Anyone who watched this year’s Super Bowl was likely impressed with the new Dallas Cowboys’ stadium. This US$1.15 billion mega-structure features a retractable roof and variable seating, which, at its full capacity, can fit 100,000 people. Stadiums serve as status symbols, either for the owners of the team or the city in which the team resides. However, tough economic reality seems to be catching up with the desire to build bigger and better sports facilities.
“It’s difficult even in the best of times to fund a sports stadium,” Ross Taylor, a lawyer who specializes in corporate and lease financing at the firm, Kelley Drye & Warren, told CNBC.com. “And these days it may be near impossible.”
The worldwide economic crisis had a large effect on national governments, but was even more devastating to lower levels of governments. While national governments often have massive borrowing power, lower level governments either at the state/provincial level or the municipal level are required to run balanced budgets.
Though generally privately owned, sports franchises often rely on a heavy dose of taxpayer assistance for the construction of their facilities. In the case of the Dallas Cowboys’ stadium, taxes were increased on hotel room visits and car rentals, in addition to an increase in the sales tax. The public also bought up $325 million dollars in bonds to finance the construction of the massive structure.
Stadiums, as was the case with our new stadium, are often sold as having a financial benefit to the city in which they are located. According to Dan Grisby, part of Mangels Butler & Mitchell, a sports law firm, “Games bring in millions of dollars to the surrounding areas.” Grigsby adds, “Places near the stadiums really see the benefit on game days. New stadiums also create jobs, even if temporary. The loss of a team would have significant economic impact.”
Here at home, we have our own stadium funding issue. The new football stadium, currently under construction on campus, appears likely to come in over budget, with a current projected price $45 million above the initial $115 million figure. The original deal involved a taxpayer-financed commitment of $90 million in loans, which would be repaid over time from the projected financial success of the new facility. This creates a tricky situation for politicians and business leaders, as they must argue either that the investment is worth it in the long run, or that the risks of losing taxpayer money are too high to justify continuing construction under the current design.
Though the high costs can be a problem, some believe that solutions can be found. According to Lee Walko, a real estate and corporate lawyer at Brennan, Manna & Diamond, “Governments and private business need to be more creative [ . . . ]. One way is more use of corporate naming rights. The private sector has to come up with more money in these times. For their part, governments can look at long-term leases for land to be used as a training facility or other uses at favourable terms. There’s also multi-use stadiums, instead of just single teams as tenants.”
While in the short term there may be a slowdown in the construction of new facilities, it is unlikely that even tough economic times will interfere with our love of sports and willingness to support new facilities at which to support our teams of choice.
What is required then are creative means of financing these facilities, as well as the patience to see these stadiums as an investment for the future that can benefit our communities and our economy.
