) construction contracts in place have nothing to worry about. 

Clubs about to break ground without GMPs negotiated are likely following the situation closely and embracing value engineering of their projects. The working assumption is the macro trade environment will normalize, or at least be better understood, by the end of the 90-day hold period. 

However, should uncertainty remain beyond three months, expect to see owners with the flexibility to postpone their building plans seriously consider doing so. 

Sports teams preparing for a stadium project will spend $2mm-$5mm per month on design. Most are not going to want to invest at that level until they have some clarity around construction and financing costs.

The increases “probably do not kill the project, but at $3 billion, if owners can wait a few months until the tariff situation is settled and their construction costs are potentially reduced by nine figures, they will," Glat said.

While most can wait a short while, teams can’t –and won’t– wait forever. 

“For each year that projects are delayed, costs can increase significantly due to inflation and other factors,” Glat said. “And very possibly, in total dollar amounts that exceed the impact of potential tariffs.”

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