Stadium Revenues: Renovation or New?
Greater Revenue From Innovating Renovation Than Building Brand New?
Get "The Latest" Improvements And Highest Returns, Cheaper And Faster?
January 23, 2009, Updated April 8, 2009
As a recent study (" Revenue and Wealth Maximization in the National Football League: The Impact of Stadia") points out, professional football franchises are building new stadia for economic reasons , NOT because old ones are unusable or unsafe facilities. So, the bottom line: its about revenue, not newness.
It's the revenue that counts, not the age. The old cigarette commercial -- its not how long you make it, its how you make it long - applies: its not how brand-new or renovated-new you make it, its how much revenue you make from the innovative and newly renovated.
Bottom line : more money is made for the stakeholders (including team, city, tax payers) by renovating to create revenue streams than by building a new stadium (the additional years of waiting for tax subsidized new over a renovated stadium is costly: the team/city/venue "lose" $100 - $300 million/year in revenues not received had they renovated and delayed for the new: delays in permits/authorizations and delays from having to start from scratch rathan than innovatively renovating an existing fully permitted venue.
A Merrill Lynch study has shown that stadiums that have been "fully revenuized" (our term), whether new or renovated, will generate an extra $100 million/year. The Washington Redskins and Dallas Cowboys are pioneers in developing "fully revenuized" venues, and thus generate $100 - 200 million/year more than the other NFL teams. Each year delayed is "tick tocking" the money away.
What's it all about? As for any business/organization: survival. Survival requires taking in more than you spend, as in any budget. Winning is important. But only one team per year can be Super Bowl Champion. Just as important as winning is the "experience" of the venue in general and the experience of the fan in particular.
- The NFL is not a mystery: it is merely trying to provide the best sports entertainment product (which it does) with the greatest possible return on the investment (as all businesses). But the tangible organization is not the NFL but the players on its 32 member teams. All teams are different. Each has its own "personality." Hence what looks like a mystery is just 32 different ways to skin a revenue cat. The clear fact (bottom line) is this: a few are much better at it than the rest.
- Nonetheless, all NFL teams have a unique place in their communities: they are a pubic-private partnership that offers cities and regions identities and common sources of enjoyment and topics any can engage, as well as consistent revenue generations for business in and outside the venue.
- NFL cities benefit from a wide range of jobs offered both in the construction and maintenance and in the on-going activities of the venue and the collateral activities, especially in hospitality and travel, of businesses and activities and destinations within a 50 mile radius of the venue.
- NFL cities obtain from their teams what money cannot buy: an extra boost in city pride and a sense in sharing in a "community choir" of fans for the team.
- Stadiums are funded in traditional lender - borrower scenarios, some more complicated than others, based on collateralized revenue streams. The more revenue streams it has the more a venue can do to make the experience as enjoyable as possible for the attending fan.
- Stadiums offer giant institutional funds (retirement, insurance, mutual, hedge, etc.) excellent projects for their capital deployment.
- AGAIN: the key is revenue innovation, not whether a stadium is new or renovated, and not whether it is managed by a team or merely leased/rented by one.
- The "new" stadium paradigm is rapidly becoming obsolete for existing teams without new stadiums. The paradigm of all new stadiums of the past 10-20 years will give way "the next time around" to renovations. For decades.
- The stadium paradigm now coming into play is the renovated stadium paradigm: providing returns cheaper. faster, and greater for both the private and public sides (profits, taxes).
The NFL business model consists of three parts:
(1) revenue sharing , especially from TV, but also gear;
(2) hard salary cap , so major population market teams don't get an undo advantage over smaller population market teams; and
(3) stadium revenue , which ranges from
• naming rights (from overall name to names over "gates" to signage inside)
• ticket sales (from season tickets to one game tickets, from executive suites and premium seats to club seats to "regular" seats, to sideline and end zone seats)
• concessions (food, drinks, gear, souvenirs)
• parking
• local media contracts (the stadium is a giant TV studio)
• other events ( outside the 8-12 days of a regular season and potential play offs )
New or renovated do the SAME thing: upgrade and modernize to make for a better fan experience so that more will want to come more often and so that suites and other premium seating will sell, with the overall goal to be an environment that invites every game sell outs. New or renovated, the results are the same (except renovation delivers greater ROI cheaper and faster): better/bigger/more bathrooms, wider concourses, more concessions options, better lighting, more power outlets (including at seats) for those with electronic devices to enhance the game experience, and facilities for the physically challenged.
Terms for understanding the discussion:
---Financing: getting loans to pay back from future revenues (usually bonds and construction loans)
---Funding: getting money that doesn't have to be paid back (usually from taxes, grants)
---Revenue streams: funding that underwrite/collateralize financing (e.g., naming rights, ticket sales, media deals, and other revenue streams in various categories related to the team and stadium.
---Revenue Bonds: funds backed by credit ratings, collateral, and revenue (be it naming rights payments, ticket and other stadium sales, specially dedicated stadium equity investment funds, etc.).
--- Subsidies: funds already on the books that are available to supplement once a project is committed and/or open for use even if privately funded (e.g., Oregon, Bandon Golf Course Club: largely hidden subsidies from airline passengers, state-lottery players, taxpayers and company shareholders (a kind of under the radar set of user fees or destination specified eligibility that benefit the destination).
--Joint ventures: these would be commercial, retail, tourist, hospitality, etc., tied to the stadium complex that would be financed/funded by the partners in each of the ventures, not the team nor the tax payer.
NOTE: Revenue bonds are bonds issued by governments, authorities, or public benefit corporations that are guaranteed by the revenue flow of the issuing agency. An existing authority or newly created one for the purpose of funding/developing the stadium real estate complex could offer revenue bonds.
Bonds: In finance, a bond is a debt security, in which the authorized issuer owes the holders a debt and, depending on the terms of the bond, is obliged to pay interest (the coupon ) and/or to repay the principal at a later date, termed maturity. Thus a bond is a loan: the issuer is the borrower (the authority for the stadium), the bond holder is the lender (those that purchase the bond), and the coupon is the interest . Bonds provide borrower with external funds to finance long-term investments.
---Low cost construction loans: the low cost is KEY, not the source, e.g., the now dried up G-3 low cost construction loans were great. BUT: ANY source of low cost construction loans will do, such as major institutional portfolios (pensions, insurance, hedge, bank 401 and IRA funds, sovereign wealth funds, etc.) that seek to deploy their funds in excellent investments (these could also be done as revenue bonds from an authority or fund created just for for the stadium and its development complex).