Tag: soccer

What was in the soccer stadium bond resolution?

It looks like the Council has a new ordinance to consider on first reading next week that is aimed at removing the 10 acres of development from the soccer stadium deal.

When thinking about this latest effort to remove the 10 acres, I think it is worth reviewing what the Council actually passed last year.

Here’s what passed: Substitute RS2017-910. Everything that is underlined was added due to negotiations between the administration and Council members.

Many of you know that I negotiate and litigate complicated contracts for a living…most of the changed/added language came from me and was supported by my Council colleagues. I mention this only because I am very clear that my central goal in the negotiations was to beef up the conditions required to take place before any bonds could be issued to build a stadium. In particular, it was clear that the legislation was going to be approved (it passed 31-6). And just like what I would recommend for a private paying client, if you are going to do a deal, you want the “conditions precedent” to you spending money to be clear, robust, and meaningful.

The final legislation added many new conditions. Some of them are:

  • Added the requirement of a signed development agreement absolutely limiting Metro’s obligations to $225 million with cost overruns to be paid by the team.
  • To protect the historic uses of the Fairgrounds like the popular flea market, added a requirement that the team’s lease includes a reasonable mechanism for resolving scheduling disputes for the facilities and parking.
  • Added a guaranty requirement if a controlling interest in the team is transferred to someone new.
  • Added a requirement that the Fair Board approve the demolition of the structures at the Fairgrounds necessary to construct the stadium.
  • Added a requirement that the Council approve an ordinance with 3 readings and with 27 votes authorizing the demolition of structures at the Fairgrounds necessary to construct the stadium.
  • Added language clarifying that the Council would need to approve the zoning and the site plan for the 10 acres.

Especially with these last two bullet points, the Council already negotiated for itself the absolute right to refuse to allow the current structures from being torn down, to refuse to approve whatever new zoning will be sought, and to refuse to approve any site plan for the 10 acres.

This saga is going to unfold in the next few months. The team is trying really hard to be a good neighbor, including working on a meaningful community benefits agreement. Yet there continues to be opposition to the 10 acre development.

The team and the administration are going to be trying to meet these conditions over the next several months. Each Council member will have to weigh the perceived benefits and costs of having a soccer team in Nashville. My advice would be for the Council to rely on the protections we already negotiated for ourselves in the original resolution rather than attempting to make the process more chaotic with new after-the-fact conditions.

Soccer thoughts (11/6/2017 edition)

Here’s an update about where I am on my issues. Excuse typos — I’ve been trying to get this out quickly and still get some client work done today.

After Friday (see my thoughts from then), I had several open issues. I appreciate that the administration and team kept working with me through the weekend even when it has looked like they already have the votes to pass the resolution. Some of my last issues have been addressed, and some haven’t. After balancing everything, if the amendments I am offering are included, I am going to vote in favor. Here’s why…

Two important issues are being addressed in last minute amendments that I will introduce at this afternoon’s budget and finance committee meeting. One amendment will say specifically that the team guaranty will cover infrastructure overruns — this is a new clarification. The other amendment will clarify that, if there is ever a new lead investor and they don’t provide an adequate guaranty, it will be considered a breach of the lease.

On the issue of the 10 acres, the team issued a letter over the weekend setting out their vision for having sufficient affordable housing to allow people who work at the stadium to also live at the development. This is as much detail as we are going to get before voting on the financing package. And, regarding the idea of a guaranty from the current owners, that’s not going to happen. Any earlier reporting that the individual owners would provide a guaranty is not accurate. That’s not going to change before we vote.

Here is a quick bullet point summary of changes that I requested that have been made, and those that haven’t been made:

Changes achieved:

  • 10 acres issue: We didn’t know the location of the 10 acres. Now we do.  Also, in its letter, the team described its intention to have housing that is affordable for people who work at the stadium. I intend to do my best to hold them to fulfilling that vision as rezoning and entitlements come back before the Council.
  • Guaranty: The guaranty language has added new specific requirements. The guaranty now specifically requires the $25 million team cash contribution, covering stadium overruns, covering infrastructure overruns. Metro’s cost on the stadium now has a hard cap of $225 million. Having the guaranty cover infrastructure overruns is a late change that will happen in an amendment at my request. This was an important issue to me.
  • Guaranty (future change in lead investor): It will be an event of default under the lease if a future successor lead investor does not provide an appropriate guaranty. This is a very good change.
  • Clarification that the team lease will require rent sufficient to cover not just regular bond payments, but also costs related to issuing the bonds.
  • Clarification that Metro’s obligation to contribute a minimum amount of sales tax toward the bond debt expires after 10 years.
  • Added a definition of what is a “capital expense” under the lease.
  • Added a requirement that there be a fair schedule conflict resolution process in the event of a conflict between a soccer game and another event.
  • Added a requirement that the Council approve building demolition before the bonds are issued.
  • Added a requirement that the Fairgrounds Board approve building demolition before the bonds are issued.
  • Added a requirement that the Fairgrounds Board approve all infrastructure changes, including roads and sidewalks, before the bonds are issued.
  • Clarify that the Mayor may only approve technical changes after the Council has approved if the changes are substantively consistent with the approved legislation.
  • Clarify that adding concerts at the stadium would not impact the Bridgestone Arena’s finances.
  • Provided a parking plan.

