The Bears want to build a megaplex. Sure thing or ‘false’ promise?

Categories: WBEZ Chicago

NFL teams are increasingly looking outside of city centers to build stadium-anchored entertainment zones. Recent history shows they are both a boon to sports tourism and a risk for taxpayers.

Next year the Chicago Bears are expected to make one of the most important announcements in the team’s history: whether or not to stay in Soldier Field or travel nearly 30 miles to Arlington Heights, located beyond O’Hare International Airport.

The decision could profoundly change the face of both communities, and the nature of the team itself. If the Bears relocate, the team will become one of 11 in the NFL that play outside a flagship city in a suburban multi-purpose complex. According to plans the Bears announced in September, it would feature retail, restaurants, entertainment and even a hotel and office space.

And compared to other NFL teams, the Bears will be the second-farthest distance from their home city, which could put renaming the franchise on the table. When the Boston Patriots moved to Foxborough, about 25 miles south of Boston, the team was renamed the New England Patriots.

Name change or not, the potential transformation of the former 326-acre Arlington Park into a massive sports and entertainment complex is representative of a larger trend for NFL teams and other sports franchises that are hungry to generate revenue outside the game itself. Big real estate projects are an enticing lure because they give teams revenue via licensing deals, naming and sponsorship rights. They also often share the risk with public taxpayers, whether it’s a partnership with the municipality, county or state where these new complexes are built.

And it’s a risk some in Arlington Heights don’t want the village to take. The village’s elected board unanimously voted in early October to block a conservative group’s effort to stymie the use of public finance incentives, but the petition there only stoked the conversation.

The Bears are just the latest team to explore this option. According to CNBC, sports leagues are on track to invest more than $10 billion for development of new stadium complexes by 2030. Among the projects moving forward is the $1.4 billion new stadium proposed in Orchard Park, New York, for the Buffalo Bills and a vast stadium complex that the Washington Commanders want to build in Northern Virginia.

A recent game-changer is SoFi Stadium, a $5 billion complex that opened in 2020 and is shared by both the Los Angeles Rams and the Los Angeles Chargers. It too occupies a former racetrack located outside city limits and includes amenities like an outdoor concert venue, a four-story LED screen, restaurants, a lake and waterfalls. With just over 70,000 seats, SoFi is already booked to host the 2028 Olympics opening and closing ceremonies.

According to Scott Zolke, a partner with the law firm Loeb & Loeb who represents the Buffalo Bills’ owners in negotiations with the state of New York and Erie County, where the team’s new stadium is planned, sports tourism represents big wins for teams, fans and municipalities.

“There’s very little downside,” he said. “The model the Bears are evaluating is consistent to where things are moving with professional sports, which is to get to the burbs, find some great accessible land and build more than a stadium — build an entertainment district. The biggest risk for the Bears has nothing to do with the stadium — it has to do with fan loyalty, legacy history and winning.”

The gain for Arlington Heights is not just the prestige of hosting an NFL franchise in the village’s backyard, but also in replacing the tax base it lost with the former Arlington Park property, he said. “And not to mention the fact that you put yourself on the map. Everybody will know Arlington Heights,” he added, much like how small regional cities like Foxborough, Massachusetts, and Arlington, Texas, have gained prominence thanks to stadiums built by the New England Patriots and the Dallas Cowboys, respectively.

Dan Biederman, a president of Biederman Redevelopment Ventures in New York City who has consulted for the Green Bay Packers and New York Jets on the recent stadium enhancements, said the new mega-complexes work especially best in suburban locations where space is ample. The extra acreage is not just good for tailgating; it’s useful for building other destinations, like restaurants, that will draw people outside the short football season.

“The new trend involves creating public spaces around retail and next to the stadium. If the Bears make the move, they’ll be in a suburban area drawing people almost 360 days a year when they aren’t there,” he said.

Arlington Heights Mayor Tom Hayes said that, so far, he is “certainly in favor” of the Bears moving to the neighborhood.

“My goal has always been to put a property in Arlington Park that is of the highest and best use benefitting the legacy of Arlington Park,” he said. “I couldn’t imagine a higher use of the property than an NFL stadium and associated dining and entertainment district.”

For taxpayers, the potential give and get

In a September open letter, the Bears already suggested they will turn to taxpayers for a financial assist.

The team pitched its potential complex as a boon to the tax base there and ticked off a list of hefty numbers, projecting that Arlington Heights would stand to gain $16 million each year in annual tax revenue, which is more than twice the village’s total sales tax revenue (about $14 million) in 2021; for Cook County and the state of Illinois, the development would generate $9.8 million and $51.3 million, respectively.

But the ownership made clear the team isn’t picking up the entire bill. The letter pledges the Bears would not seek public funding for “direct stadium structure construction” — but “given the broad, long-term public benefits” of the complex, team owners would look toward “various governmental bodies” to secure extra money for the broader development.

In return, owners say, the overall area will reap $1.4 billion each year on top of the $9.4 billion the greater Chicago area will enjoy from the economic impact of the stadium’s construction.

Joel Maxcy, an expert in stadium financing at Drexel University’s LeBow College of Business in Philadelphia, said numbers like those are not just dubious, but also represent a “false promise.”

He said many cities across the U.S. have been stuck footing the bill of publicly funded mega-developments, which are susceptible to inflation, recessionary factors, a pandemic and mismanagement.

