NY Times business section cheers urban stadium trend, doesn’t seem to know why

The New York Times has a weird affinity for big sweeping articles about the stadium industry that don’t quite justify their declarative headlines, and the latest one ran in Friday’s business section under the headline “Welcome to the Neighborhood: America’s Sports Stadiums Are Moving Downtown“:

Across the country, in more than a dozen cities, downtowns are being remade as developers abandon the suburbs to combine new sports arenas with mixed-used residential, retail and office space back in the city. The new projects are altering the financial formula for building stadiums and arenas by surrounding them not with mostly idle parking lots in suburban expanses, but with revenue-producing stores, offices and residences capable of servicing the public debt used to help build these venues.

There is a germ of truth in this: Yes, more stadiums and arenas are being built near city downtowns instead of out in the suburbs, the Atlanta Braves‘ new ballpark notwithstanding. That’s true of everything, though, not just sports — we’re in the middle of what’s been dubbed the Great Inversion, a decades-long process where people are increasing moving back to cities instead of out of them. (For “people,” here, read “people with money and options” — plenty of people continued to live in and especially immigrate to big cities even in the 1960s and ’70s.) So yes, there are lots of mixed-use urban developments being built around sports venues, but there are plenty built even with no stadium, or even when a stadium was planned and not built. “America’s Sports Stadium Builders Jumping on Urban Land Rush Bandwagon” might have been a fairer headline.

On top of that, the Times article tries to counterpose the traditional business model where “owners threatened to move their teams if governments did not build them new stadiums along with the roads and public utilities needed to operate them” against the new downtown development trend. But plenty of urban ballpark districts have gotten public funding after team owners threatened to move — hell, the Sacramento Kings arena that is the article’s centerpiece is getting $226 million in public subsidies that were approved only after the team owners threatened to move the team to Seattle.

There are plenty of good things about building sports venues near urban centers: They’re easier to get to by public transit, they support more economic development in cities (such that they support much of any at all), and in general they promote the idea that cities are good places to live and work and go see high-priced entertainment. They also take up valuable land that could better be used on buildings that aren’t dark a couple hundred days a year, displace residents and businesses, and by promoting the idea that cities are good places to live and work and go see high-priced entertainment, spark gentrification and force out the city residents who are supposed to benefit from all this alleged economic development in the first place. The urban-stadiums trend is not a simple good, in other words — and it certainly has nothing to do with any shift away from public stadium subsidies, even if some urban stadium developers are using ancillary land grabs to help pay for their construction costs.

If you want one paragraph that neatly sums up the Times’s perspective, this quote from Kansas City city manager Troy Schulte on that city’s publicly funded downtown Sprint Center should do the trick:

M. Schulte acknowledges that although tax revenue from the district is steadily increasing, it is not clear that enough will be generated to cover the debt service. “But from the perspective of economic development and economic resurgence,” he said, “it’s the best $300 million we’ve ever spent.”

Urban sports venues: They don’t pay off for cities, but they’re still great! Your paper of record, people.

KC’s successful arena district shows even successful arena districts can be huge taxpayer money sucks

With the Milwaukee Bucks owners proposing a $1 billion arena-plus-entertainment-district that could be partly funded by kicked-back property taxes on the entertainment district part — a TIF, in other words, with the arena only excluded because it wouldn’t pay property taxes at all — the Milwaukee Journal Sentinel’s Don Walker took a look on Saturday at Kansas City’s Power & Light District, which has a somewhat similar funding scheme. And he found good news and bad news:

Today, the eight-block Power & Light District is a destination for Kansas City residents with themed bars, fine-food restaurants, shopping, a live outdoor entertainment area and a huge high-definition television that broadcasts sports to passers-by. The half-million-square-foot district is anchored by the world headquarters of H&R Block and the Sprint Center, the city’s multipurpose arena that opened in October 2007.

That’s good!

City manager Troy Schulte said that, in the first few years, the district was generating about $5 million in tax revenue, leaving a $15 million gap that had to be filled from the city’s general fund.

That’s way less good!