Not achieved:

  • 10 acres issue: We have not seen a realistic value of what the 10 acres is worth to the team.
  • Guaranty (current lead investor): There is no formal or informal guaranty. I think the administration would concede that, if MLS fails as a league, Metro is left exposed for the remaining bond costs. Supporters would say several things. They would point out that soccer is super-popular and some other league would take MLS’s place. They would point to the growing popularity of professional women’s soccer and suggest that we will likely end up with a team from that league to help offset costs. But in the end, Metro is exposed if MLS fails.
  • What are terms of other important documents: We have not seen the lease from the Fairgrounds Board to the Sports Authority, or the lease from the Sports Authority to the team. We just have the key financial terms known at this time.
  • No traffic study has been provided. Discussions about sound mitigation in the neighborhood have not happened yet.
  • To me, there are questions about whether the state fair will be permanently displaced by soccer coming to the Fairgrounds. Supporters would say that the Fairgrounds Executive Director says we’ll still be able to accommodate the fair. Supporters are also quick to note that the fair might leave anyway no matter what we do.

At this point, while it’s not perfect, fairly extensive and important changes have been made to improve this deal for taxpayers. If my amendments to get these last few improvements to the guaranty language for taxpayers are passed, I will vote yes.

Soccer thoughts (11/3/2017 edition)

Yesterday evening, the administration sent the Council a Substitute Resolution for the soccer stadium. See here. After digesting where the parties ended up, I don’t think I can vote for it.

I do appreciate that many of my requested changes were made. Unfortunately, the legislation was not improved enough for me to be able to support it. The primary problems continue to be the guaranty language and the 10 acres for private development.

Let’s start with the guaranty language. On October 2, we were told: “The MLS ownership group will be responsible for lease payments…” In the original resolution, it said that “Team owners” would guaranty the lease payments. To me, there was a red flag raised by the fine print in the Intergovernmental Agreement attached to the resolution because it spoke only of a single “Team Guaranty” that has not been provided to us. This suggested to me that no individual owners would be guarantying anything.

Many of my colleagues wanted more details about the identity of the “ownership group” or “owners” that would be responsible if the team or league were to stumble in making payments. With the Substitute Resolution, we know the answer — nobody. There are no individual owner guaranties.

The Substitute Resolution calls for the legal entity that owns the team to provide a guaranty of the lease. If the lead investor for the team ever changes in the future, then Metro would have the right to ask for a guaranty from the new lead investor. But even with this, the legislation does not provide any enforcement mechanism to force a new lead investor to provide a guaranty. From my perspective, this means the guaranty only protects Metro if everything goes well (and therefore we don’t actually need it) and doesn’t protect Metro if things take a bad turn (and we do need the guaranty).

In addition to this issue, the guaranty language in the Substitute Resolution does not cover overruns on the stadium-related infrastructure. I asked to have language added that would protect Metro for infrastructure overruns, but that wasn’t included in the Substitute. Considering that the majority of the overruns for the Sounds stadium were for the related infrastructure, having Metro get a hard cap on these costs was important to me.

About the private development side of this, having the 10 acres in the deal has not been adequately justified. There are not enough details about the proposed affordable housing onsite. There are not enough details about what the land is worth to the team. The Council was provided with the value of comparable nearby vacant land with no soccer stadium on the site. But that wasn’t a helpful data point for me. In the end, if we don’t know what the land is worth to the team, and we don’t know what Metro is getting from the 10 acres, I don’t think I can support this part of the proposal.

Finally, many of you read my initial thoughts a few weeks ago. I have updated that memo with comments to show whether each particular issue was addressed, partially addressed, or not addressed. Here’s that updated memo.

I continue to support the idea of soccer coming to Nashville. Hopefully, it will be with a better financial plan than what has been presented. It doesn’t seem likely, but perhaps there will be more changes or more information between now and when we vote next week.

Soccer thoughts (October 8 edition)

Let me start by saying that soccer is exciting. It is the most popular sport on the planet. I would love to see Nashville get a top-level soccer franchise. That said, voters elected the Council to be good stewards of public resources. We are obligated to thoroughly examine, scrutinize, and question the new soccer stadium proposal.

