The Dark Art of Stadium Financing

0:04Congratulations! You made the varsity the podcast. My name is John Aranda and I am Puck's sports correspondent and the host of this pod. Today, I'm joined by Brett McCormick. I worked with Brett for a bunch of years at Sports Business Journal. He's a facilities reporter and I have to tell you that we never once worked on a story together. In fact, in my 18 years as SBJ's media reporter, I never ever co-lined a facilities story. Not with Brett, not with Don Murray before him. But I wanted to get Brett on this pod because his beat and my beat are intersecting a lot more frequently these days. You see, teams increasingly are looking to real estate, the idea of building entertainment districts, as a way to replace revenue from media deals that are slowing down a bit.

0:59We're going to talk about that and get an update on some of the trends facing the business. But before I get to Brett, today is Wednesday, July 23rd, and here's what I'm watching. A team of MLS All-Stars is going to play a team of Liga MX All-Stars tonight in Austin. And it's a good time to think about the MLS's media deal with Apple. We're now into the third season of the MLS Apple deal. And while neither the league nor Apple have been forthcoming about viewership or engagement around the deal, there is a school of thought that if the numbers were really good, we'd all hear about them by now.

1:36But what's been even more instructive to me is to listen to Formula One backers talk about the deal. Like the rest of us, they don't know much about viewership stats. Sure, MLS was paid handsomely to do the MLS deal to the tune of$250 million per year. There weren't any TV networks that were going to get anywhere close to that amount. But everyone I've spoken to, literally 100 % of them within F1, look at the MLS deal as a cautionary tale. What if, they say, F1 takes Apple's money, said to be in the$150 million per year range? Could F1 lose relevance? It's clear that they believe the MLS has lost cultural relevance in the United States.

2:23Would it make more sense for F1 to take$90 million from ESPN just to make sure that some of its races wind up on broadcast television? Those are the considerations that are in play here. Now, it's important to note that this doesn't apply to all streamers. NASCAR just ended a five-race stint on Amazon that produced cable-level viewership. NASCAR and Amazon were both very happy with it. Plus, the NFL has seen its Amazon audience grow each year. where I have little doubt that the NBA is going to end up finding an Amazon audience too. Netflix is the number one. The numbers it produced around boxing and the Christmas Day NFL games are significant.

3:01But Apple so far has yet to show that it can bring these kind of audiences to sports on Apple TV+. A service that has a lot of high-quality entertainment shows, but still feels niche, especially when it comes to sports programming. Okay, now let's get to SBJ's Brett McCormick. Brett McCormick, my old SBJ colleague, we worked together, Brett, for probably about five years. And never once did we collaborate on a story. No co-bylines between the media reporter and the facilities reporter. I think having you on this pod is our first collaboration together. Your listeners need to know that this is a great honor for me because I think you had less than zero interest in what I covered.

3:51And so, yeah, this means that this is a triumphal moment for me to suddenly be of interest to you. Yeah. By the way, less than zero interest is literally not no interest at all. But, you know, your beat has become over the past couple of years, totally fascinating to me because all of these teams. I mean, let's just start like you have Mark Cuban at Dallas decide to get out of owning a team. And one of the reasons that he gave was that the future is not with media, which is, you know, the media rights have been going up and up and up and up. And so he knew how to profit from that. He said the future is more in terms of real estate.

4:42And then from Cuban, you've had the Braves setting up their stadium outside of it in the burbs, but they're able to control all the hotels and the shops around it. You have in my hometown, you had Ted Leontes wanted to leave D.C. and go to Virginia for that exact same thing. So I have a lot of questions about this. My first is, will this real estate, will this push to real estate, will that replace media money? That's a good question. I'm not sure that it will anytime soon. Real estate is such a long-term play that I think it's more of another asset class for sports owners. It's another kind of consistent source of revenue.

