Published on April 15, 2009 10:15 PM by dbo.
Note: Some background can be found in the previous article on the stadiums.
The funding of large stadium infrastructure is always a sticky political topic. In good times when the money to pay for a project may be more readily available opponents will argue for spending the money on roads, hospitals, other civic projects or even reducing taxes. In an economic downturn any public contribution to such “frivolous” projects would be opposed while cutbacks occur in other areas. Throughout there are groups with the views that large stadiums with limited use should not receive any taxpayer money; they should be built on a user pay basis. On the other side there are people who advocate building the biggest and best, no matter the cost and pay for it later. The position a person takes is a matter of personal opinion and the split in the population does little to solve the issue. There should be a better way for establishing a public policy that provides a compromise to the two positions.
I believe that without public funding, all most all stadiums, arenas and other sports facilities in Canada would not exist. From the small, local arenas, to medium sized arenas, to large arenas and stadiums, all have been funded in whole or in part by public, taxpayer money through the history of Canada. Public money has helped provide these facilities, enriching our society and communities. That does not mean that politicians should write blank cheques for any proposed project. Some simple questions can help determine the best course for replacement or refurbishment and other questions can help determine the size and scope of building new stadiums when no existing facility exists.
Determining whether a stadium should be replaced or undergo major renovations can be evaluated using some simple criteria.
All of these criteria affect the cost comparison between stadium renovation and a new stadium. Some stadium properties make renovation costs prohibitive or impossible. The CFL has a group of stadiums built 40 to 60 years ago with a number of renovations in the years since. These stadiums have reached their end of life. They require additional money to maintain, their design and location limit the expansion and renovation they can undergo and they do not provide for additional uses and opportunities. Trying to renovate 40 to 60-year old grandstand stadium designs into modern, comfortable stadiums is not a simple task and building a new stadium can be more effective in the long term.
In taking these factors into consideration, different communities have come to conclusions about the most appropriate project for them. In Montreal, the expansion and refurbishment of the existing stadium was selected because of the stadium’s location and fan friendliness. Although they sacrifice size, working within the confines of the existing location provides an economical updated stadium that should, in combination with Olympic Stadium, serve the Alouettes over the next 20 years or more.
In Winnipeg the age and design of the current stadium along with the value of the land it currently sits on provided for a plan to fund a new, modern stadium with minimal public funding. Through the process the relocation of the stadium site to the University of Manitoba campus provided the final point for agreement from all parties on the project. In Canada, sharing infrastructure, especially with Universities provide a much better opportunity for the economics and approval of projects.
Hamilton’s decision is about the economics of spending money on a stadium in a residential location that is over 70 years old. With the opportunity for a Pan-Am games bid to help fund a new stadium, the economics can be helped further. While taxpayer money will be spent on the stadium construction, as well as other game venues, there is an immediate opportunity to have those costs returned in economic spin-offs from the construction and Games themselves. If the Toronto/Hamilton bid is not successful, the City of Hamilton still needs to look at replacing Ivor Wynne Stadium. The money for the upkeep of the current stadium does not justify the ten major events held there each year. A new stadium could attract other major events, including the Grey Cup, concerts, soccer franchises and amateur sporting championships like Jr. FIFA Cups.
The Lansdowne proposal in Ottawa by the conditional CFL franchise owners was tailored to the city’s requirements, yet it is very misunderstood. The plan calls for the 37 acre site to be transformed from a asphalt lot to an urban gathering place, placing commercial development along side attractions like an aquarium and amphitheater together with the refurbished arena and stadium. The commercial development of a hotel, retail and restaurants and residential townhouses would be paid for by the developers with the revenue from land sales for the residential property going to the city. The public features would have to be funded by the city. To meet the city’s requirement to keep the stadium publicly owned, the funding from that would need to come from the city’s coffers. The developers would take over management of the site from the city and assume any losses the park accrues. As astute businessmen, the developers also propose paying for the stadium upgrades, which they have guaranteed to cost the city no more than $97 million by agreeing to pay 100% of cost overruns, with a loan that would be paid down over 30 years with approximately the same $4 million payment size as the loss the city takes on managing the site today.
