Can a $1B Warriors arena in San Francisco pay off?

This slipped past me last week: Golden State Warriors president Rick Welts told the editorial boards of two San Francisco TV stations that a new waterfront arena in San Francisco could now cost $1 billion, thanks in part to being built on piers that are currently “falling into the Bay.” And that number — which would be a record price tag for a new arena — could still rise as Warriors officials evaluate the site prep costs.

Still, Welts says the Warriors are moving full steam ahead with their San Francisco arena plans, which raises the obvious question: What are they smoking? Is it really possible that a San Francisco arena would boost team revenues by enough to pay off $1 billion or more in construction costs?

I’ve written before about the difficulties of getting arenas to pay their own way; to quote me, quoting longtime arena manager John Christison:

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.”

Still, if you do manage to fill 200 nights — or more — a year, there is definitely he potential for gold in them thar arenas. The Brooklyn Nets‘ Barclays Center, for example, has been packed since its opening last fall, which should help pay off its construction cost of somewhere near $1 billion. (Though admittedly no actual profit figures have been made public, and it’s going to take 30 years’ worth of gangbusters business at Barclays to keep paying off those bonds.) And Brooklyn is probably a decent analogue for San Francisco: a massive population with lots of people with disposable income, and a market currently underserved by existing concert venues.

The arena world is very odd right now, with a mix of small-city venues that can’t come close to paying their own way (see: Kansas City and Louisville) and big-city ones that seemingly could turn a profit even if they were built with three helicopter pads and a ballroom. The difficulty is for mid-sized cities — hey there, Seattle! — to figure out where the line lies between windfall profits and utter disaster, and which side of it they lie on.

Or, of course, cities could decide that this literally isn’t their business, and let the risk fall on arena operators. Which would be fine and dandy, except that private arena builders so often turn to the public for bailouts when their revenue projections go awry. Not that this is likely in San Francisco, which has the world’s only recent privately funded baseball stadium in large part because of its ability to say no to subsidy requests. But it does make one wish we could see the revenue projections for this $1-billion-plus Warriors arena plan, just to see where all this money would come from.

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5 comments on “Can a $1B Warriors arena in San Francisco pay off?

  1. It’s not really a home until you have a staff of 600 (read: a small hamlet) dedicated to taking care of the place.

    Please don’t eye Seattle too hard… we’re paying Kingdome bonds until ~2016. http://www.king5.com/news/Seattle-King-County-Kingdome-102679614.html

  2. Zip code 94124 deserves (in my opinion) consideration as a site for the Warriors’ new arena. San Francisco’s southeast corner includes (a) a huge number of parking spots (b) a rich history of athletic events (c) a shorter distance to San Francisco International Airport than the waterfront location currently targeted as the Warriors’ future home. Additionally, a basketball/hockey structure would play a role in less traffic congestion than code 94124 sustained with numerous events from Candlestick Park.

  3. I don’t really think of Seattle as a mid-sized city. It’s the 15th-largest Metro market in the US.

    Frankly, I think of Sacramento as an upper-mid-sized city, and it’s much smaller than Seattle. Given that Sac is trying to proceed with its plans, and Seattle isn’t, that’s the example I’d have gone with.

    Not to mention that the SF Bay area, the LA area, the SJ area and the SD area are all larger than the Sacramento area. Sacramento lives in the shadow of 4 larger, wealthier metro areas just in the state.

    I don’t buy the entire Sac-Stockton-Modesto argument either. I live physically closer to Berkeley than I do to Modesto. They only say this is one media market because the Sacramento TV stations placed their transmitters in Walnut Grove so they could have the Stockton-Tracy-Modesto markets to themselves.

    Last, where the Seattle metro area has over 1/2 of Washington State residents, the Sac Metro area has less than 1/10 of CA residents. Not only is Seattle far larger physically, it’s far larger in terms relative to the rest of the respective state, too.

  4. In your analysis, please consider the cost to the neighborhood. In SF ( traffic, parking, cost of repair of pier,views) as well as Oakland loss of revenues.

  5. KJ wants Sacramento to double-down on the crazy:

    http://blogs.sacbee.com/city-beat/2013/07/mayor-sacramento-elk-grove-should-join-forces-in-major-league-soccer-push.html

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