5:38If you think about during the pandemic, the Braves played games without fans, but they still had rent checks coming in from the people that live in the apartments. And there was a lot of pro sports teams that were not getting checks from apartment renters. So that's kind of like the worst case scenario, but it is another steady income stream. And I think one of the most appealing aspects of it for owners is they don't have to share it with anybody else. So, you know, mixed use development revenue so far has stayed out of collective bargaining agreements. I'd be really interested to see if that remains so, you know, because, again, I think the players could make the case that the reason people come to the venues that are now the anchors of these developments is to see the players.

6:21But for now, you know, they don't have to share that revenue. Well, certainly, like going forward, you can see where that would become an issue with the CBAs. Like, okay, you're not making as much from media, which they do get a cut of. You know, now we want a part of, you know, what you're building around owning the team and taking advantage of our talents. In terms of the top four or five leagues, I'm not sure if it'll replace media money. I think that depends on how streaming and cord cutting and those types of things impact those deals. But one of the interesting things about mixed-use development that I've been covering is these are starting to pop up around different types of facilities.

7:06Women's sports facilities, college athletics, training facilities in some cases. So with college and women's sports, you can absolutely see it replacing and surpassing media money. You know, the Kansas City Current, which have been really on the leading edge of women's sports in terms of real estate, you know, opened what is considered the first women's specific pro sports stadium is also developing real estate on the riverfront down there in Kansas City. So, you know, they are going to, I think, show that, you know, there's places where this can work that don't have to be NFL stadiums, that don't have to be Major League Baseball stadiums.

7:49You know, as long as there's some sort of kind of like hub that draws people, draws foot traffic, you know, outside the people that live there, I think, you know, it can be something that works. So that's the other thing. It's probably like more flexible than than, you know, broadcasting money and streaming money, because, you know, you can sort of make this work in different ways and at different levels. So, you know, and that's why the Braves have been the paradigm for this in the last, I think, eight years. You know, when I went there, one thing that struck me was, you know, they have a lot of there's a lot of apartments around this kind of middle corridor that is commercial and then, you know, ends in the ballpark.

8:34The only like flags or banners or displays that I saw on the railings of these apartments that all face inward was the Braves. And so I asked them about that because I live in Charlotte where we're a city of transplants. And so if you walk down our similar kinds of areas, you'll see 50 different colleges and every pro sports team except for the Charlotte ones. And so I asked them, I was like, why is it only Braves? And they were like, well, when you sign a lease here, there is a stipulation in the bottom that says you can only hang Braves banners over the railing. And I thought that was pretty insidious, but also demonstrates the control that teams and owners can create in their environment, which is something that in a lot of cases, especially if you think about urban arenas or urban stadiums, you could have homelessness or there could be graffiti or boarded up businesses or whatever.

9:29It's harder to control that environment because you don't own that land. And so that's one reason why the Braves have been studied so heavily across the industry is they've created this environment that they really control. Nobody is drinking Pepsi in there. That is a Coca-Cola safe zone. So I own an apartment there. I'm a transplant. My Orioles are coming to town. I put up the Oriole banner. What happens? I get fined? I get a stiff warning. I don't know. I'm sure there's a superintendent. Maybe they slide something under your door. Maybe it's a banner. And they did make clear to me that the banners are free and you can get a banner.

10:10You don't have to pay for the banners. But yeah, no, it's a great question. I mean, I think it's probably on that page of the lease that people are not reading near the end where you're like, OK, whatever. Let's get this over with. But yeah, I don't know. That's a good question. All right. So, Brad, we're both lifelong reporters. I got to ask you the reporter question. Two is a curiosity. Three is a trend. Is there a trend toward mixed use development? Are we able to say that that's a bona fide trend in how teams are viewing new stadiums right now? Yes, absolutely. So I think one way, and it's harder to quantify, but the amount of teams that are studying this idea is substantial.

