With Municipalities Rejecting Public Stadium Financing, International Ownership Expected to Increase

ChaseCenter

Relocation from Oakland (where no public funds were available) to San Francisco forced Golden State Warriors ownership to self-finance the team’s new $1.4 billion venue – city statutes prevent the use of public money on privately owned sports venues – but speaking in general terms team President Rick Welts says that it’s the local community that benefits (see: “better quality of life”, “more varied cultural offering”) most from a building’s (and presumably the team’s) presence and thus it should bear the costs associated with construction. To hear Welts tell it, there really is no other choice but for teams to rely on public funding; they need new buildings to remain competitive (on the court/field and as a business) and cannot afford to pick up the costs themselves.

Florida House Rep. Bryan Avila disagrees citing Steven Ross’ decision to self-fund a $500 million renovation to Hard Rock Stadium (after the state legislature rejected a $350 million funding request from the Dolphins). Avila said, “we often forget that these sports franchises are a business” – and particularly lucrative ones at that; Jeffrey Loria bought the Miami Marlins for $158.5 million in ’02, only to sell it once he got a new stadium for $1.2 billion in ‘17 (with the help of $488 million in bonds from the County). The Miami Springs Republican is doing his part to end the handouts filing a House proposal that would both “repeal an unused pool of sales-tax dollars ($13 million/year) intended for building and improving professional sports stadiums” and prohibit the use of public funds to construct facilities used by sports teams moving forward.

Howie Long-Short: There’s no doubt that a “roaring economy, a championship caliber team and a city that never in its history has had [a modern arena]” eliminated much of the risk associated with the Warriors self-financing their new arena, but it’s disingenuous for Welts to suggest that it would take a perfect storm to replicate the model; we’ve seen stadium privatization trending on both coasts for nearly a decade now (see: Rams Stadium, Levi’s Stadium, MetLife Stadium). There’s also no shortage of wealthy individuals around the globe capable of self-funding – people that Andy Dolich, the president of the sports consultancy Dolich Consulting, says “literally have billions of dollars in disposable income that wouldn’t hesitate to spend $750 million on a stadium.”  The leagues simply need to alter their bylaws to allow for foreign ownership.

Most cities, states, counties and regional districts oppose financing buildings that house sports teams because the costs have become exorbitant and it’s difficult for an elected official to justify – to the public – giving a billionaire the money to build a palace for a privately held business that continues to appreciate; the Warriors have increased in value from $450 million in ‘10, to an estimated (Forbes) $3.5 billion in ‘19. If the Florida bill passes, expect other states to draft their own versions. Dolich explained, “within the sports world (and public sector), the line always forms behind the first one to have any success in terms of revenue generation and distribution.” 

Those that support the use of public money on stadium/arena construction talk about job creation, tourism revenue and a “sense of community” but studies have shown that the costs outweigh the economic benefits; the jobs created are low-paying and seasonal and the tourism revenue generated from most sporting events is negligible. Dolich said there are some cities like “Memphis, New Orleans and Oklahoma City, where you can make a legitimate argument that having a pro sports franchise helps to attract other business”, but even in those locales the economic upside is limited; “when those teams are playing poorly, there aren’t a lot of people coming so that means less hotels and all the associated tax revenues.” Public financing for sports venues in major metro areas is history.

Historically speaking, sports venues have done little to stimulate the local economy, but the last generation of stadiums (think: built between 1970 – 1995) were built on the outskirts of town where land was cheap. As we’ve written about, the current trend is to build downtown – as part of greater mixed-use real-estate plays – where the venue can serve as a 365 day/year revenue generator (think: NE Patriots, SF Giants). Chase Arena is being developed alongside retail, restaurants and a public park. It’s those additional money making opportunities that will make stadium ownership attractive to investors worldwide moving forward.

Fan Marino: Relocation remains the leverage that team owners hold over the local municipality. The Raiders are moving to Las Vegas because unlike Oakland, the state agreed to contribute $750 million in public funding to the new stadium; and the city of Phoenix recently awarded the Suns $150 million for renovations (that total $230 million) after their owner Robert Sarver threatened to move the franchise to Seattle or Las Vegas. Seattle and Las Vegas remain strong stalking horses for NBA owners looking to extract public funds from the local government, so I expect to continue seeing the league’s teams use that strategy effectively. That’s not the case on the NFL side, though. With Los Angeles now spoken for, no real desirable major North American city exists – unless an owner is willing to go to Mexico City.

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Author: John Wall Street

At the intersection of sports & finance.

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