Shifting Sports Economics Reflect ‘Novel’ Stadium Ideas

Monday, Jan. 22, 2007 | The Chargers aren’t asking for hundreds of millions of dollars in tax money or public loans to help pay for their desired new stadium. Instead, they hope to become builders as well as footballers, employing the profits from a related development to finance a stadium that’s nearly doubled in price in four years.

The new economic model represents the convergence of two phenomena in the sports business world: the steadily increasing cost of new stadiums and the rapidly declining interest by taxpayers in helping fund them. And for that, the Chargers’ stadium plans have been branded as privately financed.

But the public will likely be asked to contribute significantly to whatever precise proposal surfaces from talks with Oceanside, Chula Vista, National City or other local entity, if one surfaces at all. Cities could be asked to contribute sizable parcels of land, entitlements or infrastructure to a stadium-and-development deal.

“It’s never 100 percent. In fact, I don’t think anyone expects it to be, and there’s nothing negative or sinister about it,” said David Carter, executive director of the University of Southern California’s Sports Business Institute. “But the bigger picture is it hasn’t had to be done with regularity anywhere else.”

“These are new and novel approaches,” he added.

When the Chargers proposed their first iteration of a stadium plan four years ago this month, the football structure itself was estimated to cost $400 million. That figure has now nearly doubled, with the team projecting a new field to cost $750 million. The housing boom nationwide and increased demand in China have dramatically lifted construction costs, particularly in steel and concrete.

That, combined with a growing distaste for direct public subsidies for sports, has spurred largely privately financed stadium proposals on a magnitude that hasn’t been seen among major sports franchises. The result, if successful, could be a new model for how sports facilities are financed.

Dean Baim, a professor of economics and finance at Pepperdine University in Malibu, said the revenues that come from stadiums aren’t enough to support the construction costs, so new “cross-subsidies” are being explored.

“Since taxpayers in San Diego and other places are becoming increasing resistant to paying taxes (for a new stadium), we’re trying to find ways to tie a stadium into some kind of alternative investment,” he said.

No specific Chargers stadium proposal currently exists. In the city of San Diego, the team originally sought to turn the current stadium site in Mission Valley into a redevelopment area and get $200 million in public funds from city-sponsored redevelopment. Later, the team proposed constructing a stadium, a public park and $175 million in infrastructure improvements, and financing it with the proceeds from an accompanying development. To do that, the team asked for 60 acres of public land on which to build and sell 6,000 condos.

The team scrapped the plan a year ago before it made it to the ballot, but continues to use variations of that model in its ongoing studies in Oceanside, National City and Chula Vista.

Essentially, the team and a development partner use a prospective development to get stadium-construction loans, leveraging the future revenue streams from offices, homes or retail for money upfront to help finance the stadium.

As part of the financing structure, the team is searching for a partner to help shoulder the costs and risks of the construction. And one of the ways a developer can be enticed to offer a share of its profits is through breaks that might not be otherwise available to a typical development — like free or discounted land or changes in the land’s zoning.

The team is hoping its heft can bring the sort of attention or pull to a deal that wouldn’t otherwise be available.

“The bottom line is, are we bringing enough to the project for a city for them to be able to justify participating through land or through entitlements or through zoning?” said Chargers special counsel Mark Fabiani. “That’s really the question. What are we bringing to the table that the city can’t get on its own? If the answer to that is nothing, then the city probably won’t want to do a deal with us.”

And if the public is contributing something such as land — a valuable commodity anywhere and especially so in Southern California — is it indeed privately financed?

“If you look at the way these things are framed around the country, if you’re not taking money out of the general fund or tax increment from a redevelopment, then you’re privately financing it,” Fabiani said.

Opponents of government involvement in sports business contend that a contribution of public land is no different than one of tax dollars. “Our answer is no, it’s a trade. … Our argument is that this land is now not valuable to these cities,” Fabiani said.

In Oceanside, the Chargers could end up seeking public land. The city owns a 75-acre parcel, 71 acres of which are currently leased out as a golf course. It’s too soon to say whether the site could also host the accompanying development, Fabiani said.

Oceanside Mayor Jim Wood, who just began talks with the team this month, said he is waiting to see what the team will ask from his city. “I don’t know and I’m dying to hear, to tell you the truth,” he said.

Fabiani points to National City and Chula Vista for examples of what he says the team can provide that a typical developer couldn’t. In National City, he said, officials had tried in vain to get attention to its bay-front land, which is controlled by the Unified Port District of San Diego — until a stadium proposal came along.

Likewise, the team’s involvement in a stadium deal could possibly attract San Diego State University to be part of the age-old vision for a university campus in eastern Chula Vista, he said.

Real estate advisor Gary London compared the breaks to a developer giving an anchor tenant in a mall reduced rent in order to attract other, smaller tenants. Likewise, he said, the value of land around any new stadium would be strengthened.

“These things always involve trade-offs,” he said.

“That doesn’t mean you get the whole thing for free,” Carter said. “How much is too much? That boils down to the demands in the marketplace in sports. And it boils down to political will.”

In Chula Vista, the city may be asked to allow builders on privately owned land on the east side of the city to build more densely and accelerated the construction of planned infrastructure. On the west side of the city, near the bay front, the city may again be asked to help out with infrastructure and the port could be asked to lease land to the team.

The development-and-stadium concept is proving to be a hurdle in National City. The land being eyed for a stadium, currently owned by the port and BNSF Railway, would only fit a stadium. So, city officials have been looking for a way to put the accompanying development on a number of satellite locations both in National City, San Diego and other places in the county. That effort, combined with burdensome infrastructure costs, leaves National City’s bid as a long shot.

In addition to the perceived economic-development boost, officials in these cities also hope the team can give them something it couldn’t give an already well-known city like San Diego: name recognition.

“It’s going to raise our profile, our image. … We’re a major metro city and most folks don’t necessarily view us this way,” said Chula Vista City Councilman John McCann.

In the 1990s and early 2000s, these sort of trade-offs weren’t exactly necessary. Taxpayers pitched in simple cash to help out professional sports, as having a new field became the fashion among owners of baseball and football franchises. San Diegans decided in 1998 to lend considerable financial assistance to the construction of the Padres’ Petco Park.

But academics combated the notion that stadiums merited the large public investments they were fetching, and the public, especially in California, grew less interested in offering tax dollars to pro sports clubs.

Taxpayers still aren’t shy about pitching in on a stadium in some parts of the country, however. The city of Arlington, Texas is contributing $325 million to the Cowboy’s new stadium, which is set to open in 2009. It is estimated the stadium construction will cost $1 billion.

Baim said attempts have been made to finance a stadium privately with the help of additional development. He noted that the San Francisco 49ers and Giants unsuccessfully attempted to finance a stadium at Candlestick Park with help from a shopping center the baseball Giants eventually worked out a private deal for their own ballpark. The Giants’ deal included a $10 million tax break from the city, which was used for infrastructure and public transit.

“There’s rarely been a situation in the last 60 years where the team has actually gone out and bought the property, built the road leading up stadium and so forth,” Baim said.

Separate stadium proposals currently offered by the 49ers and baseball’s Oakland Athletics also employ similar private financing models. Fabiani said football’s New York Giants and Jets have implemented a similar financing plan for their estimated $1.2 billion project in New Jersey.

What exactly comprises a fair trade will likely be wrangled over in the months ahead if a specific proposal emerges from within San Diego County. The team anticipates taking a final stadium proposal to the voters in November 2008.

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