11:00So mixed use isn't exactly brand new. I mean, you had LA Live open in 1999, but there just wasn't, there weren't many. Is that the first one, LA? Yeah, it's probably the first. It's one of the first for sure. And it's one of the most successful, I think. We're kind of in like a 2.0 phase of mixed use. So the thinking around it has gotten much more sophisticated. The real estate industry has gotten much more involved than they had been in the past. You're seeing a lot of teams partner with major real estate developers. like for example the the Browns are working with Lincoln property which is one of the largest real estate companies in the U.S.

11:45the Tampa Tampa Rays project that fell through was with Heinz which is another one of these like you know massive national companies and then there's kind of been a there's sort of two paths you can take now LA Live was the entertainment district so the sports and entertainment district. You could kind of think of like Texas Live, like around Arlington, you know, where the Cowboys and the Rangers play would be. Now they have added apartments, but that I think developed originally as an entertainment district. And then the other way is kind of more in the neighborhood direction and trying to create a community.

12:21And this has been done less, and I think it's probably harder, but is sort of what the Braves did. The 1901 project around united center in chicago is uh the the owners of the bulls and the and the blackhawks of stress that they're creating a neighborhood not a uh not a uh you know hub with an arena and like a dave and busters or whatever you know this they're they're gonna have they're expecting to have residents and you know uh parks and um uh the new york city football club um i mean not a dave and busters but certainly like chain restaurants like right no i think that's i think that's like uh the, you know, opposite of what they're, what they're going for.

13:02The development around the New York City Football Club Stadium in Queens, the new MLS stadium includes a school, which, you know, is very non-entertainment district. So, so that, that is a different path that has emerged and is, you know, hasn't, I don't think it's really been borne out yet. Like, I don't think there's been one that's, that's fully worked like that besides maybe the battery, which was kind of created wholly from scratch. Queens has obviously existed, but where the Braves built was essentially like an open field. So I think the trend has been around, but the sophistication is changing.

13:41Teams are understanding better how they can do this. The industry around it is changing and growing. There's more companies and more people that are getting involved and advising and they're seeing the opportunity. I mean, another thing that's a huge aspect of mixed-use development is sponsorship. So you can make sponsorships more valuable. You can put naming rights on literally everything, an amphitheater, the yoga classes, the signage can be bigger and different. And it can be sponsorships that emanate from the team and the venue that sort of spread outward. So it's kind of like a lot of the revenue lines of a venue, but just every day of the year.

14:28And then some additional ones, you know, like renters, for example. Brett, let me take a quick break, come back. And I still have a couple more trend questions that I want to ask you about sort of just building new stadiums or what's going on with the stadium design.

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15:53You know, I take a look at, like, you know, Atlanta. They built that stadium so far away from city center. Again, here in D.C., when Ted Liontos was looking, he had to get outside of the city because there was more land there. What was it, 20 years ago, you know, there were all the teams decided that they wanted to get out of the suburbs and come into city centers, into real urban environments and take advantage of, you know, public transportation and foot traffic. And it appears now that a lot of teams are turning their back, the bears being another example, turning their back on it. is that an identifiable trend or is it sort of market by market?

16:37I would say it's an identifiable trend. So it's kind of two things at once. One is the other thing that the Braves did that was so unusual and that was trend setting is they opened the stadium and a large portion of the mixed-use development at the same time. So a lot of times the stadium comes online and then the mixed-use development, the great renderings that you see when it's built out, that's like a 25-year horizon. So, you know, maybe you would see that in your lifetime or whatever. So what they did was they opened it at the same time. And so the teams that are moving from the inner city to suburbs are thinking of the same thing.

17:13This is what the Bears have done by acquiring Arlington Park. And so they want to have aspects of the development open at the same time as the stadium to kind of immediately start receiving the benefits of the mixed use. the other trend that I think plays into that is this trend of teams sort of pitting sub markets against each other and so I think you know Cleveland and Chicago are great examples of this DC is another good example of this what monumental sports tried to do and yeah well you know what's unique about that is they're no longer picking out like saying like oh we're going to move to Nashville or we're going to totally change cities it's like we're just going to move from one jurisdiction to another jurisdiction.