Now, you can make a case that even if it’s costing the city some money, it could be worth it in order to revitalize Kansas City’s downtown, give locals some more entertainment options, and the like. (In fact, K.C. councilmember Ed Ford makes exactly this case, telling Walker that “if I could go back and someone had told me at the time this would transform downtown but it will cost $15 million more a year on top of the super tax-incremental financing district we had, I would support it.”) But $15 million a year is a lot of money: That’s enough to finance maybe $225 million in improvements, meaning the city is forgoing that much in other spending in order to pay off the Power & Light District — and that other spending could be on things that were even more beneficial to city residents and their economy. Plus, even a good chunk of that $5 million a year that the district is providing in TIF taxes is likely being redirected from spending elsewhere in town, so some of that is a loss for the city as well. And if the entertainment district is this successful, it’s possible that a developer would have been willing to do it for a lesser subsidy — meaning K.C. could potentially have had its downtown destination and eaten its tax revenue, too.

Finally, all this leaves out the Sprint Center itself, which is losing about another $12 million a year for the city, and which never lured a pro NBA or NHL team as it was promised it would do. All in all, that’s a pretty expensive way to turn your downtown into a nightlife district — I’d love to see the cost-per-job numbers, but Walker doesn’t provide those — and a cautionary tale about how expensive subsidized developments can be, if anything. Hopefully Milwaukee residents and newspaper editors understand that

If the $500 million arena came as a part of an overall downtown development deal – one which benefited the city and Milwaukee County as a whole, not just the Bucks — we’d be much more amenable to state taxpayer money going toward this initiative.


K.C. considers spending $40m on new arena to replace old arena that was already replaced by new arena

What do you get for a city that just built a new arena and has no major-league sports team to play it? How about another new arena with no team to play in it, to replace the old arena that’s sat empty since the new one opened?

New plans may be in the works for the 40-year-old Kemper Arena. Since Crosby Kemper Jr.’s death last week, many have wondered what will happen to his namesake. On Wednesday, his youngest son, Mariner, told 41 Action News he may be close to an agreement…

The agreement could involve tearing the old one down to make way for a $40 or $50 million site dedicated mostly to equine and agricultural events. A report commissioned by the American Royal said a new arena could have a $75 million economic impact…

Mariner Kemper said he has raised 80 percent of the $10 million of private money. The majority of dollars would have to come from the city. However, the city is broke and is still paying off Kemper Arena’s bonds.
Some city council members said the only way they see the possibility of a new Kemper Arena is asking the public to pitch in.

P.T. Barnum had it right. Or David Hannum. Whoever it was.

Maloofs on Kings future: Crazy like a fox, or just crazy?

Ailene Voisin of the Sacramento Bee, in a column that’s otherwise devoted to the dubious notion that the Sacramento Kings owners need to end “their ongoing silence” about the team’s future (what, and give up leverage?), drops a few hints about WTF is going on with all these rumors about the Kings talking about moving to Virginia Beach:

  • George Maloof – the architect behind the near-move to Anaheim in 2011 – is particularly intrigued with a proposed arena deal in Virginia Beach that would be 90 percent publicly funded, with $195 million coming from the city, $35 million from developer Comcast-Spectator and another $150 million from the state.
    Family members and/or their representatives also have had recent talks with officials in Seattle, San Diego, Kansas City, Mo., and St. Louis. … George is the naysayer. Joe and Gavin are attached to Sacramento, but they are unsure about how to breach the emotional and financial separation between the family and the community.
  • The Maloofs are united in their refusal to sell the team, which means the folks in Seattle might look elsewhere. This should be reassuring to Sacramento, because a sale would virtually ensure the Kings’ departure. (The Chris Hansen group in Seattle, for example, would outbid any investors interested in keeping the team here.)
So if Voisin is correct and the Maloofs aren’t simply playing good cop/bad cop with her, then what seems to be happening here is that Seattle is the market where the Maloofs could make the most money, but they don’t want to sell the team and Hansen wants to be an owner, not a landlord. So instead you have George Maloof (and/or his representatives) jetting around the country to try to shake loose a deal lucrative enough that his brothers will give up their emotional ties to Sacramento that go all the way back to 1998.

