Atlantic Cities

A Radical Idea for Changing How Cities Finance Stadiums

A Radical Idea for Changing How Cities Finance Stadiums
Orlando City Soccer Club

City governments very seldom turn down stadium financing deals. It's almost like they're addicted to them. Detroit, for instance, will soon be home to a $450 million hockey stadium paid for largely by Michigan taxpayers. Even though the city is in debt to the tune of $18 billion and can’t afford to keep all of its street lights on, emergency city manager Kevyn Orr agrees with Michigan Governor Rick Snyder that the best possible way to stimulate Detroit's economy is a new stadium.

Orlando isn’t Detroit, and the professional soccer stadium it’s agreed to finance won’t cost nearly as much as the Red Wings’ new home—$85 million versus $450—but it’s a similar deal. The Orlando City Soccer Club wants a Major League Soccer franchise. To attract one, club ownership says it needs a dedicated soccer stadium, and that building one with public financing will have a positive economic impact for Orlando and Orange County. As countless economists have argued, this is largely bunk. The most recent study to make this argument, published in 2012 and focused on professional basketball instead of soccer, found "no statistically significant association between having an NBA arena or an NBA franchise and MSA regional personal income." Meanwhile, an article published in the Journal of Economic Perspectives in 2000 noted that "independent work on the economic impact of stadiums and arenas has uniformly found that there is no statistically significant positive correlation between sports facility construction and economic development."

Nevertheless, the city and the county are going forward with an initial contribution of $20 million apiece in tax dollars to make the stadium a reality. The full cost is detailed by the Orlando Sentinel:

The plan has the city of Orlando and Orange County covering $20 million in costs each, while the owners of the Orlando City Soccer Club – who want the franchise — would pay $30 million. A ticket surcharge that fans would pay per seat could provide $10 million toward construction costs, while other local government and private contributions could pay for the rest.

Next year, the team would seek $30 million in state sales tax rebates to finish a proposed second phase, though state lawmakers rejected doing that this year.

Combining the $85 million stadium cost with an expected $70 million franchise fee to enter the MLS brings the total value of the team to $155 million.

So far, so awful. But a member of the Orange County Commission has an interesting idea that would make the financing deal a little less bad. In August, Orange County Commissioner Pete Clarke suggested that taxpayer money be treated more like an investment rather than a handout. He floated the following plan:

Make Orange County a member of the partnership on a funding basis, which would be a percentage of the stadium costs and a percentage of the total stadium/franchise fee costs, of $155 million.

During the course of the agreement, with the City of Orlando (20-25 years), City Soccer would share with Orange County, a pro-rata share of the yearly naming rights, proceeds from stadium vending and other City Soccer sponsored events. These proceeds would go to Orange County Parks and Recreation for soccer specific expenses.

If all the projections we have seen and heard are correct, MLS and Orlando City Soccer will be successful, as is the case with the Magic. Furthermore, the franchise value will escalate in a similar fashion. Therefore, include a provision that when the franchise is sold, Orange County be treated as a partner and share in the profits.

According to Clarke, Orange County would be entitled to 13 percent of Orlando City Soccer Club’s revenue. It’s a clever (and radical) challenge to the status quo: Instead of making anti-subsidy advocates explain why they hate their home city, Clarke is essentially asking wealthy and powerful people to explain why they think taxpayers should fork over money without getting anything back.

Two of Orlando’s most aggressive government watchdogs—Jeffrey C. Billman of Orlando Weekly and Scott Maxwell at the Sentinel—have endorsed the idea, and Field of Schemes’ Neil deMause thinks the plan would be better for taxpayers than the standard financing arrangement. While Billman doesn't think Clarke has the pull to turn concept into reality, and deMause suspects the Soccer Club will balk at forking over revenue, the most important thing might simply be introducing the idea into the national conversation on stadium subsidies. 

Update: Orlando Mayor Buddy Dyer announced today that Florida law "bars local governments from owning businesses, except in rare cases involving utilities." Clarke's response: "In lieu of a partnership agreement, we should have some type of contractual relationship that would give county taxpayers [a share of revenues]. It's only fair." And legal, according to a University of Florida legal professor. 

Top image: Orlando City Soccer Club plays English Premier League’s Stoke City at the Florida Citrus Bowl, the team's current home. Via Orlando City Public Relations

Mike Riggs is a former staff writer at The Atlantic Cities. All posts »

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