Speaking of paying for sports venues without massive public subsidies, my latest article for Slate takes a deeper look at the finances of Chris Hansen’s proposed Seattle arena — but not at whether the city would make or lose money on the deal, which I’ve already beaten to death pretty effectively here, I think. Rather, here the question is twofold: How realistic is it for Hansen to think his new arena will generate enough money to pay for both its construction debt and a return on investment for his new NBA team, and what does this mean for the possibility of sports facilities ever being worth building without taxpayer subsidies?
Cutting to the chase:
Stanford economist Roger Noll pegs the operating profits of a typical arena at somewhere between $20 and $30 million a year. That could be enough—barely—to pay off $400 million or so in arena debt. But then Hansen and his as-yet-unnamed investors will still need to put down a huge amount of money to purchase an NBA franchise to play there. If every penny of revenue is going to pay off construction debts, that will leave nothing to offer his moneymen as return on their investment. “The gross revenues of an NBA team in Seattle could not possibly be sufficient,” says Noll, to cover the costs of both building an arena and buying a team.
“He’s taking a lot of stuff under his side of the equation,” agrees John Christison, a Seattle venue management consultant who previously ran Seattle’s convention center and the Orlando Arena. “The question is can he sustain it, and is he being realistic about what [kind of profit] he can turn with that arena given the marketplace right now?”
The marketplace for arenas is not as profitable as it used to be. When it comes to raking in revenues, a basketball/hockey facility has one advantage over baseball and football stadiums: It can be used for bushels of non-sports events, ranging from concerts to circuses to Disney on Ice. “As a rule of thumb, you need around 200 revenue-producing events a year in an arena to start looking at covering your costs—and that doesn’t include your debt service operations,” Christison says.
But according to Christison, such events aren’t nearly as lucrative as they once were. “Ten years ago, if you’d asked any arena manager in the country, even if they had a franchise housed in their building, they’d say that concerts are the bread and butter,” he says. But today, with a fragmented music industry that’s producing fewer acts that can draw arena-sized crowds and competition from an increasing number of both arenas and casinos, “the concert market has become incredibly difficult,” he says. “Nobody’s making much money except maybe the artists.”
It goes on, but basically the upshot is: If Hansen thinks he can build his own arena and make a profit on it, more power to him, but both sports economists and arena managers say that history is against him. None of which necessarily makes this a worse deal for Seattle — since Hansen won’t build unless he can buy a team at an affordable price, and he’d be signing a non-relocation agreement, the worst-case scenario for the city would seem to be some sort of Phoenix Coyotes-style bankruptcy and bailout. But as far as Hansen’s vision being a working model for building half-billion-dollar sports venues of the future without soaking taxpayers, the jury is still way, way out.