This doesn’t actually sound like the most effective way to leverage the best deal for your team — “Hey, everybody, let’s refuse to sell to the guy who wants to throw money at us and then bicker among ourselves about what to do instead!” — but then, the Maloofs have a long track record of head-scratching moves, so maybe they really are this dysfunctional. Unless that’s just what theywant us to think, and this is really the world’s longest-running grift.

A funny thing, meanwhile, has started to happen out in the cities that are supposed to be bidding against each other for the Kings: They’ve started to pay attention to what the others are doing, and not just in an “Oh my god, somebody else wants the team too!!!” kind of way. From an editorial in yesterday’s Virginian-Pilot:

In Seattle, which is building a $490 million arena, the city has required the developer to personally guarantee the $200 million public investment if rent and admissions taxes fall short. His net worth must remain at least $300 million, and Seattle will audit him each year to ensure he’s capable of making the payments.

Admittedly, this isn’t the most important part of the Seattle arena plan — that would be that Hansen is agreeing to sizable rent payments that will rise to meet the bond payments if there’s a shortfall in tax revenue, something that Comcast hasn’t promised to Virginia Beach so far as I know. But at least newspaper editors have learned to look at other cities for examples of how to negotiate better sports facility deals. Baby steps…

Kansas City losing money on old arena since Sprint Center has opened

Hey, every city thinking of building a new arena while also keeping your old one around — I’m looking at you, Seattle — here’s your cautionary tale, courtesy of Kansas City:

While the Sprint Center has exceeded many people’s expectations since it opened five years ago, one promise has not been fulfilled.

Kansas City leaders have not identified a new purpose for Kemper Arena.

Kemper has lost nearly all its big events, including the circus and monster truck shows, to the shinier, newer facility downtown. It now loses money every year, is kept dark for months at a time, and the city is struggling to find a solution.

“This city is not big enough to support two 20,000-seat arenas,” City Manager Troy Schulte said. “The sooner we deal with that, the better off we’ll be.”

The Kansas City Star goes on to note that Kemper has seen its annual number of events fall from more than 150 to a mere 25 this fiscal year, including “a handful of American Royal events, plus graduations, Jehovah Witness gatherings and the like.” Current plans are to either tear down Kemper and replace it with a smaller facility, or possible renovate the current building to hold fewer seats.

Kemper is currently losing $1 million a year, which eats up most of the $1.8 million a year that the city gets from the Sprint Center. Plus, of course, the city is paying $13.8 million a year in debt payments on building the Sprint Center. And another $2.2 million a year in remaining debt on Kemper. With coups like this, who needs failures?

K.C. Star writer to Sacramento: Sprint Center cost nothing! Really!

On Sunday, the Sacramento Bee ran a front-page (of the E section, anyway, whichever one that was) opinion piece by Barbara Shelly, a columnist for its fellow McClatchy-owner paper the Kansas City Star, on what Sacramento’s Kings arena push can learn from Kansas City’s own arena battles. And Shelly’s conclusions went a little something like this:

Since opening in 2007, the Sprint Center has shattered the expectations of even the most ardent believers. Pollstar magazine rated it the fifth-busiest arena in the nation and 12th-busiest in the world in its latest rankings. It turns a profit for its operators and the city, even though a pro sports franchise has not yet materialized.

In a coup that silenced all but the most hard core of the naysayers, Kansas City built a $276 million arena without raising taxes for residents or assuming any risk for operating losses. Its story involves a great deal of luck, but it could point to a way forward for Sacramento and other cities.

Only one problem with that description: It bears no resemblance to reality. As both I and my own corporate colleagues at The Pitch explained two years ago, the Sprint Center turns an operating profit for Kansas City — but that’s only if you don’t count the city’s annual $13.8 million in construction bond payments. And that money is all coming from hotel and car-rental taxes — which only counts as “not raising taxes for residents” if you think that people only ever rent cars while on vacation. (And even if you do think that, there’s still an opportunity cost to devoting car and hotel taxes to an arena: It means you can’t raise them to pay for something else, meaning other taxes — the kind that are indisputably paid by residents — have to be higher than otherwise as a result.)

