Investing in Sports: Building A Better Fan Experience
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Until just a few months ago, the loss of Angeles clippers played home games, a crypto o dot Karena in downtown L. A.

We were in a building that had two other in a major sports teams that we're playing at the same time as we were another basketball team and an nh. Hockey team that's .

clippers president of business Operations, gilan zuker. The hockey team, the l kings and the other baseball team IT was the la. lakers.

And so we were the third tenant in the building. You get the dates that are remaining. That's nobody's fault. But IT was just the reality of what I was like to be the clippers in that building.

This meant the clipper's played dates that weren't favorable for the team, its players or its fans.

We played a lot of day games. We played a lot of monday nights. We played a lot of holidays that were difficult.

We had more difficult road schedules and road trips. We had more back to backs than other times. And as a result of that, we were at a competitive disadvantage and we were at a financial disadvantage.

So when you think about being in somebody else's building, you're paying run to them. They're keeping the sweet revenue. They have competing sponsors to you. All of those things go away when you have a place at all your own.

This is investing in sports of four part series from the golden sex exchanges podcast about the changing dynamics at the intersection of sports and finance. I'm a copal in ross. I lead the private wealth management business for the new york region at golbin sex, and I also had our sports and entertainment offering for golden sex private wealth management. The la clippers just kicked off the MBA season in their brand new home that into a done at two point four billion dollars, is the most expensive arena in the world and part of a trend of new sports entertainment complexes that offer much more for fans to do than simply watch a live game tot them.

Hospira dim has mission and star level dining, and you can go and have multi course wine paid meal before a match.

On this episode, we're looking at what IT takes to build these stadiums. Andreas of the future will hear from gillion zuker about designing a new facility with clipper's fans top of mind.

We just kept adding more restrooms and more concessions facilities until we felt like we were able to accommodate if we had basically sixty percent of the section. Get up at the same time and try to do that at once.

Then i'll sit down with my two colleagues who have blaze the trail and stadium finance great Carry our global ahead of sports investment banking. And Stacy sudden berg, head of global sports finance, we'll talk about what's driving interest in the new sports entertainment complexes, the creative new ways of financing these expensive infrastructure projects, and what IT all means for teams and their fans.

The into a done is just the arena on steroids phenomenon enamel al facility. And just this next mark, people want to feel they are going to a safe, wonderful, and they walk out with a big smile on th Epace, no matter what happens on the quarter of the picture of the field.

Gilan welcome. Thank you so much for being with us today.

Well.

thank you so much. So let's just write in the dome officially opened on August fifteenth. And by the time our listeners here this conversation, the clippers will have had their first few home games of the season in this new arena. To start, will you just paint a picture of the space for our listeners, especially lingering on the features that are most unique to what you and team owner and chairman Steve boma have created?

You know, when I think back to when we first started in visioning, what the new home at the clubs would be like, Steve was very, very focused on the basketball. This was gonna a basketball. macca.

IT was going to be all about the game. And we spent. I can even tell you how many hours he obsessed over the ball, and we were asked questions by our architect.

Do you want a tight intermet environment where people can feel the energy of each other? Or do you want some of the more modern bells and whistles and luxuries that come with modern arenas? And and his answer, that was, yes, I do, I want that and they said, no, no, no, he need to choose and he was like, now that's why I hired you and he really, I think, speaks for fans, which is they want at all.

And from security to the ticket taking, we wanted IT to feel like magic. We wanted IT to be easy. We wanted to be frictionless. And so a lot of the vision of the technology that we brought in is to create an environment that allows for that, that you just walk through all of these spaces and whether you're going to a concession down to grab what everyone walk out, whether you're using a restroom, that there are all a lot of them, and we're trying to make them convened to where you would want to find them. And then when you get into the facility itself to be able to have this intense, exciting environment, but yet all of the luxuries and technologies that somebody might dream of.

yeah, I heard from someone who was there recently that you can get from the rest room to your seat and a record amount of time regardless of where you're sitting. So I think that has certainly resonated.

