Stadiums' costs outweighing revenue potential

Experts say unrealistic revenue projections and the skyrocketing construction cost of sports stadiums, especially football behemoths, is making it increasingly hard for the facilities to generate enough cash to keep pace with expenses, namely debt service. That has spelled trouble for some cities where the new facilities have been paid for with a blend of public and private dollars.

Indianapolis has hiked tourism-related taxes and Cincinnati is selling a public hospital to pay for flashy new arenas years after they were built.

In Georgia, where talks are underway to build a new $948 million, retractable roof stadium, officials say the only public money would come from a tax on hotel stays in Atlanta, estimated to bring in about $300 million. But no deal has been finalized and most many experts believe the cost of the stadium could easily rise above $1 billion. It’s unclear how the team plans to pay for its portion of the cost. In other cities, fans have seen sharp increases in ticket prices after new stadiums have been built.

Even the Super Bowl, which the NFL has used recently as a carrot to convince cities to build new stadiums, has come with a price tag rather than a profit. Indianapolis, which hosted the nation’s most-watched sporting event in February at Lucas Oil Stadium, had expected to spend $450,000 more on the game than it made in revenue, mostly because of public safety expenses. The city revealed earlier this month that figure was closer to $1.3 million.

“The cost of big stadiums have gone up exponentially in the last two decades,” said Robert Boland, a professor of sports management at New York University’s Tisch Center for Hospitality, Tourism and Sports Management. “That has created a challenge for officials to make revenue projections, which are getting harder and harder to meet.”

That’s particularly critical as the nation enters the era of billion-dollar-plus stadiums, initiated three years ago by the $1.2 billion Cowboys Stadium in Dallas and $1.7 billion MetLife Stadium, built by the New York Giants and the New York Jets in 2010 in East Rutherford, N.J.

Sports teams increasingly are relying on cities and states to pony up tax dollars to pay for part if not the majority of new stadiums and the infrastructure improvements that accompany them. Over the past six years, several teams — including Indianapolis, Dallas, Chicago and Arizona — have all used the public kitty to erect or renovate fields. Minnesota could pay a whopping $498 million for a new $975 million stadium that is being considered by the Minneapolis City Council for the Vikings.

After a financial analysis in 2008 determined that $720 million Lucas Oil Stadium in Indianapolis would fall short by about $10 million annually in costs without a cash infusion, the city’s Capital Improvement Board, which oversees operations at the stadium, sought state legislative approval to increase hotel fees (up from 6 percent to 9 percent) and car rental taxes (doubled from 2 percent to 4 percent). Six counties surrounding the city agreed to a 1 percent food and beverage tax — something they did not have before — that would contribute $5 million.

“We were doubling our operating costs, but did not create a new revenue stream to address it,” said Dan Huge, the board’s chief financial officer, who added that shortfall includes funding for the city’s convention center. Lucas Oil Stadium is twice the size of the RCA Dome, which it replaced, he said.

In Cincinnati, officials in Hamilton County agreed in March to sell the Drake Center, a public hospital, to University of Cincinnati Health for $15 million. The money was needed to help bridge the gap for the nearly $26 million debt the county owes this year for the Great American Ballpark and Paul Brown Stadium, home of the Reds and Bengals, respectively. The county has also targeted $1.4 million in reserves for the payment.

When the city was selling residents on the facility in 1996, leaders promised that a half-penny increase in the sales tax would more than cover the cost of the stadiums. But more than a decade later, the revenue, hurt by the economy and a revenue-sharing agreement the Wall Street Journal last year called “one of the worst professional sports deals ever struck by a local government,” has slowed to a trickle, forcing officials to consider new taxes to make up for the shortfall.

In some cases, problems resulted from a confluence of unforeseen events. In 2010, the Harris County-Houston Sports Authority tapped into its reserves to pay bond debt for Reliant Stadium, an issue created by a downgrade of its bond insurer and from slowing hotel-motel tax collections.

And it’s not just football. Cities and communities across the country are finding themselves on the hook for under-performing hockey, basketball and baseball facilities, including Coolray Field in Gwinnett County.

The Georgia Dome, on the other hand, could pay off its bonds two years early. Frank Poe, executive director of the Georgia World Congress Center Authority, said the 30-year bonds could be paid off as early as 2018, a year after the Falcons would like to open a new stadium. (The state Legislature has approved extending the bonds to 2050 if a new stadium is built on state-owned GWCCA land.)

A spokeswoman for the GWCCA said leaders declined to comment on whether a new Atlanta stadium could avoid the problems that have befallen Cincinnati, Indianapolis and others because each deal is different and because the Falcons and the state have yet to strike any agreements for comparison.

Despite the economic realities, cities continue to pursue new stadiums because of an industry “arms race,” the experts said. Owners don’t want to be last on the Forbes list of “most valuable teams” and elected leaders don’t want to be the one who loses a team to another city while in office. They will work to convince the public that the benefits outweigh the risks and that they have the formula for success.

“In part, it reflects the import some people put on having a major league sports team,” said Heywood Sanders, a professor of public administration at the University of Texas at San Antonio. “Los Angeles has not died because it does not have the Rams.”

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