The Delicate Legal Art of Funding, Building, and Naming a Stadium in America: Part I - Financing
Updated: Dec 21, 2021
(Photo Credit: UC Berkeley, Economic Review)
Have you ever looked at your local professional sports stadium and wondered how it came to be? It’s easy to overlook just how monumental a task it is for such a building to come into existence - a confluence of perfect conditions, plus hundreds of hours of due diligence, hard-nosed negotiations, countless contracts, and more goes on behind the scenes before such a dream can become a reality. Three key areas that should be explored are the financing of the stadium, the land use for building the stadium, and the naming rights. This first article in a three-part series will dive into the basics of financing.
Figuring out how a stadium project will be funded is the lifeblood of the operation - without the necessary capital, the project doesn’t even get off the ground. The money has to come from somewhere, but where? When a new sports stadium or arena is desired, teams might discuss and negotiate with states and local governments to determine how they will be funded. No two situations are the same, and a variety of factors must be considered before outlining a financing plan.
Thus, one way that a stadium may be paid for, at least in part, is by public financing. This occurs, in effect, when those local and state governments agree to pay for a substantial portion of the stadium’s costs. As the money that the government will use is public funds, this cost is in practice delegated to the local taxpayers, who will see their money essentially being put towards a stadium development project. This use of public funds to build a stadium has been occurring for decades, but there is controversy among many who believe that your average citizen should not be paying for something that a team owner could likely pay for themselves. To that end, the willingness of the public to pay for such a project depend on many factors, such as level of interest in the team, threat to relocate, the promise of a stadium bringing jobs and economic growth to the area, and more. One concern is that these public funds could hypothetically be used more beneficially elsewhere, such as for infrastructure, or education. Nevertheless, these stadium subsidies can come in many forms, including but not limited to tax-free municipal bonds, cash payments, long-term tax exemptions, infrastructure improvements, and operating cost subsidies. Again, the idea is that these stadiums are a public good - theoretically providing jobs and promoting economic growth and interest in the area. If such an agreement is approved, citizens may see higher taxes for a period of time too, such as the Community Investment Tax, a sales tax increase that helped pay for the Tampa Bay Buccaneers’ stadium.
Some notable stadiums that were entirely publicly funded include Angel Stadium of Anaheim (home to MLB’s Los Angeles Angels), Arrowhead Stadium (home to the NFL’s Kansas City Chiefs), BB&T Center (home to the NHL’s Florida Panthers), Madison Square Garden (famously home to the NBA’s New York Knicks and the NHL’s New York Rangers), and Toyota Park (home to MLS’s Chicago Fire).
Another key way that a stadium may be paid for is by private financing. This, in its most basic terms, is when a private entity - be it a singular person, corporation, or conglomerate - pays the costs of stadium development out of their own net worth. With the prices of stadiums skyrocketing in recent decades, and seemingly only going to continue rising, entirely private financing of stadiums is possibly going to become less common. However, there are still uber-rich owners who will cover the costs in their entirety. For example, Billionaire Rams owner Stan Kroenke footed the bill in its entirety for the Los Angeles Rams (and Chargers) new stadium in Inglewood, California - SoFi Stadium - which reportedly ended up costing the mogul over $10 billion. Perhaps more commonly, this is seen for international soccer stadiums around the world where a stadium (or its renovations) are often handled privately by the club. Take, for example, La Liga giants Real Madrid and FC Barcelona - both of whom paid hundreds of millions of dollars to upgrade their stadiums in the past decade, even taking on debt from banks or corporate lenders to ensure construction take place.
Some other stadiums in the US that are completely privately funded include The Bell Centre (home of the NHL’s Montreal Canadiens), the Pepsi Center (home of the NHL’s Colorado Avalanche and NBA’s Denver Nuggets), and Allianz Field (home of MLS’s Minnesota United).
Naming rights generally will be discussed in more detail later, but such naming rights deals can be crucial to securing funding at the inception of stadium development. As the name suggests, this typically occurs when a corporation enters into a contractual agreement with a sports team. In its most basic terms, this agreement would provide that the stadium be named after the corporation or however the corporation so directs upon completion. For example, if the Conduct Detrimental Sports Law Blog entered into such a contract with a new soccer stadium that was going to be built, Conduct Detrimental would pay a certain amount of money in exchange for the stadium being known as, perhaps, Conduct Detrimental Field. These corporate sponsorship contracts are tensely negotiated between team and company, with lawyers spending hours researching, communicating with the other party, trying to get the best deal possible, and eventually drafting the contract itself. These naming and sponsorship agreements can be very lucrative for teams building a stadium, but they must also be approached with caution - special attention should be given to licensing terms, exclusivity provisions, and how, for example, naming your new stadium Snapple Arena may violate a contract you already have with Arizona Iced Tea as the official iced tea of your team.
Naming rights deals done at the inception of stadium funding can come in many shapes and sizes as well: about a third of the funding for the FedEx Forum (home to the NBA’s Memphis Grizzlies) came from a naming rights deal; but just under 2% of the funding for AT&T Stadium (home of the NFL’s Dallas Cowboys) came from naming rights. As noted, these agreements can contain various different types of provisions beyond mere funding and naming, but they can play a crucial role in the initial funding of a professional sports stadium.
In the end, most stadiums are some combination of two or three of these sources - perhaps a 60% public, 30% private, 10% naming rights split, often adding up to over a billion dollars. However, one problem may arise in these combination-funding situations once renovations are approved, requested, or required years after the stadium opens. For example, Chase Field was completed in 1998, but nearly two decades later in 2017 the Arizona Diamondbacks were locked in a lawsuit with Maricopa County over who was responsible for paying for renovations. Legal action is a last resort, to be sure, but the stakes are very high when the threat of relocating a team is on the table. Ideally, these details would be contractually outlined at inception of the stadium’s development, but shortsighted parties eager to make a deal may not see issues coming down the pipeline. That is why stadium financing, no matter the distribution plan, requires careful drafting, hours of due diligence, exposure limitation, contingency plans, and prospective consideration. With the funding taken care of, the project may begin in earnest. Stay tuned for part two of this three-part series, where we’ll discuss the legal steps needed in order to actually build the stadium.
Jason Re, George Washington University Law School 3L