Most new stadiums can’t even pay their own construction bills; pass it on

U-T San Diego (the stupidly rebranded former San Diego Union-Tribune) may have fired its best sports columnist and be owned by a guy who thinks journalists should be cheerleaders for stadium deals, but I may have to rethink my evaluation that it’s not a real newspaper anymore. Yesterday, business columnist Dan McSwain wrote an excellent analysis of why new stadiums are so often money-losing propositions:

Let’s start with what we do know: The Spanos family, which owns the Chargers, wants a new stadium costing about $1 billion.

On the bright side, interest rates are low. The annual payment would be about $80 million, assuming a 20-year loan at 5 percent interest…

In a 2004 presentation, the Chargers estimated that a new stadium at the Qualcomm site in Mission Valley would boost the team’s “local revenue” by $15 million a year.

A fresh estimate by John Vrooman, a sports economist at Vanderbilt University, put the gross increase at $50 million (some would indirectly go to players via league revenue sharing).

At $15 million or $50 million, either figure is a long way from covering $80 million in new costs, let alone boosting profits. This may explain why the Spanos family hasn’t simply built a stadium itself by now, after 13 years of occasional pleas for public help.

Let that sit in your head for a minute. Chargers owner Dean Spanos says he desperately needs a new stadium in order to be economically competitive — a new stadium that would cost 60% more than it brought in in new profits. (There would likely be some help from the NFL’s G-4 fund, but it wouldn’t be enough to fill a $30 million a year gap.) Spanos’ stadium chief Mark Fabiani told McSwain that this is why the team needs public subsidies (“Your calculations do demonstrate the severe and very practical limitations we face in San Diego with regard to private investment on a new stadium”), but another way of looking at it is that a new stadium in itself would actually hurt the Chargers’ bottom line. Or as McSwain put it:

My take-away: The team’s deal at Qualcomm is too good to abandon without hefty public subsidies.

This is possibly the key point to keep in mind when analyzing stadium proposals: With few exceptions (the San Francisco 49ers stadium in Santa Clara comes to mind), the building itself is a money-loser — the team owner only turns a profit thanks to the public subsidies. (If you want another detailed example of this, see Kansas City’s Sprint Center, though there substitute “arena manager” for “team owner.”) This means it would literally be more cost-effective for cities to just hand over a wad of cash to their teams, and skip all of this laundering of subsidies through a billion-dollar construction project that nine times out of ten will be awash in red ink.

There is nothing wrong with new stadiums and arenas per se — well, unless you think they’re ugly, but plenty of old ones are, too. But the reason the U.S. has so many of them, and is tearing down its not-quite-as-new ones to replace them with shinier models as fast as possible, has nothing to do with the alleged riches that can be made off of them, and everything to do with the fact that in order to get those fat checks from the public treasury, you need to be able to present a giant construction bill as justification. If we could only start subsidizing something useful instead — say, rules changes to prevent concussions, or better mascots — there would still be a massive transfer of money from the public to a bunch of rich dudes, but at least we might get something out of the bargain other than fancier cupholders.

[UPDATE: Neglected to mention that UT-San Diego also has a new poll of local residents on a Chargers stadium, and they oppose using taxpayer funds by a 63-29% margin. (A slightly lesser majority opposes “tax breaks” for a stadium, because some people think tax breaks aren’t taxpayer funds somehow?) NFL commissioner Roger Goodell, meanwhile, chimes in that “they do need a new stadium for the Chargers to be successful long-term.” Same as it ever was…]

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19 comments on “Most new stadiums can’t even pay their own construction bills; pass it on

  1. As their billionaire owner refuses to step in and foot the bill when he’s more than capable… Dean Spanos has a net worth of about $1.2 billion himself. He COULD pony up and pay for the stadium by himself & live on a meager $200 million, but we all know he won’t: similar to an unaccountable doctor who doesn’t stand up to aid a suddenly ill passenger on a plane…

    Elon Musk received $165 million when eBay acquired Paypal. He initially put $100 million in SpaceX, $50 million in Tesla, and the rest in SolarCity… He had to borrow money for rent. I like when people go all-in. It shows how much a businessman really thinks he “needs” it… like what is he willing to do to accomplish it?

  2. Isn’t this more or less what New Orleans did a decade or so ago with Benson?

    As I recall, they sat down with him and listened patiently to his claims of “what he could make” if he either moved the team or had a new stadium. Then, they offered him some Superdome upgrades (which, to be fair, also work for other events they hold there beyond NFL football) and something in the range of $10-15m in annual subsidies to replace the revenue he was theoretically “losing” by not having the ability to build his own Jerryworld.

