by: Jack Hogan
As detailed in the ‘Rise in Adjacent Sports Developments,’ the increased trend of sports facilities serving as a nexus for adjoining mixed-use districts is no secret. There are plenty of existing case studies – spanning all major sports, markets, and facility types – highlighting successes (and shortcomings) within active sports-anchored developments. The primary benefit is obvious: organizations can expand revenue streams by leveraging ancillary real estate that surrounds their primary venue.
There are many vested interests to consider and angles to unpack with any real estate development; such a reality is magnified when the development epicenter is home to a professional sports team. This follow-up piece explores the numerous factors impacting the economic effects of sports mixed-use developments.
Enhanced Revenue Streams
Everything starts and ends with revenue. But what does “enhanced revenue streams” mean in the context of a sports-anchored, mixed-use development? For private entities involved in the deal, revenue can be enhanced in a multitude of ways.
Team-Related Real Estate Entity
Team-related entities usually act as a “real estate” arm of the sports team's property. For example, the Braves Development Company (BDC) is a real estate development company wholly owned by the Atlanta Braves. The company handles the management and development of The Battery Atlanta—a mixed-use development adjacent to the Atlanta Braves ballpark, Truist Park— and provides support services such as retail operations and catering services for the team.
Diversified Income and Value Creation
Sports property revenues are increasingly reliant on media rights agreements. Traditional, on-site, gameday revenues from tickets, food and beverage, retail, and parking continue to encompass a smaller share of overall organizational revenues—less than 40% in many cases.
Equity in surrounding development provides revenue diversification, such as rent or commercial lease income, that is less correlated with team performance.
Additional, diversified income streams—by way of an ancillary real estate portfolio— present attractive value opportunities from an investment lens. Sports property valuations and transactions are commanding record figures. An example is the recent sale of the Washington Commanders for $6.05B. The deal sets a record for the most expensive sale in NFL history, despite the team’s deficient facility situation. A contributing factor to exceptionally high team valuations in these situations is the opportunity to obtain control of the team and convert substandard real-estate assets into a profitable development.
Expanded Partnership Opportunities
Sponsorship terms and structures can be tied to a wider portfolio offering. Sports properties can package tickets, hospitality experiences, naming rights, stadium signage, etc. with lease agreements and development activations.
One such example is the Atlanta Braves Truist Park/The Battery partnership with Comcast. With this partnership, Comcast receives sponsorship signage within the venue and hospitality areas, and has its regional headquarters located at The Battery.
Contractual Revenue Streams
Contractual agreements in sports (personal seat license, season ticket membership, long-term hospitality leases, corporate partnerships, subscription-based ticketing) are vital to an organization’s balance sheet and cash flow position. Sports mixed-use developments offer additional opportunities for contractual revenue streams such as residential rents, commercial leases, and expanded partnership structures.
A comparison of revenue and value creation realized via a sports-anchored real estate portfolio and a standalone arena is best summarized by analyzing the situation of two Canadian NHL franchises from very similar markets: The Edmonton Oilers and Ottawa Senators.
Current bids for the for-sale Ottawa Senators are reported to be more than $1B—way above the team’s valuation. Though the Senators currently have a standalone facility surrounded by parking lots, savvy ownership and bidding groups recognized the potential in developing the area and/or building a new arena and adjacent development, thus contributing to the increased team value. It can be reasonably assumed that the accomplishments of Edmonton’s urban, sports-anchored ICE District positively impacted both teams’ market values.
External Development Partner
External development partners are additional stakeholders contributing to the planning, funding, and operating resources of sports-anchored, mixed-use real estate developments. Partners typically consist of development firms that specialize in a type or class of real estate development such as multifamily, office, or healthcare.
Resilient ‘Class A’ Real Estate
High-end commercial office and multifamily buildings typically accompany sports-anchored developments. Oftentimes, this infrastructure is complemented by hotels and restaurants geared toward business guests. Properly positioned real estate can create a self-reinforcing business model benefiting building owners.
For example, The Battery Atlanta serves as a regional or global headquarters for large companies like Comcast, TK Elevator, and Truist Securities, representing thousands of high-paying jobs and tens of thousands of annual business visitors. Corporate tenants drive visitors and foot traffic which, in turn, fuels the hotel, restaurant, and retail economy—all of which is amplified by a destination ballpark/entertainment venue.
Class A space remains a relatively durable asset despite overall uncertainties clouding today’s office market, as demonstrated in the graph below. When oriented within a modern live-work-play environment, Class A has proven to offer even greater leasing certainty.
Assorted Product Capability
Sports-anchored developments are the antithesis to the business parks of old. They present unique synergies with a host of real estate products including multifamily, commercial, retail, hospitality, entertainment, office, and medical/healthcare products.
For example, the Minnesota Vikings’ Viking Lakes development serves as home to the Vikings’ business headquarters, plus has a public athletic training center, surgery center, urgent care center, public turf fields, hotel, apartments, condos, and office space with tenants spanning several industries.
Commercial Tenants and Operators
Commercial tenants and operators are the firms that sign the leases and occupy or operate the real estate spaces encompassing the overall development. The commitment from these parties is crucial to the health of a mixed-use sports development. Contractual terms, timing, and tenant fit impact everything from project cash flow to the look and feel of the site. For these reasons, many developments do not commence construction until at least 50% of leases have been secured.
