Rethinking the Game Plan for Stadium Bonds
Is a 30-year bond realistic when the economic lives of stadiums are proving to be much shorter?
In the world of sports stadiums, 20 is the new 30.
Stadiums are typically financed through bonds that take 30 years to pay off. But their useful life isn't always that long.
Just take last month’s announcement that the St. Louis Rams would be decamping to Los Angeles, leaving behind its 20-something football stadium for a shiny new one. The St. Louis Regional Convention and Sports Complex Authority is still paying off a portion of the $259 million in bonds it issued to build the Rams a new stadium when they moved from L.A. in 1995.
It's not the only issuer paying off 30-year debt for a project that didn't make it the full life of the bond. In Georgia, the Atlanta Falcons are moving to a new stadium next year even though the Georgia Dome is less than 25 years old. The San Antonio Spurs left the Alamodome in 2003, just 10 years after it was built.
With twice as many new stadiums being built over the next three years compared to the last few, it begs the question: Is a 30-year bond still realistic when the economic lives of stadiums are proving to be much shorter?
The basic answer, according to municipal analysts, is that it depends on the terms of the stadium deal. The St. Louis deal to woo the Rams away from L.A. is now regarded as one of the worst deals in football. That’s because in its leasing agreement with the team, St. Louis said its then-brand new Edward Jones Dome would remain in the top 25 percent of NFL stadiums. That meant the city had to pay for renovations to ensure the stadium operated at a “first-class standard.”
When the stadium fell out of the top quartile, that kicked off a legal battle between the team and city over what investments were necessary to bring it back into compliance. An arbiter sided with the Rams, but the city’s convention authority still refused to pay. As a result, the team’s lease converted to a year-to-year one, which ultimately spelled the end of the team’s tenure in St. Louis.
Giving a team that much leverage over a city is uncommon today, said Tamara Lowin, director of research at Belle Haven Investments. “The Rams deal is one of the reasons there are now requirements that teams stay as long as the bond is outstanding,” she said. If they don’t stay, these so-called non-relocation agreements force teams to pay hefty penalties.
Over the past two decades, governments have gotten more savvy in their negotiations with professional sports teams in other ways, too. Officials have been less inclined to foot the entire bill for stadiums when they see team owners benefitting from luxury suites and other high-price add-ons that increase the team’s valuation and put more money in owners’ pockets.
Meanwhile, a host of economic studies have shed doubt on the argument that sports facilities increase economic value for host cities. “All those factors made people on the public side say, ‘Do we really think this is a great investment?’” said Wells Fargo Securities Analyst Randy Gerardes.
Publicly financed football stadiums are an especially troublesome investment because of their sheer acreage and large seating capacity. It’s difficult to find uses for the infrastructure beyond the NFL season -- although many stadium authorities have gotten better in recent years at eking revenue out of them. For example, pro stadiums now host college football rivalry games, international exhibition soccer matches and the occasional live concert with a pop star big enough to fill 70,000 to 90,000 seats.
But there are few meaningful uses of stadiums after their pro sports teams leave. In Houston, officials were able to repurpose the Astrodome for rodeos and concerts for several years until it was shut down in 2008 because of fire code violations. “Some publicly owned stadiums that have lost their professional sports team tenants have been effectively repurposed for collegiate or local use, yet these tend to be older assets with little to no debt outstanding [which lowers the facility’s operating costs],” said a recent Moody’s Investors Service analysis.
These are the kind of factors state and local officials are considering as the next round of stadium building kicks off. Most of these projects are likely to be a combination of public and private financing as publicly funded stadiums are no longer palatable.
For municipalities and states issuing bonds for these types of projects, Gerardes says a 30-year life is still reasonable -- as long as the government installs safeguards to protect the stadium’s economic livelihood for the life of the bond. “I think that’s really how you’re going to get comfortable with this phenomenon,” he says. “You need to make it pretty iron-clad that the team has a big disincentive to move.”