17:55Right. And so you've got communities that maybe have a wealthy tax base and have some space and potentially a mayor or city council that's really motivated to try to attract the team. And they're kind of competing against the city. It's like, come out here to the burbs. It's clean. There's room. You've got space. It's where your fans are. And that's true for some sports, less true for others. But yeah, I think it's more palatable for the teams. They take less of a reputational hit by totally leaving the city. I mean, I'm here in Charlotte where the Hornets really have not recovered since they moved to New Orleans and, you know, came back as a Bobcats.

18:43Um, so that, that really damages a franchise and is, and it's tough to bounce back from. Even if you're welcomed in the, in the new city, you have to start, you have to start all over. I mean, the Brooklyn Nets, you know, are probably still building a fan base, um, you know, 12, 13 years after moving, uh, from New Jersey. So, um, yeah, I think, uh, I think that they're seeking space so that they can pop up the stadium and the development at the same time. And then in some cases they're getting, um, financing or support or, you know, easier zoning laws or more, um, you know, more cooperation from these communities that are, I would say, punching above their weight in a lot of cases.

19:26And I, I think something that will be interesting to watch is, um, you know, when I looked at Brooke Park's, um, credit rating on Fitch last year, it was, it was strong. It was like an A, I don't remember what the ranking is, But it was really a really good credit score that basically said they stay within their limits, you know. And the weird thing about the Browns is they're moving within Cuyahoga County. So they're not moving to a new county. And so the county has looked at this like we're not going to get new tax revenue. So like what is in it for us? And you can see that because the Browns went straight to the state.

20:03They kind of just bypassed the county and they've gone to the state for money. So some of these communities, I think, could be in danger of biting off more than they can chew. We'll see. I don't know if that'll work out all the time. But that definitely happened in Rock Hill with the Panthers when they tried to build the training facility down there. And the city of 60 ,000 just over the South Carolina border couldn't float the bonds. They couldn't do the bonds because they were at a junk rating. So the sub-market thing is still kind of playing out. It worked in Atlanta because they found a wealthy area, but, you know, in their own by Liberty Media.

20:39So money really probably wasn't an object. But, yeah, that's a new trend. And I'm kind of curious to see, like, if it can if it has like some sustainable legs. You brought up financing. Let's talk about financing real quick. I was so surprised at Kansas City. Yeah. I mean, the Chiefs on a Patriots like run right now. You know, possibly, well, certainly TV-wise, the Kansas City Chiefs are the most popular football team on television right now. Incredibly popular in Kansas City. And the voters voted against public financing of a new stadium for the Chiefs. And you see all of the problems that the Bears are having in Chicago.

21:23Then the other side of the coin, it looks like the commanders are going to be able to get public financing for their stadium in D.C. I have a lot of other examples, and I'm trying to figure out which way the winds are blowing in terms of the financing. Again, is this a market by market thing or is there is there an overall picture that you can paint for us about what owners can expect on this? Yeah, it's definitely a market by market thing. You know, a good example is the city of Oklahoma, Oklahoma City, voted to pay for the majority of a new arena for the Thunder. And that's probably a scenario where they could have moved to another city.

22:07I mean, they have the Thunder because they left Seattle. You know, they were the Supersonics. They're also the team is also good at the moment. So that that didn't hurt. But, you know, you've had you had votes that failed in Arizona with the Coyotes. The Kansas City one was kind of a debacle. I think that was a pretty poor political campaign that they ran there by sort of weighing down the Chiefs with the Royals to some degree. They did it together, which was kind of like an odd approach, especially if I was the Chiefs, like you said, coming off of so much success. And then at the same time, you've had like record public money contributions in Tennessee and Buffalo, you know, that were over a billion dollars in Tennessee's case.