The developers are not proposing this project as philanthropists but as businessmen. They expect to make money on this proposal and that with their 30 year lease commitment, CFL franchise fee and $125 million cost of the project displays a commitment to not letting this fail. This is not Bernie Glieberman asking for a new stadium but ready to walk away when the first sign of losses appears. There is a very reasonable option for the city to have a publicly-owned stadium in a redeveloped Lansdowne Park with a CFL team as a tenant, plus concerts and other events for the same amount they will pay annually today to maintain the site that sits idle. Reusing the existing structure is economical and sustainable. Looking for other developers, whether to turn the site into a park or a refurbished stadium will not come with any less of a price tag for the city. Expecting a developer to pay for all the costs and hand over the results to the city is naive.
Quebec City has a great University facility at Laval they are smartly trying to leverage for a Canadian professional football team. The location of PEPS stadium provides room for expansion and the age of the facility makes expansion and improvements feasible. With the popularity of the Laval Rouge-et-Or in Quebec, I expect plans for stadium expansion are underway, despite recent setbacks, in order to qualify for an expansion franchise.
The Maritimes has always had a lack of a stadium preventing them from getting a CFL franchise. Moncton is now in a good position to leverage a 20,000 seat stadium for the 2010 World Junior Championships in Athletics into a larger stadium and a franchise. This is a good use of the public funds being contributed to the original project, providing a basis for a legacy to bring a team to the city in the long term and expand the economic spin-offs. It may take additional public funding with private commitments to achieve, but the attraction of the 2010 World Junior Championships in Athletics will have long term repercussions for Moncton.
Regina’s situation is much like Winnipeg’s in terms of stadium condition and age. Shoehorned into a residential area, expansion areas are limited and neighbourhood concerns over noise always affect other events being held at the stadium. The sight of pouring money into such a facility to bring up the standards or expand capacity (Saskatchewan has a streak of sell-outs and temporary seats have been added) does not appeal to many when the facility seems so close to its end of life. Unfortunately funding a new stadium is out of the reach of the city and provincial governments who have other priorities and there does not seem a private donor who can help fund such a venture. That said, the province appears committed to addressing the aging stadium. A domed stadium appears to be desired for the multi-purpose, year-round use and the government has floated funding the stadium through the Saskatchewan Gaming Corporation to avoid draining public dollars from other capital projects.
The construction of domed stadiums to replace existing stadiums in smaller CFL centres has achieved some traction recently. In Winnipeg’s request for stadium proposals, one developer’s plans called for a domed stadium. In the end the board of the Blue Bomber football club decided against the proposal. In Regina, which is still in the preliminary phases of their discussion, a domed stadium has some support among citizens and politicians alike. The argument for a dome is around the additional use it can provide year-round rather than restricting it to football and a few concerts during the summer months for an outdoor stadium. There are a number of factors that must be considered in the decision to build a covered stadium versus an outdoor stadium.
In general, I believe spending taxpayer money on a domed stadium is risky and wasteful as past projects in much larger centres have proved. To provide year-round use of the field simple inflatable bubble-domes that cover the field offer much smaller capital and operating costs. This provides the best compromise for getting the most use out of the facility and controlling costs. Stadium design and construction can provide better weather and wind protection from fans, substantially increasing the comfort level compared to today’s stadiums. Beyond that, fans will have to tough out attending games in cold weather like people have for the last 100 years across this country.
Stadiums are part of the civic infrastructure along with schools, hospitals, libraries, police stadiums, fire halls, parks and minor sports fields and arenas. Their priority needs to be balanced amongst these other projects. A city’s facilities are a major factor in attracting business and new residents. A lack of stadium or a stadium in poor condition reflects negatively on a city and its image. Entertainment events help retain and attract new residents while stadiums also provide a return in the economic spin-off from events they host.