We've done a lot of pedestrian modeling around what people do during games. So they get up, they go to the restroom, then they go to a concession stand, they grab something popcorn to drink whatever IT is, and then they go back to their and what everybody's goal is is if it's a concert, they don't want to miss a songs to do that. If it's a baseball game, they don't want to miss a play. So we just kept adding more restrooms and more concessions facilities until we like we were able to accommodate if we had basically sixty percent of the section, get up at the same time and try to do that and wants, which is the experience you'd have to say a half time, more intermission.

okay. So with that in mind, if you take the arena design and then think about what happens when fans into the building, tell us how you thought about creating that fair experience, what is that like there to us?

Everyone who's coming in here is a VIP. If you think about that, there will be people who save and will attend one game maybe in their entire life. And that is a very, very special experience for them.

And you might compare IT to somebody who may be sitting in a much more expensive seat, but they may have gotten IT through their company, who gives them the tickets all the time. So we sort of looked through that lens at every experience and said, how do we exceed expectations in every seat for every person who's coming in to the best of our capabilities? So one of things that we asked films to do is to participate in our game face ID system.

So essentially, they can take a shelf e of themselves as part of their up downs ads when they're getting their ticket. And if they do that, they're literally able to just walk into the arena. They just come through the game face ID line, and their ticket is automatically taken by a room through device, which knows who they are.

And and we have get services, people who are there. And sometimes people look around and y're not sure, and they're like, hygeia come on in. It's like, oh my god, that do you knew my name? So fans have really been delighted by IT.

How do you think about the lifetime value of a fair? How does that perspective shape decisions that the team is making today?

We think about that a lot. We also think about the fact that the lifetime value in the past of a clipper's fan and the lifetime value in the future beginning now of a clippers found will change dramatically. And it's for a lot of reasons.

I mean, for the first time, we control our concessions. We've entered into partnership a collaboration with levy restaurants and formed our own group called three temper visions, and they run all the concessions and catering across the entire building. And one of the things that they came to us and said is when you're thinking about a building, the quality of the food will be directly proportionate to where your pi and your kitchen is.

So if it's close to the pantry and close to the kitchen, it's gonna higher quality than if it's further. And so we made this crazy decision to build a kitchen inside every concession today so that the food is made, where is served, nearly everything that's in there. All of these things are made right where they're served. And as a result of that, you know, certainly we're seeing a different level of interest in concessions that you might see IT in arana typically. So you know, these types of things are things that increase the lifetime value of the fan, but also provide a much Better experience for fans.

You've accomplished a lot. And what from the outside feels like a ably short period of time, which i'm sure is not how IT feels from your seat, but as you think about what's left on the to do list, is there anything top of mind is your getting into the season? Now we're .

just getting started. I mean, this building is obviously a media step in the history of the clippers and our culture, but I really do feel like this is just beginning.

Well, I cannot wait for my first visit, and i'm hoping you all have A A really fantastic season and wish you the best. Thank you for being with us.

Thank you so much.

These impressive new facilities with expanded amenities are expensive to build. The into a done costs more than two billion dollars. A football stadium could cost as much as five billion dollars, but for team owners, investing in a new stadium or arena development project today means an opportunity capture more of the revenue once these facilities are open to fans.

My colleagues, great Carrier and Stacy sun and burg, have created some of the most innovative structures to finance these infrastructure projects. They were closely with both team owners and project investors. I'm thrilled LED to speak with both of them today. Greg Stacy, welcome.

Thank you. Great to see you.

Okay, greg, we're gonna a start with you. You have been a trailblazer in the world of stadium finance. We just heard from gilan zaka about all the amenities and the new into adda.

I'd like to start our conversation going way back to a couple of decades ago and talking about the project that really change the narrative of what a stadium or an arena could be the home of the new england patridge, the N. F. L. team. What made this project so unique at the time.

polite, was a really interesting time when now, going back twenty five years ago, when we started working on IT, and the patridge played in foxfire stadium, which was worse than the high school football stadium I played in. And so one night JoNathan craft came, and we had dinner in, said, could we do a stadium on all privately, finances stadium hundred percent, with no public money in the ball? And I said, sure.