22:50So it really varies by market. It doesn't really track politically like it's, you know, it's could be Democrats or Republicans, you know, Republicans who you might think of as more fiscally conservative, you know, have have been approving this kind of money. And then, you know, in the state of New York, you know, the governor had kind of an interest, I think, in Buffalo. And so that helped them get into the state budget. So what also I find interesting is that it doesn't track by sport because I can understand, you know, a baseball stadium getting funding because it's 81 home games plus, you know.

23:28And so you can actually build, you know, entertainment around it. You can build, you know, stores and restaurants and apartments can be built up around there. You know, the Commander Stadium that they want to put in an RFK here in D.C., you know, what is that going to be? Eight games plus maybe a preseason game, maybe a playoff game, you know, so ultimately like 10, 11 games a season. You know, that's that's not a lot of dates, but it's still sailing through in terms of funding. So it's, you know, it doesn't matter about the leagues or the market, it seems. And that's what one of the things that I found really interesting covering this is how central politics is to it.

24:10I mean, that's also kind of a wild card that varies from place to place. You know, in terms of like the Rays, for example, fell that deal that they had worked on for two or three years fell apart after the hurricane came through and ripped the roof off of the Tropicana field. And then at the same time you had an election and then a group, a different group of county commissioners came in and were much more skeptical of the deal that had been struck. And I mean, that was one that was some of the worst timing ever. You know, that deal seemed like it was over the line. I had written about it as if it was essentially finished and then a act of Mother Nature and then a election and, you know, crumbled.

24:48And now that team is probably going to be sold and maybe build a venue somewhere else in Tampa. So, yeah, I mean, the politics of it is very unpredictable. I would say like in D.C., for example, you had a mayor that, you know, was kind of, I don't know, her public image was almost on its knees in terms of nearly losing Monumental. And then, I don't know, like a year later, she's got Monumental sorted out and is going to bring the commanders back to RFK. And, you know, whether whether the public should be paying for, you know, the venues of teams owned by billionaires or not, you know, I'm not sure.

25:28I think probably not. But it also seems to be something that these public officials really like to put on their resume and that if it falls through, it can kind of hurt them. I mean, I think the governor of Virginia, you know, his credibility took a bit of a hit with the way he tried to ram that deal through, you know. And I think the way he tried to do it actually made people that he needed to work with bristle at the fact that, well, you tried to ram this through without consulting us. So screw you. There's a lot of screw you, this is personal, that comes into these massive deals. And I stream, this is one of the most boring things about me, but I stream a lot of city council meetings on YouTube.

26:11Do the dishes, have it on in the background or whatever. Oh, your poor family. Yeah, you watch these meetings and you start to learn the politicians and the politics and the one who's going to talk for 45 minutes. And it's like, oh, I can go do something because this person's about to get on their soapbox. But then they're going to vote yes. So the politics is really unpredictable. You know, Brett, I think to be perfectly blunt, the reason that I hate talking to you is because, you know, you're talking about all these new developments and all this new money that's coming in. And all I can see is taking my like a family of four to a game is getting more and more and more expensive.

26:54Tickets are going up. I mean, one trend that we wrote about when I was at SBJ, you wrote about it every week was Arthur Blank down in Atlanta. He had one station in Mercedes-Benz Stadium where the Falcons played where they would sell cheap food, you know, like a dollar hot dog and a dollar 50 Coke. And talk about something that never caught on. That didn't catch on anywhere. I mean, in fact, do they even still do that in Atlanta? Yeah, they do. And my understanding is they lose money on it. So it's essentially like. They lose money on it. they're giving us like nachos, like pre-packaged, like those, those, those perfect order around, uh, uh, you know, tortilla chips.

27:39Yeah. Um, no, I mean that, yeah, I thought that was pretty telling that, um, you'd see aspects of that catch on here and there, but not, not widely. Like, you know, maybe we thought this was going to be a big revolution. I mean, I actually think this is like one of the big fundamental threats for live sports attendance is, is the cost of attending, because on one hand you have this insatiable appetite for premium and people will pay whatever to get closer and to get more access and to have a better experience and will pay top dollar for premium. But on the other hand, it does feel like the gap is widening.