The Great Stadium Debate: Own, Rent Or Free-Load?
Mon April 2, 2012
The Great Stadium Debate: Own, Rent Or Free-Load?
A Charlotte City Council committee meets this week to consider spending $11 million on a new baseball stadium for the Knights uptown. That would be on top of the $32 million in land and infrastructure Mecklenburg County has promised the team.
All told, the Knights want taxpayers to cover half the total cost, while still allowing the team to own and operate the stadium. Here's a look at how that compares to other stadium deals.
Sports arena financing can be incredibly complicated - and boring. But the end result isn't that different from the housing market: There are teams who own their stadiums. There are those who rent. And there are the free-loading kids who loot the refrigerator and rule the roost, but don't pay the rent or mortgage.
Charlotte's had all three, and the most recent deal caused a big stir.
It was the late 1990s. The NBA Hornets were playing at the Charlotte Coliseum on Tyvola Road where they paid rent and took a cut of concessions and parking revenues. The city built the coliseum for the team in 1988, but the Hornets were antsy for new digs. City officials were willing. A lot of residents weren't.
"You don't build a coliseum and ten years later tear it down, just because a new owner wants a new venue," says Alan Wells, a long-time Charlotte resident who helped lead the effort to defeat a referendum on the new arena plan.
After the referendum failed, the Hornets decided to leave town.
But before long, Charlotte made a deal to build a $265 million uptown home for a new NBA team - the Bobcats.
"I was mad as hell," says Wells. "We won and then they built it anyway."
Only this time, the Bobcats wouldn't even have to pay rent. The city covered virtually the entire cost of Time Warner Cable Arena, but the Bobcats run it and keep all revenues from tickets, concessions and so on. The team doesn't pay property taxes either, since the city technically owns the arena.
This kind of arrangement is so common in American pro sports, teams have come to expect it, says UNC Charlotte public policy professor David Swindell. Cities play along because they covet sports franchises, but Swindell says they could do a better job negotiating a return on that money.
"How do we justify this public ownership of these private facilities?" asks Swindell. "Why would we build a building for Wal-Mart to come in and do their business? We wouldn't. They're a financially healthy entity. They should build their own building, right?"
Former Charlotte City Attorney Mac McCarley says that's the wrong question because it assumes taxpayers are owed a "return on an investment in public infrastructure."
Arenas, he says, are like any road or fire station cities build because the public demands them. We want the games and concerts arenas bring. We want the tourists and new development they spur.
In that regard, McCarley says Charlotte got a great deal on Time Warner Cable Arena, while also managing to unload the risks that come with owning a facility.
"The key provision here - what's really important - is that the team is responsible for all operating costs, including any deficits or losses," notes McCarley.
So the Bobcats aren't entirely free-loading, because if there's an NBA lockout or a shortage of concert bookings, the team takes the hit - not the city. The same would be true of the uptown stadium the Charlotte Knights propose.
But unlike the Bobcats, the Knights would also own the stadium, make debt payments and pay property taxes.
Since the Knights want local government to kick in half of the stadium's total $78 million cost, it'll be a little like a kid owning a home his parents helped buy.
Professor Swindell says putting the team's name on the deed isn't a bad idea in a world where cities fight hard to land a sports franchise: "It gives them skin in the game. They're not gonna want to walk away from this deal."
Of course, a team is even less likely to walk away if it paid the entire stadium price tag. That's rare, but not unheard of.
The Panthers did it in1996 for $184 million. Local and state government did spend about $60 million on land and improvements where Bank of America Stadium now stands. That money's coming back in the form of property taxes - which totaled nearly $2.5 million for the Panthers last year.
If a team can swing it, private financing has an upside.
"The greatest advantage is we, we can control our own destiny," says Dan Vistica. He's CFO of the Sacramento River Cats - one of the few Triple A baseball teams to privately-financed a new stadium in the last decade or so.
"The challenge of course is that we have the obligation on debt service," adds Vistica.
To the tune of about $3.5 million a year on a $42 million stadium. Debt like that would swamp the Charlotte Knights, who only made about $4 million last year. Even if the team can double or triple that revenue by moving uptown, they say it'll only happen with a taxpayer subsidy.
That wasn't always the case. In 2006, the Knights actually planned to pay for the stadium privately. But a couple of lawsuits delayed the deal; then the recession happened.
Now the kid needs a little help from municipal mom and dad to build that new house.