And if we went, that stadium cost four hundred and fifty million dollars. I ended working on a financing for three hundred million, but IT was the corner stone. What robbert and JoNathan craft did there, not only did they own the three hundred and thirty acres, so they created an entity called patria place after the state opened. And that really was the four run, the vision that Robert and his son, JoNathan, and the family had was they were the anchor, and they were the tears of the old days. They were creating this flow and capturing that flow.

It's incredible to see how much things have expanded since then. They say, I want to turn to you for a moment. You've had a unique perspective on sports infrastructure projects. Having begun your career as a civil engineer for new york city's parks and recreation department, which included oversight of the yani stadium picking up where greg left off. How has the scale of stadium in arena infrastructure projects evolved since that is so interesting .

because greg was the source behind the innovative of saying financial. We saw evolving for the next twenty five years with doing true project finance, where the revenues generated by the building that yet to be build building those revenues are the source of repayment for the debt. And so in order to maximized those revenues, that's been critical to the evolution of stadium design.

And what does each market really demand. And so what we've seen involved in the buildings is new and innovative premium spaces that are targeting people who are spend a lot of money in the building, but also activities and things for children. And so you see that a section of the outfield might have a zip line or will have a playground or merry go round or something to make sure the next generation once spend time in the building as well.

And then the other piece is, how do people consume and how do they want to eat? And so having a variety of dining options, not just the hotdog stand, but some stadiums, like tota host stadium, has fine dining, mission and star level dining. And you can go and have a multi course wine pared meal before match, which is, god, it's a gift.

It's amazing. But then you also have, as criminal kings, they're fortunate of where they're located, but they have a whole farm to table concept within the building. And so ninety percent of food is sourcing within ninety five months of building.

Nap is within that. So they very fortunate. But you just have a whole new way of people enjoying these buildings.

And so the design has completely evolved. Now you don't just go there for the game. You want to get there before the game, hopefully your team wins.

You want to stay after the game, and then that's where you have at L. F, C. The sunset deck becomes a place after the match. People hang out at the lfc sunset that till two in the morning, sometimes just enjoying the views.

One of the themes that runs through all of those examples is this concept around community. We hear from so many of our clients who are team owners. They talk about the importance of community. One even said that instead of calling themselves a team owner, they prefer to call themselves stewards of community businesses. From that standpoint, they see how has the role of the steady more arena played in the community changing, yeah.

arenas. We talk about all the timer engines for economic development. They really drive this whole velocity around them. And you look at what barkly center did for downtown and how IT didn't just affect where it's located, but that whole areas become so much more viBrant.

IT already was on its way, but barkly center just turbo charged that deer district around them in the rocky box where that had been sort of a dead zone. And now it's become a lively place people want to go to. But when you think about stadiums and arenas, they generate a ton of jobs.

And so all of these projects now have efforts to do apprenticeship and to help local people get jobs, train for jobs, build companies. And so that becomes a big part of these projects as well. So they they're trying to do more than just be about their game, but really give back to the community in that way.

It's great. It's really wonderful to see that full integration. Greg, I wanna talk a little bit about what you think has driven the shift in what these buildings are complex, are useful and what they have to offer. What's the need or the opportunity the team owners are really responding to?

Or there's a couple of things. First of all, most of these buildings go back to the sixties and seventies. There were multi use, like football and baseball all play in the same thing.

So the seeing design, the government owned them a lot of deferred maintenance. These buildings were not very well kept up because the governments really, we're making a lot of money permit the things we are making a lot of money for MIT. But as you start to look at the future of what is going on, you look at the U.

S. Bank stadium, which is the most sort of vikings. They'll now have final force there. They'll have super poles there. They now have concerts.

And so if you think about an arena, arena, i'll do as much as two hundred dates here. Message go gardeners, three hundred dates here. interesting.

When we finance for the giants, metlife stadium, the jets and the giants were the sixteen and seventeen th most viable teams in this was new york, but they didn't control their building state. New jersey got a third of everything. They ran the chickening, they ran the programming.

The jets and the giants pulled borrowed in excess of eight hundred million dollars each back then. This is, we're talking two thousand and seven, and they became the fourth and fifth most valuable teams, spending money to make money and then control the programing of the building. The championship of the world cup will be at meet life story of coming up. So it's the ability to do many things but controlling that building, the ability why professional owners want to basically run that building and they are going to run a professionally, they be able to provide the service is necessary to the clients. But it's also that they can monodist that building so they can put a Better team on the field and then compete.