One example: Gila River Arena in Glendale, Arizona, former home to the Coyotes, a NHL franchise. The city, a suburb of Phoenix, paid about $220 million to build the arena, which included a large entertainment district. Sales tax revenues were intended to pay the city back. Instead, the team announced it would move to Tempe this year and left the city with $1.5 million in unpaid bills.

“These projects end up being low-risk for private investors because if the private sector side of it fails, the taxpayers are on the hook to bail it out,” he said. “The risk for Arlington Heights is determined by the contract the village makes with the Bears. But the Bears will want to put all the risk on Arlington Heights if they can.”

Indeed, small- to mid-sized municipalities are most accustomed to hearing modest business pitches like new subdivisions, schools or standalone retail developments. They are often overwhelmed and unprepared for such complex negotiations with powerful NFL franchises that “will have the experience of other NFL owners lined up behind them” in their negotiations, said Richard Sheehan, who specializes in the economics of sports at the University of Notre Dame’s Mendoza College of Business.

“The city, however, will not have that kind of financial expertise to push back against the chamber of commerce types to say, ‘Wait, how much will this really cost us and how much are we at risk of losing?’ ”

Hayes said, because of “due diligence,” Arlington Heights has already retained two consultants to assess the Bears’ plan when it becomes available. “We’re certainly mindful of the complexity of this,” he said. “This is a once-in-a-lifetime opportunity for this community and for this region and we want to make sure we do it right and we’ve hired the expertise we need to allow us to do that.”

A cautionary tale sits just down the road from Arlington Heights in Hoffman Estates. There sits the ill-fated Sears Centre, an 11,000-seat venue that was financed by $55 million in bonds issued by the suburb. The complex, which Sears promised would boost surrounding businesses, opened in 2006. Before construction, Sears and village officials promised taxpayers the project would generate $1 million in tax revenues and pave the way for greater development. Instead, the Sears Centre never had a profitable year, the jobs it promised never materialized and the area remains underdeveloped to this day. The village took control of the venue three years later to prevent it from going into default.

Today, Hoffman Estates owes more than $100 million on the full term of the bond and taxpayers are paying to keep the venue, called the Now Arena, in business as the annual costs to keep the doors open exceed revenue each year of operation. The village listed the venue for sale this year.

Not a sure bet

Besides the financial risk, the promise of jobs deserves more scrutiny, say those who study stadium financing.

First, because of the unsteady labor market, construction jobs tend not to become long-term additions to a region; instead they move from project to project. Jobs created after the stadium opens its doors “are not particularly good jobs, either,” said Maxcy of Drexel University — typically seasonal vendor positions, paid hourly, selling food, drinks or merchandise.

Revenue generated by the stadium tends to remain within its four walls and not spread to neighboring businesses, he added. However, many local establishments near the site see residual benefits of having the Bears as their new neighbor. “It’s going to be a good thing. It’ll get us more people coming in, more business and ultimately more money,” said Alicia Mora, manager of Honey Jam Cafe.

Football season is short, so central to the pitch for any mega-stadiums are the revenue-generating events that will take place the other 350 days of the year, from superstar concerts to other destination sporting events, like the NCAA Final Four.

But Robert Baade, an economist at Lake Forest College who specializes in stadium finance, said that, as the Sears Centre proved, adding another venue to the Chicago area doesn’t automatically mean it can sustain those attractions. Instead, it could be flooding an already-crowded market served by thriving venues such as the United Center, Allstate Arena, Wrigley Field and Soldier Field.

“The United Center in Chicago is perfectly capable of hosting these events. So not only is there intense competition already for these highly-attended events, but you’re creating another facility that is duplicating other facilities that are perfectly capable, and proven, to accommodate them,” he said. “So the question for the entire metropolitan Chicago area is — is another venue really important?”

Public opinion tends to be more agreeable toward new stadium complexes intended as development catalysts in blighted downtowns and other depressed areas, as was the case in Detroit, Philadelphia and Atlanta. In those cities, the positive outcome was seen as worth the risk. But in wealthier areas, like Chicago’s northwest suburbs, a publicly subsidized mega-development is a more challenging argument to make, especially when data continue to show the prevalence of risk. The Brookings Institute, for example, reported that more than $3 billion in tax revenue was lost on tax-exempt municipal bonds to finance sports stadiums between 2000 and 2014.

Zolke said he agrees that “the public investment is never justified dollar to dollar,” but that “it’s all the intangible benefits that come back to benefit the community.” An NFL franchise in your backyard “opens the door for increased revenue opportunity” for the entire northwest suburban region, not just in Arlington Heights. That makes the area a tourism destination that will motivate O’Hare travelers to head west of the airport, not east toward downtown Chicago and Soldier Field.

“Arlington Heights has the opportunity to not just impact Arlington Heights, but to touch the surrounding suburbs,” he said. “It becomes a destination.”

So far, Hayes said the village is helping the Bears perform their due diligence for the $197.2 million sale from Churchill Downs, the park’s owners. (The team signed a purchasing agreement in September, and Hayes said the deal, if approved, will go through in early 2023.) Once the sale is finalized, the team will present a formal plan for the village to consider — that’s when the real negotiations will start.

Until then, “we haven’t promised anything,” he said.

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