When determining budgeting priorities, capital costs for stadium construction or renewal should not come from general public capital projects funds. Instead, other funding opportunities should be investigated. Opportunities to upgrade or build a new stadium due to hosting a large sporting event that will return the cost of the project in economic spin-offs should be taken. The cost and economic benefit estimates of any event must be realistic when determining the return on the construction. Amortizing the cost of a stadium over a few decades and offsetting the annual financing cost with management fees, rental fees or a ticket tax is one way to protect other capital projects from stadium costs.
While other public buildings tend to be smaller and add additional numbers as cities grow, stadiums are amortized over a much longer period of time and are usually replaced. The life of a modern stadium should last close to 100 years and stadiums in Vancouver, Calgary, Edmonton and Toronto look like they will last that long. Over that span, the economic spin-offs of a stadium should equal or exceed the replacement cost. Older stadiums, while they may last for a few more years, no longer satisfy the needs of modern fans and have an increasing maintenance cost. It makes sense to replace ore refurbish them now with structures that will last a century rather that pouring money into increasing maintenance costs that will eventually be lost when the buildings come to their absolute end-of-life.
The financing of new stadiums or major stadium renovations will involve budgets in the $40 to $300 million range and up if covered stadiums are built. In Canada it is very hard to justify the high end of the cost of a stadium for the uses it will receive. While possible to use large stadiums for amateur use such as high school, junior and university football, the popularity of amateur games does not provide the usage of the stadium in terms of capacity or even pay for the cost to operate it (like domed stadiums). Other events can be attracted with any type of stadium, like concerts and world sporting events. Certain communities may be able to attract other sporting franchises, such as soccer, with a new stadium. While private management of a stadium can provide an incentive to book more dates for the stadium, the basis for the amount of use a stadium receives still only puts the maximum cost in the $100 to $150 million range for Canada’s cities beyond the three metropolises.
Taking that figure for a new stadium cost, ideally the cost could be split between the three levels of government, private money and other sources. The split would need not be equal. The federal government could, based on what kind of tax revenue the stadium would expect to generate over its life, provide a fixed figure (say $10 million) for stadium renewal or rebuilding every 100 years. This would operate as a much more fair policy than what we see today, where money has gone to Canada’s biggest centres for large domed stadiums but dries up when funds are requested for stadiums in smaller cities. Each city and provincial government would follow their own policies about what percentage of these projects they would fund. If private ownership is involved, they should be expected to contribute some funds to construction costs, perhaps equal to the cost of the private suites or some other component that professional sports drive. Other sources of revenue can also contribute to funding the cost of a project, like naming rights and hopefully a league operated stadium fund.
Splitting costs this way should make a city responsible for for much smaller percentage of the total cost. If that is then amortized over 20 to 30 years, the annual service on the debt should be a reasonable amount, preventing the city from pulling funds from capital funds that might affect other infrastructure projects. Another option is for the city to adopt a tax or surcharge for each ticket sold at the complex to offset the service cost to their budget. This provides some user pay component to the project, which helps the political argument for providing such a facility. Provincial governments may look to alternative sources to pay for their share as well, like lottery or gaming funds. The private sector, like team owners or groups who wish to manage a complex while it remains privately owned, may also assist with the capital cost through long term lease agreements that guarantee revenue streams for the stadium.
There are many ways the total cost of a project can be paid for while the amount of taxpayer amount is minimized. First, the plans must be reasonable, appropriately sized, and within the means of the community. If there is an opportunity to construct the stadium as the result of a bid to bring a large sporting event to the city, that can help reduce the amount paid out of municipal capital funds. Moncton has achieved this with their 20,000 seat stadium and Hamilton is trying to achieve the same with a new stadium with the Toronto Pan-Am Games bid. Both stadiums will be undersized, but provide a base to build on to at about half the cost of the total project.
With a little creativity and discussion, very fair and justifiable cost sharing agreements should be able to be worked out amongst all parties involved. All sides should be able to work towards a compromise if the project realy makes business sense for everyone. Hopefully private funds and contributions from a CFL stadium fund will help not only finance these projects, but increase public support as well. How exactly this fund will work is covered in the next article.
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Funding Stadium Projects was published on April 15, 2009 10:15 PM by dbo.
This article is categorized under Stadiums and tagged with domed-stadium and financing.