If you look back prior to the mid-1990s, most sports stadiums were financed predominantly through public funding. And since municipalities were footing more of the bill, they played an active role in design, construction, and operations—retaining a significant share of stadium revenues as well. Over the last 20-30 years, however, sports franchise ownership has become more sophisticated, with owners gradually realizing the considerable financial benefits that come with being more actively involved.
Today’s team owners recognize the importance of increasing local revenue given the direct correlation between revenue and franchise value. In many cases, this has propelled them to make substantial investments in new or renovated venues to gain greater control over the revenues those facilities produce.
In addition to garnering a larger share of venue revenues, teams are also taking a more active leadership role in stadium design, construction, and operations; enabling them to more effectively:
- Design a stadium that fits the specific needs and characteristics of their market; and
- Maintain greater control over the fan experience.
Given their increased capital investment, teams today tend to take a much more scientific and analytical approach to what their venue offers customers. Tailored ‘Premium’ seating offerings designed around specific marketing characteristics (suites, club areas, tabletops, and opera boxes) represent an experience rather than just a seat. Broader and more sophisticated food and beverage concessions (in many cases provided by a combination of both national and local providers) serve to enhance the overall experience. For franchise owners, the challenge often lies in striking the right balance between optimizing the customer experience and maximizing revenue.
Looking beyond four walls
Another growing trend is the active participation by team ownership in real estate developments adjacent to sporting venues. The prevalent theory has always been if you build a stadium, other nearby development will soon follow. Historically, however, this development would be spearheaded by individuals and firms not associated with the franchise. Team owners would only benefit indirectly, to the extent that these developments would result in incremental attendance growth.
But why have another unaffiliated third-party benefit from that opportunity, rather than benefiting from it yourself? Why not strive to control more of the customer experience outside of the stadium in the surrounding neighborhood instead of limiting your involvement to what happens inside the venue? These are the questions sports franchise owners are increasingly asking themselves—with many beginning to act on various opportunities.
Investing in commercial real estate development around your stadium serves to attract more people to the venue and incents them to spend more time there. Keep in mind that you’re competing for finite entertainment dollars, so it’s critical that you make the overall customer experience as enriching as possible. By controlling the adjacent development, team owners are able to make the experience of entering and exiting the stadium as seamless and satisfying as possible. Additionally, investment in adjacent development is a 365-day operation (not just limited to game days), which can smooth out the seasonality of the stadium or arena from a revenue standpoint, and ultimately lead to greater enterprise value.
Look no further than the current development of the $2.6 billion Hollywood Park stadium complex, which will house both the Los Angeles Rams and the L.A. Chargers football franchises to see this new strategic approach in action. The 80,000-seat stadium (already tapped to host the 2022 Super Bowl and the 2028 Olympics) is just the cornerstone of a massive 300-acre mixed-use commercial, residential and entertainment district.
Demographics driving stadium design
With the burden for financial investment in stadium development shifting to teams, ownership can increasingly control more of their operations and capture more of the revenues they generate. As a result, they’re becoming highly sophisticated regarding the financial analytics of their franchise:
- They’re looking more closely at market demographics in order to create a design that’s consistent with those demographics (e.g., food, seating, entertainment, etc.)
- They’re constantly analyzing planning and design to assess efficiency and utilization—willing to alter and adjust as they go to maximize revenue potential.
- New stadium designs are including many more experiential things to do within the venue itself—from suites and hangout areas to playgrounds and pools—to help cast a wider net and attract a broader demographic than just traditional sports fans.
- Teams are carefully analyzing the various types of ‘premium’ seating options and striving for the proper balance between traditional corporate suites and alternative products—appealing to thousands of small business owners rather than relying solely on the patronage of a handful of large corporations.
- Stadium design decisions are also facilitating the venue’s ability to be activated for other entertainment opportunities (concerts, corporate events) to drive additional revenue.
While every stadium’s financing is unique, most currently involve a significantly smaller public contribution—often in the form of land acquisition, infrastructure, public transportation, or possibly municipal bonds/tax breaks. A larger share of the funding will need to come from private sources through some combination of debt financing, ownership equity, and third-party investments (e.g., concessionaires).
This shift has created a unique opportunity for banks like Truist to provide access to capital markets and construction financing that have become increasingly important to franchises and owners. As a financing partner, we’re proud of our ability to contribute to enhanced revenues, stronger ROI, and better cash flow––the critical drivers of franchise value.
At Truist Wealth, our Sports & Entertainment Group professionals are specialized experts who understand how franchise value is created and can deliver both private wealth and corporate investment banking capabilities all under one roof. Isn’t it time to work with a financial firm that truly understands the subtleties and nuances of your organization?
Case Study: Truist Park and The Battery
Challenge: Built for the 1996 Summer Olympics, Turner Field served as home for the Atlanta Braves from 1997 to 2016. In recent years, attendance had becoming a growing concern. Those who did attend home games typically came right before game time and left immediately after.
Solution: Braves’ ownership group joined forces with Truist’s Sports & Entertainment Specialty Group and Commercial Real Estate Group as Left Lead Arranger and Placement Agent to finance and construct both the new Truist Park, as well as The Battery, an adjacent mixed-use development that includes a hotel, multifamily residences, office space, restaurants, and retail stores.
Result: Customers now arrive earlier and are more inclined to stay after the game to visit adjacent bars and restaurants. The upscale complex has become a trendy destination that’s increasingly attracting millennials—a key demographic for the continued health of the franchise. Whether they work in one of the office buildings in the development or live in one of the residential properties, a great many people’s lives have now been brought closer to the ballpark.