Stadium Finance: Wins On The Field Can Mean Wins For Investors
As Spring Training for the 2017 Major League Baseball season gets underway, our attention turns to stadium finance, a strange intersection of finance, athletics and real estate that leverages competition on-field and off.
Stadium development in the US is often subsidized by the public, meaning development risks are often shared by taxpayers in various ways, from tangible environmental impacts (parking availability, foot traffic) to the borrowing of already-strapped municipalities aiming to improve the business fitness of the areas surrounding the stadium.
That borrowing – typically performed by issuing municipal bonds – is rated by bond ratings agencies, allowing comparisons to be made in a bond market matching lenders and borrowers. But which sport throws off the most data to use for investment comparisons? It’s baseball.
Baseball Is The Handiest Test Case
Of the major sports, only Major League Baseball puts the “business fitness” argument behind stadium development to its greatest utilization test. Unlike football, basketball or hockey, (major league) baseball hosts a whopping 81 home games a season. From April to September, baseball stadium utilization when the team is in town is a nearly-every-day-of-the-week affair, whereas other sports make their home appearances only a handful of days of a season-week – or only one day, as in football.
It’s in part because of this high utilization that the finances of stadium development can be deeply affected by the performance of the team on the field. In an amazing post at Commercial Observer by Terrence Cullen, exactly how on-field performance can affect financial performance underwriting a development is shown by a long look at the New York Mets and Citi Field. From “How Batting Averages Can Affect A Stadium’s Bond Rating”:
“There are two ways to argue for a new stadium,” he said. “One is, ‘Our team sucks, we need a new stadium so we can be good again.’ Which usually doesn’t work very well, because if your team sucks, nobody cares. Or, ‘Our team is great. If you don’t give us a new stadium, you’ll never see this again.’”
The latter option, he added, is often the better route. “This is very, very common,” he said. “If you’re trying to get a new stadium you compete that one year.”[…]
Gerstner pointed to the instance in which the San Diego Padres leveraged its All-Star roster to secure financing in the late-1990s to build what is today Petco Park. The Padres boosted their roster for the 1998 season, making it all the way to the World Series that October (the Yankees swept the team). The following month, voters went to the polls to determine whether the team could build the stadium. The city invested $300 million into the project, while the Padres invested $115 million, according to news organization Voice of San Diego.
Following the approval, however, the Padres traded away key players and lost others to free agency, Gerstner noted. The team finished fourth in its division with a 74-88 record.
Read the entire post at Commercial Observer here. And don’t forget to Play Ball!