The city of Atlanta’s deal with the Atlanta Hawks to refurbish Philips Arena is more than just a pact to keep the NBA franchise downtown. It means the region is tripling down on pro sports stadiums as drivers of economic development.
Added to previous pacts with the Braves and Falcons, the Hawks agreement pushes the total upfront, taxpayer-backed funding on new or refurbished venues to about $700 million. That will likely double over the next 30 years, as interest, maintenance and other costs figure in.
On Tuesday, Atlanta Mayor Kasim Reed and Hawks lead owner Tony Ressler said the Philips overhaul, with $142.5 million in public backing, could help fuel revitalization of the moribund stretch of downtown parking lots and rail beds known as The Gulch.
Elected leaders and teams often tout spending on these venues, which are owned by government but managed by the teams, as job creators with much of the public money coming from taxes on visitors.
But taxpayer funding of sports facilities is controversial, and it could take decades to see if the Atlanta area’s bets defy studies that have found the public investment would be better spent elsewhere.
“There is no evidence that a new sports arena is a significant catalyst for urban renewal or growth,” said Tom Smith, an economist at Emory University’s Goizueta Business School. “It sounds terrific and it’s very sexy, but there is no proof when you put it down on paper.”
To put the future public spending from the city of Atlanta for the Falcons and Hawks, and by Cobb County for the Braves, into context, it’s more than Fulton County and the city of Atlanta are seeking combined in separate voter referenda this Tuesday for roads and bridges over the next five years.
Millions more in subsidies have been committed to the Hawks and Atlanta United FC soccer team to build training centers in Brookhaven and Marietta, respectively. Gwinnett County heavily subsidized the $64 million Coolray Field for the Braves AAA-affiliate, where attendance projections and promises of development haven’t fully panned out.
Competing with peers
Reed, Cobb leaders and other proponents argue the deals are sound investments. They say the new and upgraded facilities landed premier events — such as a future Super Bowl and NCAA Men’s Final Four tournament at the Falcons’ new Mercedes-Benz Stadium — and make the region more competitive with peers.
“This renovation will play a key role in the city’s robust $15 billion tourism industry, which brought more than 50 million visitors to the city last year,” Reed said in announcing the Philips deal.
Reed hopes the Philips rehab will spur private investment in the nearby Gulch. He said one group is interested in building a tower over Five Points, at the other end of the Gulch, and that other potential investors need to see the city demonstrate plans to retain and grow downtown foot traffic.
Among them is Richard Ressler, brother of the Hawks owner, whose company, CIM Group, Reed has courted to help revitalize the Gulch. Reed said he’ll know by mid-April if the effort has worked.
“I think our $142 million investment in Philips is going to trigger a billion and a half,” he said. “And I think that that’s worthwhile.”
In the shorter-run, stadium projects employ thousands of construction workers. Simultaneous work on Mercedes-Benz Stadium and the Braves’ SunTrust Park has lifted the construction sector.
The Braves and their backers say they already have evidence of a payoff, pointing to the $550 million Battery mixed-use development next to SunTrust Park and other projects in the Cumberland area.
The Braves-owned Battery development — which is not subsidized by taxpayers — has landed a marquee Omni hotel. A tower will be filled next year by about 1,000 Comcast technology workers. Restaurants and retailers are lined up for Opening Day next year.
“We’re already seeing … what I will call the halo effect,” said Derek Schiller, Braves president of business. “It’s spurring on other businesses and economic engines moving to that area as a result of SunTrust Park.”
‘In our DNA’
Hawks CEO Steve Koonin called it “grossly unfair” for the Philips deal to be lumped with the Falcons and Braves stadium deals, as it is smaller and involves refurbishment of a government-owned arena.
“We’ve had significant talks about downtown [revitalization],” he said. “We’ve worked tirelessly with the administration to create a deal that is fair, but allows us to up the game and increase the relevance of Philips Arena with a renovation, and in return we are paying our fair share back to the city.”
Reed said Philips won’t burden the city’s reserves or its bond rating.
Eloisa Klementich, president and CEO of the city’s economic development agency, Invest Atlanta, said businesses look for government that invests but still keeps a strong credit score. “They want to put their business in that city because they want stability,” she said.
