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Friday, January 05, 2007
If you build it, they will come...

Mario Lemieux and Pittsburgh Penguins executives made the rounds yesterday (1/4), touring and meeting with representatives from the Sprint Center, a state-of-the-art arena currently under construction in Kansas City, Missouri, followed by an evening meeting with Pennsylvania Governor Ed Rendell. Kansas City, which has long aspired to bring a major professional hockey or basketball franchise back to the city (the New Jersey Devils NHL franchise left in 1976 first for Colorado, then N.J.; the NBA's Kings moved to Sacramento in 1985), took the somewhat risky strategy in the summer of 2005 of beginning construction on an arena without having any major tenants. This "if you build it, they will come" strategy, while financially risky (imagine the potential losses likely to occur if the building goes a number of years without a major tenant), has been successful in the past. The City of St. Louis built what we now know as the Edward Jones Dome in the early 1990's without a major tenant in an effort to woo an NFL team to the city to replace the former St. Louis Cardinals football team. The Rams moved there in 1995 just as the stadium was nearly completion. Tropicana Field, then the Florida Suncoast Dome, was built in 1986 in an effort to lure an MLB team to the Tampa-St. Petersburg area. After high-profile recruitments of the White Sox, Mariners, and Giants, MLB eventually awarded an expansion francise to the stadium in 1995, nearly ten years after construction.

The Penguins situation appears to be a classic bidding war for the right to house the team with the Sprint Center and Kansas City on one side and Pittsburgh/Allegheny County/Pennsylvania on the other. Mario Lemieux has made it clear that he would prefer to keep the team in Pittsburgh, where attendance has been strong, if a new arena can be built, a position the NHL supports. The Sprint Center reportedly offered free rent and a free ownership stake in the arena during yesterday's meetings. It will be interesting to see in what direction these arena negotiations head over the next few weeks.


If stadium related revenue (or a significant part of it) is not included in revenue sharing in the NHL, then the whole stadium hunt is twice as important.

Anonymous Luis Cassiano Neves -- 1/05/2007 2:06 PM  

Likewise, the "if you build it, they will come" strategy has also failed in the past.

When a city is trying to lure a team to town, the public financing costs go even higher because the team has the leverage of having multiple cities compete against each other. Moreover, if the team is not part of the construction design process, then once the owner does decide to move into the arena, there are millions of dollars of upgrades and changes that are made which are paid for by the public. For example, in 1990 the Suncoast Dome was opened in St. Petersburg at a cost of $138 million with the hopes of luring a MLB team. Finally, in 1998 the Tampa Bay Devil Rays began play in the facility and required upgrades of $70 million, 50% of the original cost.

Not only were there significant public costs above and beyond the original construction costs, but also the public was paying for a facility that did not have a major tenant for many years. There are other similar recent examples in New Orleans and San Antonio where the NBA owner required publicly financed upgrades of approximately 20% of the original cost.

It is a risky strategy for sure, especially for a city that is nearly tapped out on being able to support a new franchise, like Kansas City. A prospective owner will learn in their feasibility study that the population of the Kansas City metropolitan statistical area (needed for ticket sales, premium seating, merchandise, concessions, parking, and local media revenues), corporate depth (needed for premium seating, luxury suites, and sponsorship) is too low, and there are already two major pro sports franchises.

Breaking out certain factors (based on a study of NBA markets;
• Measured by population, Kansas City ranks 21st out of the 27 markets that have one or more NBA franchises.
• Four of the 7 markets ranked below Kansas City in terms of population now host only one major pro sports team. The other three markets host only two major pro sports teams. If Kansas City were to host an NBA or NHL team, it would be the only city to do so with such a low population base.
• Kansas City ranks 19th out of 27 in average household income. There are 6 non-NBA cities ranked above Kansas City.
• Out of 48 markets either with an NBA team or as potential markets, Kansas City is 2nd to last in terms of the ratio of the population per major pro sports franchise if it were to get an NBA or NHL team.

While not a perfect measure of the supply of potential customers, the other sports teams in town are certainly competitors for the local sports entertainment dollars. Only Milwaukee has a lower ratio of population per major sports franchise. With so few customers to go around, Milwaukee is consistently way below average in Major League Baseball attendance (although less so recently because of the current honeymoon from the new stadium) and way below league average in ticket prices – thus exhibiting lower than average ticket revenues. The Milwaukee Bucks are below the league average in ticket revenues also. In other words, the Milwaukee market is already saturated with sports entertainment and is having difficulty supporting its teams.

Moreover, the support for the Royals is well below average and the support for the Chiefs (while high in terms of attendance) is average in terms of dollars spent (tickets, concessions, sponsors, etc.).

When the NHL expanded in 1998-2000, the four expansion cities were chosen from a pared down list of six cities. The final two that were eliminated prior to choosing Nashville, Atlanta, Minneapolis-St. Paul, and Columbus were Oklahoma City and Houston, not Kansas City.

Of course...Pittsburgh has many of these same problems in terms of being able to support its teams.

Good luck Mario!

Blogger Youre Kidding -- 1/06/2007 12:46 AM  

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