Financing a new stadium is a very complicated issue which pits the team against taxpayers in a battle to see who will pay for what. Currently in the NBA numerous teams are experiencing serious issues with financing new stadiums. On the Pacific coast alone, the Seattle Super Sonics, the Portland Trailblazers and the Sacramento Kings are all in “dire” need of a new arena. These arenas lack the modern facilities such as up to date luxury boxes to entice teams to play in their current arenas. Although the teams are owned by billionaires, the owners are unwilling to put a large chunk of their own money into financing a new stadium. Due to this the public is involved and a complicated issue ensues.
One way to finance a new stadium is through public funding. Public funding uses bonds and taxes to help defray the cost of building the new stadium. Technically “the public” owns many stadiums but the primary tenant team controls the majority of the revenue.
Bonds are publicly traded securities purchased by individuals or organizations who are the creditors for the stadium. The benefit to bonds are that they are loans but also incur interest. They are often secured by the municipality or the states taxing power or a specific type of revenue. Bonds are either taxable or tax-exempt. Tax-exempt mean they are exempt from federal taxes but not necessarily state taxes. Federal law permits the use of tax-exempt bonds to fund sports facilities if certain criteria are met. The main criterion for this is that private businesses interests cannot control the facility’s use.
There are many types of bonds general obligation bonds are repaid from general tax revenues of a particular government. They require governmental approval and have become very difficult to obtain because of public opposition and because state and municipal governments had to agree on this bond and getting the local and state government and local government to agree is not an easy task. Special tax bonds are guaranteed from money coming from a certain tax. The municipality, county, or state may impose such taxes to be used to pay for the stadium.
Revenue bonds are a complex system as they secure revenues from the facility or from special taxes passed to pay for them. These taxes often occur in the form of a hotel tax. In Orlando, the Magic are trying to get a new arena and to pay for it they suggest a .25% tax on hotel rooms throughout the Orlando region. Such a tax would pay for the arena.
Lease revenue bonds are issued by a governmental authority that is distinct from the municipality, county or state. These are often known as public corporations. Often they have the power to issue bonds and collect tolls or taxes. A key example would be the New York Bridge and
Another way to finance an arena or stadium is through private financing. Banks usually lend money to team owners but there is a secure source of repayment such as revenue from luxury suites or concessions. Another way they guarantee payment is through personal seat licenses. A personal seat license is an agreement between ticket holders and the team to pay a fee for the right to purchase tickets at a specified location for a set period of time.
Another way to defray the cost privately is through stadium naming rights. Companies pay the team money to name their stadium after them. Long gone are the days of the Cincinnati Reds playing in the “Palace of the Fans.” Stadium naming rights are a major industry. Today 66 named facilities have contracts totaling over $3.6 billion. Houston’s Toyota Center cost Toyota $100 million for 20 years. There is Toyota signage at each entrance to the facility, Toyota Center is on the roof with the Toyota logo. There is a 41-foot-high by 35-foot-wide graphic of the Toyota logo just inside the main entrance and Toyota’s name and logo are even on the basketball court itself.
The balance between public and private funding has yet to been decided. Some franchises are willing to pony up the money necessary to build new stadiums. In other cases, the general public has to kick in a great deal of tax dollars to pay for a new arena which might have no use to them.