The new world of sports ownership is not about wins and losses. It’s about acres and square feet.
In suburban Denver and across the country, private developers are meshing sports franchises with broad real estate plays. They are using sports arenas and stadiums as anchors for projects that include residential, commercial and civic buildings.
The sports facilities often are financed with public money, as civic leaders bank on the promised large-scale developments to give their cities a core and an identity. But it can be a risky proposition for communities betting millions on a model that primarily involves second-tier sports such as soccer and minor-league hockey, basketball and baseball.
“I don’t think there’s very strong evidence that the public benefits,” said Jeffrey Zax, an economics professor at the University of Colorado at Boulder. “And I don’t think there is very strong evidence that the private sector couldn’t undertake the projects without the public financing.”
Within the past five years, about a dozen cities across the U.S. have teamed sports with real estate development, and at least a dozen more have projects in the works.
It’s still too early to tell whether the model will work, though some projects have hit early snags. Projects in Stockton, Calif., and Glendale, Ariz., have encountered construction delays, and Fresno, Calif., is struggling to make debt payments on a $46 million minor-league baseball stadium that hasn’t lived up to expectations. Officials blame low attendance at games and other events.
Front Range projects
Colorado’s Front Range has five such developments in various stages of completion:
In Loveland, a $30 million minor-league hockey arena anchors The Ranch, Larimer County’s sprawling 243-acre fairgrounds. About 40 percent of the million-square-foot development is complete.
In Commerce City, ground has been broken on a $50 million soccer stadium that will serve as the catalyst for a 917- acre development that will include a new city hall, a U.S. Fish and Wildlife Service visitor center and up to 1 million square feet of retail shops and offices.
In Broomfield, work has begun on a $45 million minor- league hockey and basketball arena that will be the centerpiece of a 200-acre retail, residential and office development.
In Aurora and Arvada, independent minor-league baseball stadiums are on the horizon, though the projects don’t include major real estate plays.
“That’s a lot of activity for one region,” said Jeff Marks, managing director for Los Angeles-based Sports Business Group, an industry consulting firm. “It really reflects the interest level for sports in the Denver market.”
Broomfield, Loveland and Commerce City are betting nearly $200 million in public funds that they can leverage that love of sports into an economic driver.
Even though most of the bonds issued by Broomfield and Commerce City will be serviced with taxes generated by adjacent real estate developments, at least one expert isn’t convinced they’re good deals.
“In a way, you’re tying your hands fiscally,” said Dennis Coates, professor of economics at the University of Maryland, Baltimore County. “If the shopping center is a good idea or if the housing development is a good idea, they’re probably a good idea independent of the arena.”
Sports business expert Vaibhav Gupta agrees.
“The ballpark or arena is a great catalyst to bring people in, but the real estate part of the project has to be able to stand on its own,” said Gupta, former chief financial officer for the National Hockey League’s Phoenix Coyotes. “If it doesn’t stand on its own, then that site is flawed to begin with.”
Financial benefits
Audiences for these sports are growing as the cost of attending major-league games climbs. While tickets to a Colorado Avalanche hockey game can run up to nearly $200 apiece, for example, Colorado Eagles fans can watch the minor-league action for about $20.
But team owners also are beginning to realize the financial benefits of broadening their investments. They are “recognizing that the value isn’t solely in turning a profit operating a team,” said Denver sports business expert Steve Sander.
“The real value is in the ancillary real estate holdings attached to a stadium or arena project.”
Steve Ellman, owner of the Phoenix Coyotes, negotiated a deal with Glendale in which the city contributed $180 million of the $240 million price tag for a new arena. In return, Ellman bought 230 acres near the arena and promised to develop up to 6million square feet of residential, commercial and office buildings on it.
“The financial success of that project is much more involved in the real estate surrounding it than operating the team,” said Sander, president of Denver- based Sander/GBSM, a sports and entertainment marketing firm.
If Ellman doesn’t hit projections for the residential and commercial development, he will owe the city up to $1 million a year in penalties. He has already missed one projection and paid the $1 million fine.
Instead of penalties, projects in Commerce City and Broomfield include incentives for developers to fulfill their promises.
Prairie Gateway
In Commerce City, Stan Kroenke is building a new home for his Colorado Rapids, a Major League Soccer team. The stadium is scheduled to open in April 2007 as the centerpiece of Prairie Gateway, a mixed-use development east of Quebec Street along East 56th Avenue.
