Funding Sports Stadiums Can Be A Perilous Path For Cities Seeking Visibility
The promise of new revenue, visibility and business activity has lured officials in cities large and small into believing new sports stadiums will revive and transform their towns, a siren song leading many to fund and build such projects.
Reality hits when the bills come due, especially when cities realize the sports teams that bring so much notice can simply depart for other locations, frequently lured by a different set of officials also offering sweet deals. Residents of Baltimore, Los Angeles, Oakland, Cleveland and others watched beloved National Football League teams depart, and sometimes later return, while professional baseball fans in Brooklyn, Philadelphia and Boston saw their teams leave for the Sun Belt.
Whatever heartbreak those departures cause fans, taxpayers sometimes end up paying the real price.
Unlike old warehouses or loft buildings, stadiums and ballparks have a limited set of uses, and repositioning these structures for other uses is almost impossible. That leaves cities dependent on the local sports team filling the stadium year after year, a precarious strategy for catalyzing new development.
That is particularly true for small cities, which began jumping on the sports bandwagon in a big way in the 2000s. Bridgeview, Illinois, a small town 15 miles southwest of Chicago’s downtown, was one of those. It took out a $110M loan in 2005 to finance the construction of SeatGeek Stadium, a venue large enough to seat everyone in town, with plenty of room left over. Officials hoped the 20,000-seat stadium, originally known as Toyota Park and located at 71st Street and Harlem Avenue, would transform Bridgeview into an elite suburb.
Instead, the town of 16,000 was buried in an avalanche of debt, and crawling out will take decades, if it can be done at all.
SeatGeek was the brainchild of longtime Mayor Steven Landek, who envisioned it as the home of the Chicago Fire, the region’s Major League Soccer team, as well as a regular stop for musical touring acts. All that came true, with the Fire playing their home games at SeatGeek for 14 years, and acts such as Sheryl Crow, Eric Clapton, Jimmy Buffett and Bob Dylan selling out concerts on summer nights. The Chicago Red Stars, a National Women’s Soccer League team, also play home games there.
But even with all that activity, financial analysts say over the years the stadium did not bring in enough revenue to service the village’s debts, and the principal amount owed ballooned to roughly $260M today.
“They will be facing tough decisions, and will probably be pressured for decades to come,” S & P Global Ratings Lead Analyst Blake Yocom said.
Yocom has evaluated Bridgeview’s finances, and he said building the stadium put the village on an unsustainable path.
“We don’t provide solutions, that’s not our job, but revenue needs to be aligned with the debt on a long-term basis.”
The Village of Bridgeview’s general revenue in the fiscal year ending Dec. 31, 2018, was $33.2M, according to village records. More than a third of that revenue is now going to debt servicing for the stadium.
Landek, who is also a state senator, would not comment on the record for this story. The village’s six trustees did not return calls or emails.
The dire situation facing Bridgeview seemed to get much worse last spring, soon after Morningstar majority owner and Executive Chairman Joseph Mansueto bought a big stake in the Chicago Fire. Team officials announced they wanted to break the SeatGeek lease and starting in 2020 return to their original home at the 61,500-seat Soldier Field on Chicago’s lakefront. Like many MLS teams, the Fire had struggled with low attendance, and in 2019, an average of about 12,000 showed up for the 17 home games, one of the fewest in the team’s 22 seasons.
The Fire only won 10 games last year, so those numbers may reflect a losing season rather than a shrinking fan base, and it isn’t far off the audiences that came out to Soldier Field in the team’s first few years.
“SeatGeek Stadium was a great home for the Chicago Fire for 14 seasons,” a Chicago Fire spokesperson told Bisnow, but wouldn’t go further.
Losing the Fire led S&P to issue a CreditWatch alert, letting the investment community know the village’s already-junk bond status was possibly on the verge of a further downgrade.
Landek headed that off by negotiating a settlement with the soccer club that stabilized the municipal balance sheet, at least for the short term. The Fire agreed to pay Bridgeview $60.5M, including $10M upfront and another roughly $3M per year until 2033, according to S&P. The team will also fund a youth soccer program, and continue to practice at SeatGeek.
“That’s quite a bit more than the Fire has been paying, and right there that is added cash flow for the village,” Yocom said.
He estimated that the team was paying Bridgeview about $1.5M annually in rent, but the Fire spokesperson would not confirm that. But S&P considers the deal solid, and it at least means the town is no worse off. S&P removed it from CreditWatch status and kept its bond rating stable at BB-.
When Bridgeview and Fire officials announced the deal in May, Landek called it a boost for both the village and the team.
"We like to see the Fire unleash its potential out in the whole market,” he said, according to the Desplaines Valley News. “I think it’s good for the Fire. I think it’s good for Bridgeview. Most of all, it relieves any of our angst over the stadium debt.”
Yocom agreed the upfront payment and income boost will help service the debt, and head off any need for a property tax increase or other methods of hiking revenue, but not for long.
“That buys them a year or two,” he said.
The new deal does nothing to shrink the stadium’s legacy of debt, which has grown larger through the years as its annual revenue usually fell well short of the debt service obligations. Officials took care of this problem by doing what Yocom calls a “scoop and toss,” or restructuring their debt by borrowing even more to cover payments due.