Employee and Renter Attraction
Commercial tenants and employers have a competitive advantage in attracting high-end employees to a best-in-class environment. Apartment and condo buildings sell themselves as part of the greater development’s visibility and offer convenient accommodations for folks that frequent the area.
Team Brand Association
A corporation, restaurant, or retail outlet, association with a sports property increases brand awareness, perception, reach, and engagement. A great example of this is the combined effects and exposure sports- and health-related businesses have experienced in partnership with professional team brands. The partnership between The Star in Frisco, Texas, and Baylor Scott & White (a nationally ranked hospital system) highlights the mutual benefits recognized through such affiliations.
Infrastructure & Cost Considerations
Challenges and costs are inherent when bringing a diverse, sports-anchored development to life. These headwinds go above and beyond the fundamental complexities that exist in building a standalone venue or structure. The most obvious roadblock is securing a swath of land (or workable urban situation) where a successful mixed-use development can be properly built out. Recent projects of this nature have spanned 25 to 300+ acres, which can be difficult in urban areas. Additionally, variables tied to the location can impact the cost-efficient delivery of an interrelated real estate experience.
Transportation & Parking
Getting people to the destination and addressing parking are some of the biggest pieces of the sports-anchored development puzzle. A workable urban situation oftentimes encompasses the re-development of surface parking lots – therefore metro districts should be accessible via public transportation options. This adds a layer of challenge when attempting to find land (or cooperative, neighboring stakeholders) in a denser city setting.
Suburban settings, having more available land, signal patrons arriving by car. In this case, highway access and ample parking infrastructure are necessary for proper ingress/egress flow. Parking garages (in lieu of surface parking) are more expensive to build but are usually necessary to maximize footprint while handling the volume needed for venue, restaurant, retail, and hotel activity. It is important to provide a seamless entrance and exit system, as these are the first and last impressions patrons have of their experience.
Delivery of Utilities
More buildings equate to more infrastructure for delivering power, water, gas, and wireless connectivity. Typical models, having several development stakeholders owning/financing a scope of the development, can result in each building or property having individual systems and connections. This setup will minimize and distribute the upfront cost burden, but you may miss out on long-term utility savings and efficiencies.
The high utility demands of these projects have led some groups to consider implementing a central utility plant (CUP) model. CUPs house and manage the generation, distribution, and control of multiple utility systems from a single location, and efficiently distribute utilities to all buildings within the development. Well-designed CUPs account for future capacity levels to accommodate the addition of real estate within the development. This approach requires higher upfront costs but offers greater operational cost savings across the 30+ year life of a development.
Sitework, Hardscape, and Landscape
More land equates to higher land preparation costs. Additionally, hardscaping and landscaping budgets (marginal portions of standalone sports facility builds), increase exponentially. Sports mixed-use developments deliver value to patrons by guiding them through an integrated journey to the entertainment venue. Well-designed plans boost the overall economics of a development by steering foot traffic past retail, restaurants, and ancillary experiences.
Delivering a high-end journey requires significant financial investment in concrete pathways, outdoor lighting, decorative walls and fencing, water features, ramps and stairs, retaining walls, and terraces that tie the acreage together. For example, The Battery Atlanta had nine figures allotted to site work and hardscape alone prior to any building going vertical.
Timing and Economies of Scale
An important and final consideration to be understood when bringing a sports-anchored development online is the essence of timing. Many of the aforementioned factors – and their affiliated returns and costs – are impacted by the strategy and timing of how the overall development becomes available to the public.
Leaning again on the example set by the Atlanta Braves, the organization wanted all Phase 1 components of their adjacent development to “go live” in sync with Truist Park’s opening day. The reasons for this are numerous, but a few motivating factors included:
- Over 25% of the Atlanta Braves fanbase lives outside of the state of Georgia. Part of the mixed-use development strategy was to attract these fans to Cobb County for a weekend experience. Infrastructure to accommodate these fans needed to be in place at the ballpark opening.
- First impressions are important, and first-time eventgoers are less likely to return if they are fighting traffic and parking issues, sidestepping convoluted construction sites, and navigating messy temporary paths and walkways.
- Adjacent businesses benefit by being open for Opening Day. In the debut year of Truist Park, the Atlanta Braves’ home attendance was nearly 3 million visitors. Their success proves that developments are most effective when fully operable and able to accommodate foot traffic levels from day one.
The upfront costs of orchestrating a synchronized unveiling are numerous, with large efforts going towards planning/coordination and construction schedule compression. It is worth noting some marginal economies-of-scale savings can be realized across these hefty investments, such as:
- Material, labor, and equipment purchasing power + supply chain power.
- Construction crew and equipment mobilization costs.
- Construction site services infrastructure.
- Complementary commercial buildings are much more cost-efficient to construct than a sports venue.
Sports-anchored developments present a myriad of opportunities for economic growth. By leveraging ancillary real estate surrounding their primary venues, sports franchises and their partners can diversify income and increase team value. Despite the numerous considerations and potential roadblocks in planning and successfully executing a sports mixed-use development, they remain a compelling model for revenue generation and economic prosperity.
Jack Hogan is a business development manager specializing in sports analytics. He is responsible for building, managing, and leveraging Mortenson’s rich ecosystem of data resources throughout the development, preconstruction, and operational phases of sports construction projects.