Even with my lowered expectations for standards of professional journalism since journalism effectively stopped being a viable profession, I find it pretty astounding that this stuff could end up in a major newspaper without anyone bothering to do a quick fact-check, or even a reality check. I was hoping that The Pitch might have caught wind of it and taken the Bee to task, but they’re kind of busy right now with a wind of their own, so it’s probably understandable that they haven’t.

AEG’s sweetheart Sprint Center lease: the breakdown

After all the confusion over exactly how arena managers AEG and Kansas City are splitting money from the Sprint Center, Justin Kendall of K.C.’s alt-weekly The Pitch was kind enough to send over the actual section of the lease that spells this out. And it’s an eye-opener, as much as any document that includes phrases like “All Prior Fiscal Years’ Six Million Dollar Amortization Payment Cash Flow Deficiency” can be said to open anyone’s eyes.

I’m no contract lawyer, but if I’m reading this correctly, here’s the way all profits from the Sprint Center are disbursed:

  • The first $347,000 a year goes to pay back the six million dollars in cost overruns that AEG and Kansas City rang up for the arena, split 80/20 between the city and AEG, plus an interest rate of 4%.
  • The next $6.7 million a year goes to pay back AEG’s $50 million share of the pre-overrun arena cost. AEG, however, gets paid back at an interest rate of 12%.
  • Next, AEG gets enough money to earn it a guaranteed 16% return (including those interest payments on its $50 mil) on its initial investment. As an added bonus, if there wasn’t enough to earn it a 16% return in some prior year, AEG can take out extra in subsequent years.
  • After that, $3 million (total, not annual) is put aside for a Capital Reserve Fund. And finally, if there’s anything left, it’s split 50/50 between AEG and the city. Little wonder that AEG president Tim Leiweke called this a “throwaway provision,” and said his lawyers predicted they’d never earn enough to have to pay it.

What’s missing here? Well, while AEG gets a guarantee of being made whole on its $50 million investment, plus 12% interest, plus 4% more in profit on top of that, the city of Kansas City is on the hook for $216 million in arena bonds — amounting to $13.8 million a year in bond payments, K.C. budget director Troy Schulte tells Kendall. While an occasional $1.8 million windfall, as the city got last year when the Sprint Center had an exceptionally good year, is nice, it’s still a drop in the bucket on that debt.

In other words, AEG may have been an excellent choice for an arena manager, one that has used its clout to fill the Sprint Center with plenty of concerts. But in landing someone to run their new barn, Kansas City gave away the farm.

Is the Sprint Center really making money?

The Wichita Eagle looks at a report in the Kansas City Star (by our old friend Kevin Collison) that that city’s new Sprint Center is making money, and wonders whether that might be good news for Wichita’s soon-to-open Intrust Bank Arena, NCAAs or no NCAAs.

Only one problem: While the Sprint Center is indeed turning a profit, that’s only an operational profit — in other words, it doesn’t count the cost of paying for building it in the first place. Kansas City essentially handed over the building to arena managers AEG after it was complete, and told them to deal with the expense of running the place and allowed them to keep most of the proceeds; the fact that K.C. will see any money at all, in fact (estimated at $1.8 million this year), is an indication that AEG is doing a good job, since according to its lease it doesn’t need to share any profits at all with the city until it’s making a 16% return itself. Given that K.C. is on the hook for $10-15 million a year in arena bond payments (guesstimating here — that information doesn’t seem to be online anywhere [UPDATE: It is now, and I was — ahem — on the money]), there’s almost no way it will actually turn a profit on building the Sprint Center.

That said, it’s still better for AEG to be running a profit than running a loss, especially since the Sprint Center still doesn’t have a major-league sports tenant. And AEG seems to be intent on using its success with concerts to drive a hard bargain with any sports teams looking to move to Kansas City: AEG president Tim Leiweke told the Star, “The economic model of this building is quite successful. The last thing we or the city want to do is throw away that model and make the arena a loss leader with another tenant. It’s a tougher scenario with a professional team. I’m sure we wouldn’t be able to write a check to the city for $1.8 million.” In other words: As predicted, they’re not going to be no pushovers for, say, the Islanders.