While many cities are no longer willing to foot the bill for sports stadiums, they are still facing other costs or lost revenue when teams come to town.
These can take several forms: forgone property tax revenue if cities offer an exemption, missed ticket and parking tax revenue if teams are allowed to keep it for themselves, or passed on stadium maintenance and improvement costs.
Who's responsible for maintenance and improvements can be a particular flashpoint as crumbling stadiums are often used as a reason by teams to relocate. That's what happened when Stan Kroenke moved the NFL's St. Louis Rams to Los Angeles in 2016 and what precipitated the sale of the NBA's Seattle SuperSonics and eventual move to Oklahoma City in 2008.
The latest example of this ploy is playing out in Columbus, Ohio, where the city's Major League Soccer (MLS) team, the Crew, wants to move to Austin, Texas. The team's owner, Anthony Precourt, says the stadium in Columbus is outdated -- in 1999, it was the first soccer-specific stadium built by a team in the U.S. He also cites a lack of corporate support and poor attendance for why he wants to move.
Last week, the Austin City Council voted to proceed with negotiations with Precourt on a plan for a new, privately funded stadium on city land. Unlike most of these deals, the city has left little ambiguity when it comes to the quality of the new stadium and who would pay for what.
Under the terms of the deal, Precourt would be responsible for all ongoing maintenance and repair costs for the 20-year lease term. The team would be required to keep the stadium in a "first-class manner comparable to that of other MLS stadiums of similar design and age," and Austin would be allowed to conduct annual inspections to verify the stadium's quality. Precourt would also be on the hook for the first six years of capital improvements (which are likely to be minimal when the building is still young). After that, the city and team would each deposit money into a reserve fund to pay for such upgrades. At that point, the team would also start paying rent to the city for use of the stadium.
This specificity is part of a growing trend in which cities are becoming better about addressing stadium quality and maintenance expectations upfront. By closing this loophole, it helps avoid conflict down the road. "What we want [for cities] is a contract that says, 'You're going to maintain this so well that at the end of the term there's no reason for you to leave,'" says Kevin Kelley, who has negotiated such deals on behalf of cities for the law firm Husch Blackwell. "Or, if [a team] does leave, we have a real chance of luring another team."
But not everyone thinks Austin got such a great deal.
While the city's mayor touts the move as having no cost to taxpayers, that's a superficial way of looking at it, says Nathan Jensen, a professor at the University of Texas at Austin who has been critical of the deal. The city isn't paying upfront money, but Jensen notes that it's giving up substantial tax revenue. First, the team is gifting the stadium to the city, which makes the whole site exempt from property taxes. Second, the team gets to keep any revenue related to the stadium, such as ticket and parking taxes, naming rights and sponsorship deals.
That lost revenue adds up. According to research by University of Michigan professor Judith Grant Long, lost property tax revenue on a $350 million stadium can total $67 million over 30 years. The average city's share of revenue from ticket surcharges, concessions and parking surcharges (often split with a team) can add to at least another $53 million in lost money over 30 years. Naming rights and advertising revenue are also lucrative revenue streams -- although most cities, even when they own the stadium, don't see this money.
The team is offering some community benefits, such as setting aside land for affordable housing and youth sports programming. But Jensen believes that Austin could have gotten more from a team owner who is highly motivated to move. "It really seemed like if there was a time a city would have incredible leverage, this would be the case," he says. Instead, the city is still on the hook for "costs down the road while getting no cut of the revenues."
This appears in the Finance newsletter. Subscribe for free.