The administration publicly disclosed its soccer stadium plans last week on October 2. The $300 million proposal includes up to $225 million in Sports Authority revenue bonds for stadium construction costs, a $25 million contribution by team owners for stadium construction costs, $25 million in Metro general obligation bonds for infrastructure related to the stadium, and $25 million in Metro general obligation bonds for other Fairgrounds improvements.

Major League Soccer is supposed to make a decision about new expansion teams in early December. MSL has said that for bidders to be considered seriously for a new team franchise, they must have a commitment from their cities for a stadium. Because this deadline is approaching fast, the administration is asking the Council to approve the Resolution for this funding very quickly — either on October 17, or at our November 7 meeting at the latest.

Whether the Council votes on October 17 or November 7, this process will move fast. I plan to let my thought process be as public as possible. In this post, I am going to run through the factors I had in mind before getting the actual proposal last week, some analysis about what is in the proposal and the related risks and rewards, and then a discussion about how I feel today about the stadium plan.

What was the yardstick coming into this process?

Knowing the Council would be given a compressed time frame, I gathered my thoughts about what I would want to see in the proposal in advance. In my August 9 post, I described these questions:

  • What is the total expected price tag? Does the stated price include any expected infrastructure, parks, greenways, or other improvements that might get folded into the project?
  • How much will Metro pay?
  • When there are overruns (like with the Sounds stadium and most large projects), who will pay for the overruns?
  • What is the source of funding for the Metro part?  In the budget process a few months ago, this project was listed to be supported with revenue bonds. In turn, this suggests using sales tax revenue from tickets and stadium concession sales to pay for Metro’s portion of the cost. The details will matter, but this revenue seems like it might not be enough to pay the cost of the debt. If not, what will the annual losses be, and how will we pay for that?
  • How are nearby neighborhood groups going to interact with the stadium for parking and noise, especially for night games.

What is in the proposal?

In my law practice, sometimes people ask me to analyze a potential investment. The goal is to review the technical legal documents, describe the formal structure of the proposed investment, and identify strengths and risks. The idea is to blend technically accurate legal details (by pointing out all the pros and cons) with common sense or business sense (by trying to point out any standout risks or rewards). I try to give clients enough information about proposed deals so that they can decide whether to invest their time, energy, and money.

I decided to apply that process to the soccer proposal. This weekend, I prepared an analysis as if a client had asked me to review the financing Resolution that the Council is being asked to consider.

Here’s that analysis. You’ll see it’s lengthy. If you are in a pinch for time, I’d recommend just reading the first 4 pages.

How does it measure against the yardstick?

My first factor was whether we are being given a total price tag. After the baseball stadium project ended up costing more than $90 million instead of the originally projected $65 million, it is important that we understand the full project price tag before we approve it.

My sense is that the $300 million being discussed might be close to complete, but that it is probably not quite there yet. For example, there is very little (maybe no?) information about parking. There is no parking shown on the drawings we have seen. The Resolution calls for $25 million in general obligation bonds for infrastructure related to the stadium — but we don’t know what that includes. Also, there is no greenway connection shown in the drawings we have seen. We know that the Fairgrounds is an essential part of Nashville’s long-term greenways plan, and that’s not shown or been discussed. I’ll need to learn more about whether the disclosed total project cost includes everything.

My second and third factors were about how much Metro will pay, and who will pay for construction overruns. My fourth factor was about who will pay for operating costs, and operating losses. These factors are all about managing various risks.

As an aside, let me say that it is usually easy to draft legal documents that say what will happen if everything goes as expected. The challenge is to describe what will happen if things go wildly well or horribly wrong. It is critical to know who will suffer the monetary loss in the unfortunate event that things go poorly. To discuss these issues isn’t bad-mouthing the deal. Instead it is having an adult conversation about who will lose money in various situations that hopefully will never happen.

I’ll start with the “everything goes great” situation. If everything goes well with the plan as proposed, after 30 years have gone by and the bonds are paid off, Metro will have spent $25 million on infrastructure improvements for the stadium, spent $25 million on other Fairgrounds improvements, possibly have paid anywhere from $0 to $35 million to prop up ticket sales in the first 10 years of the team, paid for all capital improvements at the stadium, succeeded in keeping all historic uses of the Fairgrounds in place, have a privately-owned mixed use development (meaning housing and presumably restaurants and bars) within a 5 minute walk of the stadium, and have a successful MLS franchise. For this scenario, I have two objections at this point — nobody has projected the cost of the ongoing capital upkeep requirements and delivering the 10 acres for private development on Fairgrounds land does not make sense to me.

What about the various risks…

What if the stadium is over budget? The proposed Resolution says the team pays this. This is good.

What if the stadium-related infrastructure costs are over budget? The Resolution does not require the team to cover this. This would be Metro’s obligation. I think the guaranties Metro receives should be changed to cover cost overruns on the related infrastructure costs also.