Yeah, it's interesting because you see that factor when there is a opportunity for there to be a transaction on the team is being sold. One of the first questions our clients are asking as investors is about the real estate who owns that and the revenue sharing because that's such a big driver on the ability for there to be a profit. Let's talk a little bit more just about the cost of that experience.

Building a new stating or arena is a huge investment. Stay a given your perspective, would really appreciate hearing from you a little bit about this as well. What is the relationship between local governments and teams or team owners today? And importantly, a lot of clients are interested in investing outside of the us, where I think the stories quite different in europe. So would love your perspective of that as well.

Yeah, these buildings are expensive. They're very expensive to build. Some of the large market sports teams can afford to pay for them all entirely themselves, but that's not the case across the board.

And so you do see today sort of a resurgence once again of public investment into stadium that we've seen take place across the country, which I thinks important to ensuring that these acts get built and built to meet the demands of not just the team but the community. And so that is something that the united states, I think, has done really well. When we look at europe, there is very little to no public money.

Invest in stadiums overall, you have some examples, but they're the exception rather than the rule. So in europe, where the assets in many cases are truly community owned assets, where barcelona, real madrid are owned by IOS, literally owned by their fans, and the fans vote on who will run the clubs in, how decisions will be made and what the budget will be. You have such a different dynamic in that regard.

And the buildings are just as expensive to build and hard to afford. So something we talk about in europe with clubs is, is our way to introduce the concept of public support to these buildings are another way to get mean a supply involvement. Very limited success there yet. But and this is a conversation that's happening in europe.

Take a step back. Every one of these transactions is a public private partnership. You need to have the environmental process.

You need to have the rose study. You need the government approval to get your building permits. And some places IT works very, very well, some places that doesn't.

For example, in italy, we've been trying to do new stadiums, pretending is very, very difficult, very historic buildings. The process you have to go through even when they are not putting money in. So these are very chAllenging and is why stay in. I have a job because we've been through this. Every deal is different, but you learn through the process.

So let us talk a little bit more about how you finance some of these projects to get to how their own vision for the future. Greg dac, reference the project finance model that you designed many years ago. How's that evolved? As the projects have evolved, can you walk us through the mechanics?

You know, we have a thing called mortgage or lease hold mortgage. And most about transactions where you have a perfected security interest. In those revenue streams.

The problem is you also have a team that team values are already doubled. That team has to play there. In the united states, most of the leagues have a thing called a consent letter.

So if the team is short on the revenues that generating, the league says the right team on our or you really have to step in because you don't pay your sports related and death is will step and fix the issue. And if you don't come up with the money, will sell the team and then you'll get everything that's left IT works very, very well. And so the united states, the cost of funding from a spread basis and almost all the leagues has come down tremendous.

Ly, because people feel very, very comfortable with the league oversight. In european is a brave new world. The league over is less.

The tools that the leagues have are also limited. They don't have the ability to take away in owner. So it's about how much leverage. But you think about someone like a barcelona, marcella ona has four hundred million followers. Their stadium when we open at next year, is one hundred and five thousand .

seats .

credible, the environment, the change and is a renovation. They are following the U. S. model. The league oversight is still less so.

And the markets are less developed where we can do thirty year debt in the united states pretty easily. The capital markets, there is a ten to fifteen year market. We're expanding IT.

But a lot of this is the U. S. Investors because they understand the risk k profile.

So that creativity that you initiated twenty five years ago continues. I'd love to hear from both of you as you think about ways that you can struct these deals in of what you're able to share publicly. Are there some examples that you can speak to in terms of how you're looking to create creative solutions for clients .

in this space? Well, I think this curious ation structure that we use in, in europe, really our borrower is purchasing certain revenue streams from the team that will be generated in the building, but we aren't dealing with having corporate the building, and it's a completely different spin on how to raise money. And in europe, that's really important because there isn't public money in the ability to have other sources in the same way.

