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Will Shoppers or Tax-Payers Pay for New Arenas?
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Will Shoppers or Tax-Payers Pay for New Arenas? Sport Stadiums Go Retail -- Maybe The synergy between entertainment and retail is one of the oldest business relationship known to mankind. From traveling medicine shows, county fairs and world fairs to tourist-area boutiques and retail malls in casinos, salesmen have long known that an entertained customer is a spending customer. Entertainment's marriage to retail is becoming the hallmark of '90's real estate development, and, with the added technology spawned by Disney and Hollywood, promises to become the stamp of the first decade of the 21st Century as well. So well recognized is this long-standing but somehow newly discovered symbiosis that professional sports franchises are increasingly looking to retail development to enhance and support new stadiums, either in an effort to supplement or eliminate the increasingly reluctant taxpayer, or to create a new source of cash flow to pay off the huge government bonds that finance most stadium projects. Some ventures appear to be purely for additional profits to finance a sport that is increasingly difficult to pay for solely with spectators' ticket fees and TV contracts. Few seem to be developing smoothly. Some have abandoned the retail portion of the project, while others have bogged down a field of financial and political complications made even more complex by the addition of retail real estate deals. A prime example is the San Francisco 49ers, which wants to build a new stadium to replace the 38-year-old Candlestick Park. Mired deeper in the mud of controversy than a football game in a monsoon, the proposed 49ers' new stadium and attached 1.4-million-square-foot retail mall has raised more questions than money and is more likely to break news than ground anytime soon. The key financial question is whether the Mills Corporation's proposed Candlestick Mills project would pay enough in sales taxes and other premiums the city might extract to cover the $7.2 million in annual debt service payments on the $100 million bond narrowly approved by city voters in 1997. Sales taxes alone won't do it, even if Candlestick equals its company's top performer, Sawgrass Mills, in Fort Lauderdale, Florida, at $364 a square foot. That would yield $3.7 million in taxes, or just over half the cash needed to pay the debt service. Professional sports franchises look to retail development to finance new stadiums, to eliminate the reluctant taxpayer, and to pay off the huge government bond debt that finances most arenas Other layers of controversy include: A sudden jump in the projected cost of the stadium from $325 million before the bond referendum to $525 million after -- and that does not include the $200 million for the Mills mall; 49ers' owner Eddie DeBartolo's guilty plea in a $400,000 handoff to Louisiana ex-Governor Edwin Edwards in his pursuit of a river boat casino license; and claims that the public vote to approve the $100 million bond, which won by only 1,500 votes and was backed by a $2 million campaign, was somehow rigged. Bill Strawn, spokesman for Mills Corp., said he believed the $200 million cost increase flap had been "retracted" and may have been the result of confusion. "We're back to numbers people have been talking about." The Mills project, he said, is still pegged at $200 million and the stadium at $325 million. The greatest delay, Strawn said, was caused by DeBartolo's legal problems, but since the NFL had banned DeBartolo from actively managing the team, "We're proceeding with the project . . . Once an agreement is fixed between the city and the 49ers, Mills will be leased the space." The $100 million lease revenue bond "would be repaid based on sales taxes and so forth coming out of the retail operation." Strawn said that, in addition to taxes, Mills Corp. will be paying rent on the land under the mall. One core question stand out: Has professional sports gotten too expensive even for publicly financed arenas and stadiums? The motive behind the 49ers/Mills link appears to hang on an affirmative answer to that question. The 49ers were having trouble finding a way to pay the city for the use of $100 million of the taxpayers' money, so that looked for a retail partner to make up the difference. In football terms, the annual cost of that $100 million would be a little less than a Dan Marino or a Deion Sanders ($7.57 million each), a little less than two Jerome Bettis' ($3.7 million) or two Barry Sander's ($3.8 million), or the equivalent of a Junior Seau ($4.28 million) plus a Ray Buchanan ($3.0 million). Few retail sport arena projects seem to be developing smoothly. Some developers have abandoned the retail portion of the deal, while others have bogged down in a field of financial and political complications One of the ways sports franchises are attempting to increase revenues is by adding luxury accommodations such as skyboxes and suites. Among the extremes of these gimmicks is Tropicana Field, the Tampa Bay Devil Rays Stadium that has already been completely renovated once at taxpayer expense, which features $195 box seat behind home plate that are equipped with computer terminals displaying stats, replays and a World Wide Web interface. Another innovative premium is found at the Arizona Diamondbacks' new Bank One Ballpark (better known as BOB), which has a private swimming pool beyond the right field fence. A one-game rental of the pool costs $3,800. Another area of hot debate is whether major sporting events, such as Super Bowls or Olympic competitions, actually benefit local economies. The Tempe, Arizona Tribune, in a story published January 19, headlined "Super Bowl may be bust for host," made