Funding is coming from private, city, state and federal sources. About $4 million in federal funds will be used to build a visitor center for the U.S. Fish and Wildlife Service.
Commerce City will spend $23.8 million on a city hall, slated to open in 2007. The city also will issue $64 million in bonds to help pay for road and other infrastructure improvements.
Kroenke is investing $20 million in cash into the stadium, although it will be owned by the city and leased to Kroenke. He also is taking on up to $45 million in debt to help pay for construction of the stadium and the 24 playing fields that will surround it, said Perry VanDeventer, city manager for Commerce City.
As an incentive for Kroenke to finish his commercial development, the city will take on his construction debt once the Prairie Gateway project generates enough tax revenues to service bonds for the reimbursement, VanDeventer said.
He estimates that will happen in three to seven years.
“We didn’t want the stadium just because it was a stadium,” he said. “We wanted the retail and commercial development, which will be a major catalyst to rejuvenate the southern part of our city.”
The stadium will cost $50 million to build, VanDeventer said. The entire project’s price tag, including infrastructure improvements, is about $130 million.
Pinning the city’s revitalization hopes on a soccer stadium is risky, VanDeventer acknowledged, “but we did our best to mitigate our risks.”
Arista’s “crown”
In Broomfield, the city issued $60 million in bonds to finance the $45 million Broomfield Event Center, which will be home to minor-league hockey and basketball teams owned by private developer Tim Wiens.
Wiens, in return, has promised to spend $350 million building Arista, a 200-acre development that will include retail shops, offices and housing.
The municipal bonds issued by Broomfield will be repaid with taxes generated from Arista, along U.S. 36 between West 108th and West 120th avenues.
As an incentive for Wiens to promptly develop Arista, he will be responsible for any shortfalls if the project doesn’t generate enough to service the bonds, said Broomfield City Manager George Di Ciero.
“The event center is certainly a crown for the overall Arista project,” Wiens said, “and right now with the two teams, we can guarantee a certain amount of traffic through those doors.”
The arena also will hold civic meetings, concerts and other entertainment events. It is expected to open late next year; the commercial and residential development is expected to be completed in three years.
Icon Venue Group, a Denver company co-owned by Philip Anschutz, is helping with construction of Commerce City’s soccer stadium and Broomfield’s arena. Headed by Tim Romani, Icon also helped build the Pepsi Center and Invesco Field at Mile High.
The Ranch
Of the three major Front Range projects, only Loveland’s Budweiser Events Center wasn’t initiated by a private developer.
The Budweiser Events Center – home to the Colorado Eagles, a minor-league hockey team in the Central Hockey League – anchors The Ranch.
Larimer County has spent $63million building the first phase of the fairgrounds, funded through an increase in the sales-tax rate.
When initial financial forecasts for the fairgrounds development turned up lacking, public officials added the sports arena to beef up revenues, said Jay Hardy, director of The Ranch.
Early projections called for the project to make money by the fifth year with the addition of an arena.
Hardy said the project is now expected to be profitable by the third year because of the Eagles’ success. The team has sold out every game since inception.
While the county owns the entire fairgrounds site, developer Martin Lind owns 200 acres of land bordering The Ranch to the south and east, which includes his Water Valley housing community. He also co-owns the Eagles.
Since the arena opened in 2003, nearby property values have gone through the roof.
The county paid $2.7 million for its 243-acre site in 1998. Today, a nearby 60-acre parcel is priced at $6.5 million, said Dan Stroh, owner of northern Colorado real estate firm Stroh and Co.
“It’s one of the hottest areas right now,” he said.
The Budweiser Events Center also depends on growing revenue from other events, such as motorcycle rallies, bull-riding contests and concerts by such big-name entertainers as Motley Crue and Rod Stewart. Loveland public officials are wary of the competition that could develop as venues in Broomfield and Commerce City begin booking similar events.
“Obviously there are only so many concert dates available in an area, and if you have two or three arenas competing for them, instead of one, it’s going to have an impact,” said Don Williams, city manager of Loveland. “It would be naive of us to say that it won’t affect us.”
Experts say they also wonder if there will be enough consumer dollars to go around.
“I suspect there’s not a saturation point yet in Colorado, but it may come pretty quickly,” said Marc Ganis, president of SportsCorp Ltd., a Chicago-based sports business consulting firm. “You don’t want to be the last one in the door.”
Staff writer Andy Vuong can be reached at 303-820-1209 or avuong@denverpost.com.
