Bloomberg News

Chicago Fire Field Fuels Tax Increase for Residents: Muni Credit

December 03, 2013

The mayor of Bridgeview, Illinois, said building a taxpayer-financed arena for the billionaire owner of Major League Soccer’s Chicago Fire would bring hotels and restaurants to his suburb. Instead, the town has more than doubled property taxes and may raise them again to pay more than $200 million in stadium debt.

Commerce City, Colorado, gave land for a soccer complex to another billionaire who promised to build businesses adjacent to the $182.5 million project. Nine years later, the facility stands amid more than 200 vacant acres.

“We were promised things and they didn’t happen,” said James Allen, a former councilman in Commerce City, bordering Denver. “We gave too much to get a soccer stadium.”

Across the country, cities have committed to financing multimillion-dollar arenas worth many times their annual budgets. They often wind up with higher costs and less money for other services as projects fail to live up to pitches. Most of the revenue from the Illinois and Colorado stadiums go to the teams and their wealthy owners, rather than to the municipalities, which both have poverty rates higher than their states’ averages.

Stadium Playbook

What happened in Bridgeview and Commerce City reflects the standard playbook of sports teams, said Dennis Coates, an economics professor at the University of Maryland, Baltimore County who has researched sports finances.

“Promise all sorts of things, get the stadium built and then renege on all of the subsidiary sorts of things you promised,” Coates said by telephone from Baltimore. Of the 19 teams in the soccer league, 14 play in subsidized parks.

Today, Bridgeview struggles to pay the debt on a venue whose annual net losses often have dwarfed the police budget. Commerce City, which by 2006 had sold $64 million in bonds partly backed by sales taxes for its arena, asked voters in November to raise that levy to pay for projects such as a new recreation center.

“It’s had a very bad effect on our community,” said Margie Woods, a retiree who has lived in Bridgeview, a working-class Chicago suburb, for three decades. “We have a mortgage on the stadium. It doesn’t make enough money to cover its payment. We still have to pay for it, so the money has to come from somewhere.”

Boom Times

The building boom continues, with Washington working on a deal to house Major League Soccer’s D.C. United in its own publicly subsidized park. Supporters of new soccer facilities now tend to stress intangible effects, such as the boost to the reputation of the community or blighted area, said Rick Eckstein, a sociology professor at Villanova University outside Philadelphia.

“Most advocates are shifting their arguments now from the economic to the softer social and cultural arguments,” he said.

Team officials in Bridgeview and Commerce City speak of the facilities’ benefit to the entire region -- not just to the municipalities subsidizing them.

“There has been an improvement to the quality of life as far as people now having an entertainment destination here in Bridgeview and the south land of Chicago as a whole,” said Mike Ernst, senior vice president of ticket sales, service, operations and marketing for the Chicago Fire. “Toyota Park has been a destination for folks. The type of events that are coming here are things that were not coming here before.”

Host Competition

The municipal offices of Bridgeview lie about 15 miles (24 kilometers) southwest of Chicago’s City Hall. The community has no traditional downtown, and its main thoroughfares are thronged with trucks. The village has a population of about 16,500 -- compared with the stadium’s 20,000-person capacity.

Several communities vied to host the Chicago Fire, which was then owned by Anschutz Entertainment Group Inc. The Los Angeles-based sports and entertainment company was founded by Philip Anschutz, whose net worth is $10.5 billion, according to the Bloomberg Billionaires index.

Steven Landek, Bridgeview’s mayor, told residents through meetings, newsletters and newspaper interviews that the stadium would boost the area. An April 2004 newsletter said that the stadium would cost $70 million, and that its revenue, not village operations, would repay the bonds financing the venture. The stadium would be “an economic anchor” that would spur development of hotels and other businesses, generating tax revenue, the newsletter said.

Debt Financing

The same year, the team accepted Landek’s proposal that the village take on all the risk -- and the costs of building the stadium -- in exchange for controlling all the decisions, according to Peter Wilt, who was the Fire’s president and general manager at the time and who left in 2005.

Landek, a Democrat who also is an Illinois state senator, declined to comment on the stadium. A call to Debra Augle, the stadium’s general manager, was returned by Landek, who said neither he nor anyone from the village would comment.

The village sold $134.6 million in debt in 2005 for the project. Taxable general-obligation bonds maturing in December 2025 traded Nov. 26 at an average yield of 6.57 percent, or 3.75 percentage points above Treasuries, data compiled by Bloomberg show. That spread has swelled from an average of about 3.1 percentage points from February through June.