    I’m not a fan of subsidies for professional sports (or indeed any private business), but if you are going to do it I agree that it’s often a wiser use of funds to just directly subsidize.

    The complex and arcane terms associated with modern stadium deals invariably end up having massive (and often incalculable) costs to the public accounts going forward. You can save yourself a lot of tax dollars by just admitting you are giving welfare to billionaires.

  3. As a San Diego resident the most interesting question wasn’t that the city doesn’t want to fund it… that was a foregone conclusion, but that the city seems to favor building it at the current Qualcomm site. That was the general consensus I’d gathered from endless talking about stadiums on message boards, forums and listening to sports talk radio… but it’s nice to see it quantified in a poll. And it’s not even close. Only 22% or so want it downtown while over 50% want it where the current stadium is. Maybe given that obvious favorite location, maybe the Chargers can focus a little more and come up with a real funding solution at what they’ve previously admitted is the more affordable location to build.

  4. Also interesting that less than half of respondents believe the Chargers would leave San Diego despite all the scare mongering coming out of LA. And under 1/4 of respondents actually believe they’d leave.

  5. “You can save yourself a lot of tax dollars by just admitting you are giving welfare to billionaires.”

    But let’s find another word for it. “Welfare” assumes trying to lessen a hardship. Owning an NFL team is like discovering that money actually does grow on trees. And it’s not like the Chargers are suffering in attendance or on-field performance. There is no hardship or “need” here, just “want”.

    (UT San Antonio got next. Go Roadrunners!)

  6. San Diego is the unusual case where a modern NFL stadium would actually mean something to the local economy, beyond the presence of a team (despite the nonsense academics proffer about Super Bowls and high profile college football games failing to help the local economy). The city and/or county should find a way to get this built.

  7. Ben, why exactly do you think San Diego is an exception here? It’s certainly not like the city needs a reason for tourists to visit in the winter.

  8. I certainly agree with Neil about San Diego. It does not need a stadium for me and many other people to visit it – including the cruise lines.

  9. If NFL (and other) subsidized stadiums actually added something to the local economy, Glendale would be the richest place on earth. But Glendale just finished losing money (again) on the Super Bowl. It’s easier to hide the economic damage done by subsidized sports in a large city, not so much in a small one.

    But the lessons of Glendale will be ignored, and the fantasy continues.

  10. Maybe he’s referring to the fact that Qualcomm is currently costing the city a fair bit every year due to its condition? Or that a new stadium is also utilized by SDSU and presumably the convention center as well if built downtown for the latter?

  11. I think San Diego could put itself in the regular rotation for Super Bowls, CFB Playoff Championship games and WrestleMania because of its weather, location and existing hotel/convention infrastructure.

  12. There is no rotation for the CFP championship game. Cities with a stadium that has a minimum seating capacity of 65,000 are eligible to bid for the game and since Qualcomm holds 70,000 they’re already eligible to bid if they choose.

  13. SoCal remains the toughest place for us to wrench public stadium cash out of the commoners. It might as well just be a suburb of L.A. for all the pointless wrangling. The value of our L.A. leverage play increases proportionally to the distance from L.A. of the location in question. San Diego is too darned close!

  14. Great point Alan. You really got to the crux of the issue without being distracted by meaningless details.

  15. OK, let’s consider the alternative to building a new stadium for the Chargers. You don’t, they move to LA. But wait, do they? Does Stan Kroenke want a BETTER team than the Rams to share his shiny new stadium? Eating up all the corporate money? Snatching those tasty PSLs? Plus, as a recent poll indicated, no one in LA wants the Chargers. There’s a little Charger fan action down there in south OC, but really, is that LA’s concern? No. In fact, even if Kroenke is willing to share Champions Stadium with another team, it probably won’t be for a few years until after he’s established his brand. So, SD, you’ve got time. I can’t imagine any city in America offering what San Diego offers — a pretty little city with a California caché and a solid fan base. Off a couple hundred million to upgrade the existing stadium and move on.

  16. Keith: Are you suggesting that an owner making “less money than he otherwise might” isn’t a legitimate hardship????

    Shock. Horror. Over to you, Piggy….

  17. We deal with hardship from time to time. For instance, the gold plated toilet in my Park Avenue penthouse overflowed one day (I was hoping it would overflow with cash but to my shock that wasn’t the case, sadly) and I had to use the butler’s toilet. I endured.

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