What if the other Fairgrounds improvements costs are over budget? The Resolution does not require the team to cover this. This would be Metro’s obligation. It would create some challenges to word it just right, but if there are cost overruns on other Fairgrounds improvements that are caused by the stadium construction, then the team guaranties should be modified to cover these costs.

What if there are operating losses? The proposed Resolution says the team pays for this. This is good.

What if the league folds or the team moves? The Resolution says that Metro will receive a team owner guaranty, but there simply aren’t enough details available to know whether the proposed guaranty is valuable or not. We need to know who, or what entities, will provide guaranties. Metro must determine the credit worthiness of the guarantors and/or obtain typical commercially reasonable security such as a letter of credit from the guarantors or team.

For my second, third, and fourth factors, it is definitely a mixed bag. Having protection on stadium cost overruns and operating losses is good — something we’ve not had with other stadium development deals. But this still leaves Metro exposed for stadium infrastructure and Fairgrounds improvements overruns. And this still leaves Metro exposed on paying the bond debt if the league folds or the team moves.

My fourth factor had to do with neighborhood concerns such as parking, noise, and traffic. The proposal on these points is basically, “We’ve got time pressure because of the MLS bid timeline — we’ll get to the finish line on these issues later.” I think we’ll need to hear more before the Council votes.

Seeing the proposal last week prompted some additional concerns:

  • For now at least, I think the 10 acres of Fairgrounds land for private mixed use development is a non-starter. It doesn’t feel right. Even if we were going to think about that, I would need to know what the land will be worth after any zoning changes. Without that, there is no way to decide how it fits economically in the deal. (Also, I am going to predict that the “underutilized land” given to the team owners would end up being multiple corners around the “Supporter March” intersection shown on the drawings…think 3 or 4 corners with bars and restaurants at street level with housing above.)
  • I mentioned the guaranties, but I will repeat: Before voting, I would need to know the identity of the guarantors. I would need to know that they are “good for it” or that they are providing adequate security. I would need to see the guaranty cover stadium overruns, infrastructure cost overruns, Fairgrounds improvements overruns to the extent caused by stadium construction, and all bond debt shortfalls if the team doesn’t meet its obligations.
  • I think the conditions listed in the Resolution to be completed before the Sports Authority may issue bonds should be beefed up. I have a list of suggestions in the analysis I linked to earlier.
  • There are some other smaller but still important issues that I outline in the analysis. These include details about how the sales tax set aside works, about whether competition with the Bridgestone Arena will indirectly increase Metro’s obligation for that facility, and making sure that both the Sports Authority and the Fairgrounds Board are on the same page about how their new very close relationship is going to work.

These are the things on my mind at this point.

I have seen the team owners’ public presentation several times now. One of their early points is about how soccer for Nashville has been a full year in the making. On the other hand, the Council will have only a few weeks to absorb a year’s worth of a game plan and financial details. On top of this, we expect to hear the first financial details about a possible transit referendum before the end of October. The administration is also bringing back the idea of a $125 million flood wall — the first meeting on that is October 10. The Ft. Negley Park development ideas are still alive too. That’s a lot. I’ll do my best to provide updates as I can about all of these.

Soccer Stadium

Over the next six months, the Council will be asked to take positions on several important issues. Before these debates come to a head, I want to share my current thoughts about each of them. This post is about the potential soccer stadium. I have also posted separately about the possibility of a transit referendum and the commercial development proposed for Ft. Negley Park.

Here’s what I think I know (all based on second or third hand information I have heard):

  • I think the proposal will be to build the stadium on the hill at the Fairgrounds where most of current buildings are. I think it will have one or two restaurants and build in some conference and office space (that would presumably be operated by the Fairgrounds Board??).
  • I think the MLS bid team would like Vanderbilt to play its football games there. That implies a stadium with seating for at least 35,000 to 40,000. And the project cost amounts I hear range from $150 to 200 million. I hear that Vanderbilt hasn’t decided yet what to do, but I am not confident about that one way or another. If Vanderbilt declines, I assume the stadium will be smaller and I don’t know what that would do to the price.

Here’s what I don’t know:

  • What is the total expected price tag? Does the stated price include any expected infrastructure, parks, greenways, or other improvements that might get folded into the project?
  • How much will Metro pay?
  • When there are overruns (like with the Sounds stadium and most large projects), who will pay for the overruns?
  • What is the source of funding for the Metro part?  In the budget process a few months ago, this project was listed to be supported with revenue bonds. In turn, this suggests using sales tax revenue from tickets and stadium concession sales to pay for Metro’s portion of the cost. The details will matter, but this revenue seems like it might not be enough to pay the cost of the debt. If not, what will the annual losses be, and how will we pay for that?
  • How are nearby neighborhood groups going to interact with the stadium for parking and noise, especially for night games.

My position on Metro contributing to build a soccer stadium will depend largely on the economics of the deal.