Still, the Philips deal does not include any commitment toward broader downtown redevelopment.
“We don’t need an agreement to spell it out,” Koonin said. “It’s in our DNA.”
He noted the team has built more than two dozen basketball courts in city parks that resemble the team’s home court at Philips. “We want to be a leading community asset,” he said.
Some community leaders are pushing back on one funding source: $12.5 million from the pending sale of Turner Field to Georgia State University and a development team. Critics said the money should stay in the neighborhoods near the Ted.
Mike Koblentz, chairman of the Northwest Community Alliance, said he was “a little perplexed” that Reed would use money from the Turner Field sale for Philips. The Alliance joined other groups to push the city and the Falcons to set aside money for Vine City and English Avenue improvements during negotiations on Mercedes-Benz Stadium. The result was a $30 million package.
“If money was taken out of that $30 million and used elsewhere, it would have been devastating,” Koblentz said.
Reed noted the concerns, but asked residents for their trust. A potential CIM project in the Gulch, he said, could have an economic reach from Philips to The Ted.
‘A cost we will bear’
The agreement announced Tuesday calls for the bulk of the city’s portion — $110 million — to come from rental car taxes. The Turner Field sale chunk and proceeds from other future city land deals will generate about $32.5 million, Reed said. The team commits $50 million upfront.
The Hawks, through arena operating revenue, are scheduled to pay about $12 million a year to cover current bond debt through 2028. After that is paid off, the Hawks will pay annual rent of $5.9 million through 2046. Those payments increase the Hawks’ total share of the package to $156.2 million.
A $200 million “break-up fee” would be triggered if the team leaves before the end of the lease.
The ownership group will also forego revenue from concerts and other events during the two basketball offseasons it will take to renovate the arena in time to open transformed for the 2018-2019 season.
“It is a cost we will bear,” Koonin said.
Andrew Zimbalist, a professor at Smith College in Massachusetts who’s studied stadium deals, said if arenas are viewed as an investment in the city’s culture and as a public amenity, the case for public backing is stronger. But on a pure return-on-investment standard, sports facilities aren’t great bets.
“It sounds like many of these deals coming down the pike these days,” he said. “It’s very concessionary to the team, and it’s not going to have a positive economic impact on the city. It certainly has substantial fiscal costs.”
Zimbalist said any development in the Gulch also will likely seek subsidies.
Five Atlanta City Council members — Keisha Lance Bottoms, Michael Julian Bond, Kwanza Hall, Carla Smith and Ivory Young — attended the Hawks deal announcement, a sign that Reed has some support for the deal.
The council and the Atlanta Fulton County Recreation Authority board, which owns Philips, must approve. Bottoms, a mayoral candidate who also runs the recreation authority and was a key player in the negotiations, would have to recuse herself from a council vote.
Hall, who represents downtown, said he is bullish on anything that keeps going the momentum he sees in his district, citing the popular Ponce City and Krog Street markets, as well as growth in Old Fourth Ward.
“I’m optimistic, but we have to ask the questions and let the vetting occur,” he said.
Committed to neighborhoods
In the earlier deal with the Falcons, the city and team each committed $15 million for nearby neighborhoods. The Falcons also agreed to minority and women-owned business participation goals and millions of dollars for infrastructure.
“We are very proud of the public/private partnership we crafted with Mayor Reed and the city of Atlanta,” Falcons president Rich McKay said in a statement. “We feel that it is very positive for our city and allowed us to keep major events and attract new ones like Super Bowl LIII.”
Multiple hotel projects are on the drawing board around the Falcons’ new retractable dome stadium, including a Hard Rock Hotel project, and the Georgia World Congress Center has an 800-room hotel project planned on the site of the Georgia Dome, which is to be razed. At least two apartment communities are underway nearby.
But the Centennial Olympic Park area was already the nexus of the region’s convention business and a growing commercial and tourist area before that.
In Cobb, Kellie Brownlow, a spokeswoman for outgoing Cobb Commission Chairman Tim Lee, said the Braves’ influence has already tightened office space and spawned other growth in the Cumberland area. A number of projects were on the drawing board before the Braves deal, but Brownlow said growth wouldn’t have happened as rapidly.
“This isn’t what we hope to happen when the stadium kicks off,” she said, “it’s what’s happening.”