The village owed about $130M in 2006, Yocom estimated, but years of scoop and toss doubled it. Servicing that liability now costs around $15M each year, absorbing more than 37% of the village budget, a proportion that sets Bridgeview off from almost every other municipality in the state.
“We consider 15% high, so it’s very much an outlier,” Yocom said.
S&P also noted that the debt equals 23% of market value of all property in town, including residential, commercial and industrial, yet another sign of danger. The ratings agency considers 4% or 5% normal and starts calling it high if it hits 10%.
Ralston, a suburb of Omaha, Nebraska, fell into that trap when in 2011 its voters authorized $29M to build Ralston Arena, now home to minor league hockey team the Omaha Lancers, indoor football team the Omaha Beef, and until 2015, the University of Nebraska’s men’s basketball team.
According to an S&P analysis, the town of just 7,300 bit off more than it could chew.
“The city expected that revenues from the project would be sufficient to cover the debt service on the bonds and that it would not need to levy taxes,” the agency said. “However, arena revenues have fallen short and the city began to increase property and other taxes, albeit modestly, in 2015.”
Bringing in more revenue didn’t solve Ralston’s fiscal woes. An S&P study in 2018 found stadium costs helped fuel a debt burden equal to about 10% of the town market value, far less than Bridgeview’s burden, but enough to keep the town’s debt at junk-bond status.
Once the Fire money runs out, Bridgeview will again be weighed down by its debt service obligations. It could respond with another scoop and toss, or make the hard decision to bring in more revenue, something it has been unwilling to do in the past, Yocom said.
Allen Sanderson, a senior lecturer in economics at the University of Chicago, has studied sports stadiums for decades, and he said the Bridgeview and Ralston stories are sad tales he has seen unfold in cities and towns across the U.S.
“It all comes from the mistaken notion that sports facilities in general are catalysts for economic development, or bring untold riches to a local economy,” he said.
But Sanderson, who describes himself as a big sports fan, said the Chicago Cubs’ Wrigley Field is the only sizable sports facility in the U.S. that makes a significant and positive economic impact on its surrounding community. That is both because it became a true tourist attraction in the past several decades, drawing visitors from outside Chicago, and it sits in an attractive neighborhood where thousands shop, dine and drink on each of the Cubs’ 81 days of home games.
“The Cubs really are an outlier,” he said.
More common is the White Sox’s Guaranteed Rate Field, which sits in the middle of a vast parking lot, cutting its game-day population off from the surrounding community.
“People drive in, spend money at the field, and then just drive away,” Sanderson said.
What makes generating real economic impact from any sports-related facility nearly impossible is that all sit mostly empty most of the time. A traditional shopping mall keeps its doors open more than 3,000 hours per year, but professional football stadiums only host eight home games a year, along with a handful of concerts and other events.
“Soldier Field, for all practical purposes, is only open about 100 hours a year,” Sanderson said.
Even facilities such as Chicago’s United Center, which host both professional hockey and basketball teams and layer in concerts, can only generate revenue on about 100 nights a year. Wrigley is no better; even though the Ricketts family, which bought the Cubs in 2009, has been aggressive about organizing summer concerts by stars like Buffett and Bruce Springsteen, it still only adds up to 100 nights a year.
“That’s still not great,” he said. “In Bridgeview’s case, 15 to 20 games a year for the Fire, plus the Red Stars, and a few concerts, well, that was never going to be enough.”
It isn’t as if funding the construction and operation of a sports stadium is impossible for a municipality. Schaumburg, Illinois, a Chicago suburb 26 miles northwest of downtown, owns and operates Boomers Stadium, which it built in 1998 at a cost of $19M. Originally used by the Schaumburg Flyers, a minor league baseball team, the stadium has been home since 2012 to the Schaumburg Boomers, part of baseball’s Frontier League.
The park holds 7,365 people, a fraction of SeatGeek’s capacity, and officials don’t see it as a financial burden. That is partly the result of Schaumburg’s sheer size. With a population of 74,227, it dwarfs both Bridgeview and Ralston, and as the location of Woodfield Mall, one of the nation’s largest, along with many sleek office towers and campuses like Zurich North America’s new corporate headquarters, it has the wherewithal to host a small stadium without imperiling its AAA rating from S&P.
“In the village’s eyes, having the Boomers here is a great community amenity, not just for Schaumburg, but for the region as well,” village spokesperson Allison Albrecht said.
Besides raising property taxes or village fees, the only other solution for Bridgeview officials is to fill up SeatGeek Stadium to capacity throughout the spring, summer and fall with new concerts and other events that bolster the millions the Fire now pay the village each year.
“We take a skeptical view of that until the events materialize,” Yocom said.
The Chicago Red Stars will play 12 home games at SeatGeek, but even though the team contended for the 2019 league championship and attracted a record crowd of more than 17,000 last October, it only drew an average of 5,451 in the regular season. SeatGeek, the mobile-focused events ticket company that purchased naming rights on the stadium in 2018, lists several other football games as scheduled in 2020, but no concerts.
Sanderson’s advice to cities and towns considering a new sports stadium is simple.
“Don’t get yourself involved in this white elephant world in the first place.”
He said years of stories similar to Bridgeview’s, along with other tales of cities struggling for decades to pay off debts incurred by hosting the Olympics and other sporting events, has turned the tide, and municipalities now approach sports-related projects with more skepticism.
“I think cities are being fleeced less than they used to. They are being a little smarter about this stuff.”