The stadium opened in 2006. A year later, AEG sold the team to Andell Holdings LLC. The chief executive officer of the Los Angeles-based investment firm is Andrew Hauptman, husband of Ellen Bronfman Hauptman, daughter of Canadian billionaire and Seagram Co. beverage scion Charles Bronfman. Andrew Hauptman won’t be made available for comment, said Dan Lobring, a Fire spokesman.

Unfulfilled Promises

While the stadium was built, the promises of economic development went unfulfilled. A plan to build a water park never materialized. Instead of new hotels and restaurants, travelers driving south on Harlem Avenue pass establishments such as Continental Transmission and Firehouse Tattoos.

Fans attending an August match said that while they enjoy the stadium, they would like to see more around it.

“What’s missing here is a restaurant, bars and stores,” said Luke Cholodecki, a Chicago restaurant owner. “If I want to meet people before the game, there’s nowhere really to meet them.”

The village expected the venue to have $3.45 million in operating expenses and a surplus of $4.8 million in 2006, its first year, according to a spreadsheet provided in response to an open-records request. Instead, the facility racked up $4.59 million in operating expenses and a $3.94 million net loss, a municipal audit shows. That’s more than the $2.4 million in police expenditures in the same period.

Deficit Years

Audits from 2006 through 2011 show that operating expenses exceeded revenue every year except 2007. The village’s financial report for 2012 didn’t list the stadium’s operating revenue and expenses as before. Landek said the village made the change for ease of management and that he didn’t have those figures.

Although it paid for the facility, Bridgeview doesn’t get the bulk of the revenue. The Fire receives 92 percent of gross ticket revenue, half of net parking and concessions income, a third of licenses, suites and sponsorship and 22.5 percent of gross merchandise, according to the permit and operating agreement.

Village officials have continued to plow money into the venue. They agreed to divert $2.6 million of the village’s share of stadium revenue to repay the club for suite upgrades, according to a document detailing the arrangement.

More Borrowing

Officials kept borrowing to pay for the stadium, including as recently as March, when they sold about $24 million in general-obligation bonds to refinance 2011 debt for the stadium.

Now taxpayers are saddled with more than $200 million in securities related to the project, according to a March report from Standard & Poor’s, which ranks the bonds BBB+, three steps above junk. Each resident’s share of the debt burden is $17,666, about three times the figure a decade ago when adjusted for inflation, releases from the ratings company show.

The village may sell more bonds for Toyota Park and raise taxes to help fund it, S&P said. Last year, Bridgeview asked residents to pay $9.59 million in property taxes, up from the 2006 amount of $3.82 million, according to Cook County tax records.

Landek, by telephone, said the village plans to raise property taxes by 1.8 percent in 2014. He declined to discuss the stadium while answering other questions.

‘Black Hole’

Cities that aren’t well known are susceptible to pitches for new stadiums, said Coates, the economics professor. That was true of both Bridgeview and Commerce City, he said.

Over a decade ago, Commerce City was looking to shed its image as “the industrial black hole of metro Denver,” as the Denver Post put it in 2004. The city is home to companies involved in oil refining, manufacturing and warehousing, clustered along highways.

The city’s population has grown to 48,000 from 21,000 in 2000, according to U.S. Census Bureau data. Key to changing the perception of the area was the redevelopment of a site that had been polluted for decades.

The U.S. Army’s Rocky Mountain Arsenal on the city’s eastern border manufactured chemical weapons during World War II. Later, Shell Chemical produced chemicals there. In the 1980s, state and federal officials led a clean-up of the site and designated part of it as a wildlife refuge. A portion -- about 917 acres -- was sold for $4.69 million in 2004 to Commerce City, sales documents show.

No Bids

Although the purchase of the land was the city’s largest both in price and acreage, officials didn’t solicit bids or proposals from developers, Mayor Sean Ford said. Instead, they presented the property to Denver-based Kroenke Sports & Entertainment as a location for a soccer stadium the company was planning in the area.

Kroenke looms over the Denver region with a diverse sports and entertainment empire. The company is owned by Stan Kroenke, whose wife is Ann Walton Kroenke, an heir to the Wal-Mart family fortune. His personal net worth is $4.8 billion, and hers is $5.1 billion, according to the Bloomberg Billionaires index.

Besides the Rapids, Kroenke’s company owns the National Basketball Association’s Denver Nuggets, the National Hockey League’s Colorado Avalanche, and the National Lacrosse League’s Colorado Mammoth, as well as the Pepsi Center, the Denver arena that’s home to those teams. Stan Kroenke also owns majority stakes in the National Football League’s St. Louis Rams and the English Premier League Arsenal Football Club.

Loyalty Plan

After Kroenke bought the Rapids from AEG in 2003, he looked to build a complex that could host a team as well as youth soccer leagues to “grow and develop a more loyal following,” said Tom Philand, executive vice president and chief marketing officer at Kroenke. Stan Kroenke wasn’t available for comment, he said.

