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.