The Evolution of Stadium Financing and Development

SunTrust Park outside
 

If you look back before the new stadium wave in the mid-1990s, the vast majority of sports stadiums were financed predominantly with public funding. Since municipalities were footing more of the bill, they played an active role in stadium design, construction and operations, retaining a significant share of stadium revenues in exchange. Over the last 20-30 years, however, sports franchise ownership has grown in sophistication and owners have gradually come to realize that it’s extremely beneficial to be more actively involved.

Today’s team owners recognize the importance of increasing local revenue given the direct correlation between revenue and franchise value. In many cases, this has propelled them to make substantial investments in new or renovated venues to gain greater control over the revenues those facilities produce.

In addition to garnering a larger share of venue revenues, teams are also taking a more active leadership role in stadium design, construction and operations; enabling them to more effectively:

  • Design a stadium that fits the specific needs and characteristics of their market; and
  • Maintain greater control over the fan experience.

Given their increased capital investment, teams today tend to take a much more scientific and analytical approach to what their venue offers customers. Tailored “Premium” seating offerings designed around specific marketing characteristics (suites, club areas, table tops and opera boxes) represent an experience rather than just a seat. Broader and more sophisticated food and beverage concessions (in many cases provided by a combination of both national and local providers) serve to enhance the overall experience. For franchise owners, the challenge often lies in striking the right balance between optimizing the customer experience and maximizing revenue.

Looking beyond four walls

Another growing trend is the active participation by team ownership in real estate developments adjacent to sporting venues.  The prevalent theory has always been if you build a stadium, other nearby development will soon follow.  Historically, however, this development would be spearheaded by individuals and firms not associated with the franchise. Team owners would only benefit indirectly, to the extent that these developments would result in incremental attendance growth.

But why have another unaffiliated third-party benefit from that opportunity, rather than benefiting from it yourself? Why not strive to control more of the customer experience outside of the stadium in the surrounding neighborhood instead of limiting your involvement to what happens inside the venue? These are the questions many sports franchise owners are increasingly asking themselves—with more and more owners beginning to act on various opportunities.

Investing in commercial real estate development around your stadium serves to attract more people to the venue and incents them to spend more time there. Keep in mind that you’re competing for finite entertainment dollars, so it’s critical that you make the overall customer experience as enriching as possible. By controlling the adjacent development, team owners are able to make the experience of entering and exiting the stadium as seamless and satisfying as possible. Additionally, investment in adjacent development is a 365-day operation (not just limited to game days), which can smooth out the seasonality of the stadium or arena from a revenue standpoint and ultimately lead to greater enterprise value.

One need look no further than the current development of the $2.6 billion Hollywood Park stadium complex, which will house both the Los Angeles Rams and the newly-minted L.A. Chargers football franchises to see this new strategic approach in action. The 80,000-seat stadium (already tapped to host the 2021 Super Bowl and the 2028 Olympics) is just the cornerstone of a massive 300-acre mixed-use commercial, residential and entertainment district.

 

Case Study: SunTrust Park and The Battery

Challenge: Built for the 1996 Summer Olympics, Turner Field served as home for the Atlanta Braves from 1997 to 2016. In recent years, attendance had becoming a growing concern. Those who did attend home games typically came right before game time and left immediately after.

Solution: Braves’ ownership group joined forces with SunTrust Sports & Entertainment Specialty Group and Commercial Real Estate Group as Left Lead Arranger and Placement Agent to finance and construct both the new SunTrust Park, as well as The Battery, an adjacent mixed-use development that includes a hotel, multifamily residences, office space, restaurants and retail stores.

Result: Customers now arrive earlier and are more inclined to stay after the game to visit adjacent bars and restaurants. The upscale complex has become a trendy destination that’s increasingly attracting millennials—a key demographic for the continued health of the franchise. Whether they work in one of the office buildings in the development or live in one of the residential properties, a great many people’s lives have now been brought closer to the ballpark.

Demographics driving stadium design

With the burden for financial investment in stadium development shifting to teams, ownership can now increasingly control more of their operations and capture more of the revenues they generate. As a result, they’re becoming highly sophisticated regarding the financial analytics of their franchise:

  • They’re looking more closely at market demographics in order to create a design that’s consistent with those demographics (e.g., food, seating, entertainment, etc.)
  • They’re constantly analyzing planning and design to assess efficiency and utilization—willing to alter and adjust as they go to maximize revenue potential.
  • New stadium designs are including many more experiential things to do within the venue itself—from suites and hangout areas to playgrounds and pools—to help cast a wider net and attract a broader demographic than just traditional fans for that particular sport.
  • Teams are carefully analyzing the various types of “premium” seating options and striving for the proper balance between traditional corporate suites and alternative products, which may better appeal to thousands of small business owners, rather than relying on the patronage of a handful of large corporations.
  • Stadium design decisions are also factoring in the venue’s ability to be activated for other entertainment opportunities (concerts, corporate events) to drive additional revenue.

While every stadium’s financing is unique, most currently involve a significantly smaller public contribution—often in the form of land acquisition, infrastructure, public transportation, or possibly municipal bonds/tax breaks. A larger share of the funding will need to come from private sources through some combination of debt financing, ownership equity and third-party investments (e.g., concessionaires).

This shift has created a unique opportunity for banks like SunTrust to provide access to capital markets and construction financing that have become increasingly important to franchises and owners. As a financing partner, we’re proud of our ability to contribute to enhanced revenues, stronger ROI and better cash flow––the critical drivers of franchise value

At SunTrust, our Sports & Entertainment Group professionals are specialized experts who understand how franchise value is created and can deliver both private wealth and corporate investment banking capabilities all under one roof. Isn’t it time to work with a financial firm that truly understands the subtleties and nuances of your organization.

The Evolution of Stadium Financing and Development

Contact your SunTrust Private Wealth advisor or reach out to the SunTrust Sports & Entertainment Group to find out how we can help. 

This content does not constitute legal, tax, accounting, financial or investment advice. You are encouraged to consult with competent legal, tax, accounting, financial or investment professionals based on your specific circumstances. We do not make any warranties as to accuracy or completeness of this information, do not endorse any third-party companies, products, or services described here, and take no liability for your use of this information.

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