Michael Roth, an AEG spokesman, didn’t respond to calls and e-mails seeking comment on the company’s ownership and sales of the Fire and the Rapids.

Under the 2004 deal between Commerce City and Kroenke, the city turned over land to develop a soccer complex, expecting the subsequent construction of 600,000 square feet of commercial and retail space.

Tax Backing

The project cost $182.5 million, including road improvements. Commerce City voters approved the sale of $64 million in bonds backed by sales and use taxes, with about $12 million in payments for these bonds coming from stadium receipts. Kroenke invested $102 million, of which $81.6 million would be returned to the company as tax rebates from development of surrounding businesses. All revenue from the arena goes to Kroenke, which pays $1 a year in rent, documents show.

The stadium, named Dick’s Sporting Goods (DKS:US) Park, and 24 practice fields, opened in 2007. The company calls it the largest soccer complex in the West, perhaps nationwide. It remains surrounded by vacant land.

Inside Dick’s during an August game, ads dotted the walls, including one that promoted “16 delicious restaurants” and gave directions to a development called Northfield at Stapleton -- which is in Denver rather than Commerce City.

That complex is part of a rebirth of a former airport into a community of homes, apartments, parks and stores that started in 2001. It’s located across the street from Dick’s, where Denver begins and Commerce City ends.

As they witness the development, several Commerce City residents say they resent the lack of building on their side.

‘Big Mistake’

“Commerce City made a big mistake when they gave all that land to that guy,” said Richard Hage, 60, referring to Stan Kroenke, as he put away groceries in his car. “Take it back and do something with it.”

Ford, the mayor, still supports the project.

“We still feel that Dick’s is an advantage for the economic development draw we’re looking for,” he said.

Kroenke officials say they will honor agreements with the city stipulating that development must start by October 2014.

While a hotel and office space remain goals of the venture, most of the development company officials expect first differs from what was originally pitched to residents. The plans now include an indoor sports venue and retail businesses that complement sports, such as beverage shops, said Mark Lucas, the company’s director of real estate.

Destination City

Philand said the company has delivered a regional asset and succeeded in portraying Commerce City in a new light.

“You’ve gone from an area that was really heavy industrial and didn’t have a high public persona throughout the metroplex of Denver, to being a destination,” Philand said. “Once they get out there, they’re very pleasantly surprised.”

No youth clubs based in Commerce City used the practice soccer fields last year, according to a list provided by the company. A 2007 agreement between the city and company said the community would receive “preferred use of up to six” fields in return for its $5 million contribution to the cost. The fields, which rent for as much as $1,100 a day, generated $614,689 in revenue for Kroenke last year, according to documents provided by the company.

A group of Commerce City parents who started a soccer club called Los Aztecas sought to use the fields for their children about three years ago, said Anita Mercado, a community non-profit employee who tried to help them secure time. The parents asked three times, and Kroenke officials told them they had to pay fees they couldn’t afford, Mercado said.

When asked if Commerce City receives any preferential treatment for the fields, Philand said no.

‘Regional Pull’

“There is nothing set aside as a direct benefit to residents of Commerce City,” he said by telephone. “It’s really used more as a regional pull. It’s being utilized by people well beyond Colorado.”

Needs are growing for residents throughout the city, from its oldest to newest neighborhoods. The poverty rate is 17.8 percent, compared with the 12.5 percent state average.

To serve residents moving into subdivisions, the city plans a recreation center with an indoor pool, three neighborhood parks and road improvements. Voters in November agreed to raise the municipal sales tax one percentage point to 4.5 percent to cover the $166 million price of the projects.

Such a hike may have been avoided if development occurred around the stadium as pitched, said Guillermo Serna, a Commerce City resident and former school director.

“More industry would have come in, and possibly then the city would have been able to afford the recreation center where they’re growing,” he said. “Our tax base hasn’t grown around that stadium.”

Market Week

Elsewhere in the municipal market, issuers nationwide have scheduled $15.2 billion of sales in the next 30 days, the most in almost five months, Bloomberg data show.

The governments are borrowing as top-rated 10-year munis yield 2.87 percent, compared with 2.78 percent on similar-maturity Treasuries.

The ratio of the interest rates, a measure of relative value, has exceeded 100 percent since Nov. 12. The higher the figure, the cheaper munis are relative to federal securities.

To contact the reporter on this story: Romy Varghese in Philadelphia at rvarghese8@bloomberg.net

To contact the editor responsible for this story: Stephen Merelman at smerelman@bloomberg.net


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Companies Mentioned

  • DKS
    (Dick's Sporting Goods Inc)
    • $45.37 USD
    • -0.52
    • -1.15%
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