this statement: ". . . A look at six Super Bowls dating to 1979 - three in Miami, two in Tampa, one in Phoenix (Tempe), found no increase in sales revenue over previous years without the big game . . . " The Freedom of Information Times, an online watchdog publication, reported that "contrary to the report by (Tempe) city officials that the city made a few bucks or broke even, the Super Bowl actually lost some $200,000 of Tempe taxpayer dollars.." Some officials in Atlanta, Georgia, also have said recently that hosting the Olympics was a costly undertaking, not an economic benefit. Numerous news analyses clearly state that sporting events and new sports complexes do little or nothing to revive a city economically. Little is said, however, about whether entertainment/retail can become a cash cow for a sports complex, but the anecdotal evidence is not encouraging. The National Football League (212-450-2000) says it has abandoned plans to team up with developer and former paper company the St. Joe Company (904-396-6600) in developing a chain of interactive sports-theme entertainment centers, called NFLX, which would have included high-tech games, restaurants and retail shops, at $100 million each. NFL officials have claims they will move ahead with plans, but with a new developer. The key question is whether the Mills Corporation's proposed Candlestick Mills project would pay enough sales taxes to cover the $7.2 million in annual debt service payments owed to San Francisco on the narrowly approved $100 million bond It is interesting to note that the new CEO of St,. Joe, Peter S. Rummell, former president of Disney Development Corporation and chairman of Walt Disney Imagineering, was brought in to The St. Joe Company for his commitment to entertainment retail real estate specialty projects. The National Basketball League, meanwhile, has opened a retail store on Fifth Avenue in New York City and is planning a chain of restaurants. The Phoenix Coyotes' proposed $624 million arena/mall project in Scottsdale, Arizona, would use property-tax and sales-tax revenue in the arena district to pay off its construction bonds. In Mesa, Arizona, voters are being asked on May 18 to approve an extra quarter-cent on the sales tax to finance a massive new stadium for the Arizona Cardinals (NFL) football team, plus a convention center with three new hotels, 2 million square feet of office space and 750,000 square feet of retail. Rio Salado Crossing, a $1.8 billion project being developed as a joint venture between Belz Enterprises (870-932-1400) and Fluor Daniel (805-328-3000), is projected to generate a $1.66 billion annual economic boost and create 12,000 to 15,000 permanent jobs., A sales tax increase, coupled with an extension of a current dedicated sales tax, would pay $385 million toward the development cost. The Boston Red Sox are said to be shying away from original plans to marry commercial development to a new baseball stadium to replace the historic Fenway Park, according to the Boston Globe. This would keep the cost to about $350 million, rather than the $1 billion estimated tag on the ballpark/hotels/retail/entertainment project the team had been mulling. This also means the team would lose any revenue all that real estate might have generated and may ask the state for more money, the newspaper reported. Part of the reason for the apparent change of tack may be neighborhood opposition to such a large development. If retail can be used to replace taxpayer subsidies, the sports franchise that strikes that first successful deal will hit a home run with the public -- and with developers In Pennsylvania, the state has approved $320 million in state subsidies for four proposed stadiums for the Pittsburgh Pirates, Pittsburgh Steelers, Philadelphia Phillies and Philadelphia Eagles. Public funding also is flowing freely into other entertainment/retail-based projects in Philadelphia, including DisneyQuest, which is getting $100 million in tax money for its center-city project. The Los Angeles Dodgers have announced preliminary plans for a renovation of Dodger Stadium. The addition of new field-level seats and 30 luxury suites is expected to be complete in time for the 2000 season. New York Mayor Rudy Giuliani, rebuffed in his attempts to build a Manhattan ballpark for the Yankees, has instead called for a domed football stadium and "new Madison Square Garden" to be built on the same West Side site. The mayor also suggested building a professional soccer stadium. The Connecticut legislature last December approved $374 million in public funding for a new stadium for the New England Patriots NFL football team. The proposed Hartford stadium which proponents had said would pay for itself over 30 years, would actually cost the state $257 million in that time, according to the state legislature's office of fiscal analysis. The new study contradicted an earlier report by consultants KPMG Peat Marwick that had predicted the stadium would turn a small profit over the course of the deal. Every city with a stadium project is attacking the problem in a different way, although most of them have one thing in common - public financing, usually in the form of Tax Increment Financing (TIF), which dedicated future tax revenues to pay off a government bond. If retail can be used to replace TIF and other taxpayer subsidies, the sports franchise that strikes that first successful deal will hit a home run with the public -- and with developers as well.
For more information contact: The Mills Corporation, 1300 Wilson Boulevard, Suite 400, Arlington, VA, 703-526-5000, fax 703-526-5111; St. Joe Company, duPont Center, 1650 Prudential Drive, Suite 400, Jacksonville, FL 32207, 904-393-6600; Belz Enterprises, 100 Peabody Place, Suite 1400, Memphis, TN 38103, 901-260-7348, fax 901-260-7378. |