The Changing Economics of Sports Stadiums and Arenas

More and more professional sports teams are recognizing the value in building and owning their own stadiums and arenas rather than leasing sports facilities from their cities or states. Loeb & Loeb partner Scott Zolke discusses the economic incentives that are driving this shift, as well as the changing dynamic between franchise owners, municipalities and local governments.

 

The full video transcript is below.

What's driving the shift from teams as tenants to teams as facility owners?

Forty years ago, most professional sports teams played in an arena or a stadium that was owned by a city or a state. The M.O. between owners and their cities was, "You build it, we'll play there and everybody makes out."

Then in the '70s and '80s, we saw teams start to move or relocate. One famous story: Robert Irsay, owner of the Baltimore Colts, backs the trucks up in the middle of the night in Baltimore. Next thing you know, they're the Indianapolis Colts and Baltimore doesn't have a pro football team, but they have a stadium. The question arose: Whose rights are they? The courts very, very consistently ruled that the cities don't have rights in these franchises. These franchises are privately owned, and the rules governing relocation are controlled by the leagues. The leagues do not like to see relocation because they hate to see cities left without franchises. We've seen it happen, and this is why it is now more critical than it ever has been that owners of teams have an opportunity to build and own their own arenas and stadiums.

It's not just a matter of, "I can then pick up and leave if I want to pick up and leave." It's really a matter of ancillary revenue. You cannot charge too much money for a ticket lest your arena or your stadium will sit empty. It's really important that these owners own that building as well, because the revenue that's generated — from the sales of concessions, from the sales of premium seats, and from the sale of suites and skyboxes at football stadiums — is the type of revenue that the owners desperately need in order to make their budgets, so they can afford to put a good product on the field.

What is the dynamic like today between team owners, leagues and municipalities?

The way owners can work with government is fascinating, and it's becoming something that's more and more important as team owners plan for what the next decade is going to look like.

It's kind of an "I'll scratch your back, you scratch my back." The best example is Jerry Jones. When Jerry decided to leave Irving when Cowboy Stadium was becoming very, very old and he built this $1.3 billion eighth wonder of the world in Arlington, Texas, he did so with private money. But he went to the city and he went to the state and he secured certain advantageous benefits through not just tax, but through a trust fund. The state of Texas established a major event trust fund, and they use a formula to determine — when a major event comes into that football stadium and it has an economic impact on the community, there's a formula to determine — what that economic impact is, and then money is paid back to Jerry Jones.

It's not for the eight home games that the Cowboys play; it's for the big events. It's for the Super Bowl. It's for the NCAA Final Four. It's for the rodeo. It's for big concerts. That fund is set up specifically with the notion that if you can bring 100,000 people into the state of Texas for a weekend because of some huge event and they stay in hotels and they eat at restaurants and they shop in stores, then that benefits everybody. It's not reaching into the taxpayer's pocket, it's using the money that's generated from the visitation and the economic spending that comes back and, in effect, is the payback, if you will, to Jerry for building this incredible football stadium.

I think in order to have a successful ownership franchise, you've got to have that connection with your city government, and with your local community as well.