And so IT allows you to potentially be able to x as a little bit more debt capital instead of having to use as much equity or finding other sources of capital. Other ways that we've been looking at, the harder to do. But things that we think about is if a team matters into a really great naming rights agreement with a really strong counter party and IT into that contract early enough, there's the ability to just securitize that single contract and bring decades worth of payments up front. And so that's another creative method we've looked at.

So how has that change that you just described impacted the investors in the space?

These sports teams in european particular, but it's true, the U. S. two. But europe, if you want to play a new wave a for the football teams, you have to have meet financial fair play rules and financial fair play.

The long and short of IT is you can't spend more on expenses, which is basically players, but stadium expenses and so on. Your expenses can exceed your revenues except by a small amount, but effectively, you can spend what you earn. So if you think about sports teams, they earn media revenues.

They learn sponsorship revenues. They call commercial the sponsorship revenues and whatever revenues you make on match day or game day in the united states. And so media rights have gotten pretty high. So the commercial sponsorship similarly has been grown a lot. But the revenue that has not yet been maximized, especially in europe, is that match day revenue.

And it's so important that you're able to financial new buildings to increase that match day revenue so you can increase your oval revenues as a club in order to be able to afford a greater payroll. And if you have a higher payroll, you're more likely to win more games. And if you win more games, you'll win more champion.

Just have that virtuous circle of the strategy everybody puts in their duck that they showed us for their club strategy of how they're going to move forward. But the reason why everyone has in their dexia, because it's the right way to think about things. And so what's critical with our financing structures and what we really focus on as we want that debt to be as low costs as possible. So we want to create as high a rated investment, great credit as possible in order to have the lowest cost debt so that you don't want your debt service exceed the cost of the new revenues being generated. So there is a balancing act of having that debt be affordable.

The old rule of thumb used to be that eighty percent of a building is paid for by twenty percent of the seats. It's kind of the still the same. I hasn't changed in twenty five years.

Now we have naming rights and sponsorship, but that premium, that exclusivity that is offered is very, very important. I was just at the opening of the into a term which is the most expensive arena. We into a dome is just the arena on steroid, phenomenal, phenomenal facility.

And just this next mark. But that entertainment experience that people will have is very, very important. People want to a feel they are going to a safe, wonderful. They walk out with a big smile on th Epace n o m atter w hat h appens o n t he q uarter o f t he p itch o f t he f ield.

Does that mean that there is no max in terms of what the fan is willing to pay for that experience?

You know, is always that fine line. And you take a look at so far, that's next door that is the most expensive stadium. There is a fine line and its market to market to market. And in new york and in la and in london, you really can push things. There's only so much money they can generate in that middle market. If you take a look at the minnesota a twins versus the new york hankies, the legend sleets, you're talking about five times the amount of money new york can get for those seats and Better tone.

But I think what when we talk with sports teams and we hear what they are thinking, they're thinking about their fans. They are thinking about all their fans, thinking about the fans who are gain to demand the wine paired dinners by emissions and chef. They're talking about the fans though, who wear in year out, they're supporting their club.

They're joined the supporters club. They're following every trade, but their Price points, community, different Price point. And all of the teams we work with are thinking about making sure that their experience is true to what they want their building and see.

Think about that supporter section at L, F, C stadium, which is just incredible. They throw a lot of beer one another, but it's just an incredible experience, small Price to pay. Well, they do IT to celebrate tes, when you throw in the air gold like their colors, and then you see this gold in the is a great view.

But when you think about spotify, can't know there's give me all these new amenity for fans, some as samples and escalate, but also amazing concessions, plenty of bathroom rooms, all these new amends for fans. But really the sociology all designed to make sure that they're still able to come in at a Price point that is in line with what their history has been. And so that's been super important.

Thank you both for a really exciting discussion. Any final comments, things that you'd like to cover that we haven't before we go.

The evolution of the sports echo system continues to expand. Where this was five years ago. What is gonna in five years? Put your seat belt down and get on for the right.

Well, sad. Thank you to say. Thank you, greg.

thanks. Talk with you.

Coming up on our final episode.

i'm kind of chocolate right now because from serious to purchase was like a blink of an eye. We were such fans and friends of the team and kind of understood them and understood this moment. Much of the decision was based on .

instinct wilber on becoming controlling owner of the los Angeles club of the national women sacred league, Angel city fc.

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