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Public Contract Law Journal

If You Build It, They Will Relocate: Public Private Partnerships in Sport Stadium Financing

by Alejandra M. Hernandez Irizarry

Alejandra M. Herna´ndez Irizarry ([email protected]) is a 2017 graduate of the George Washington University Law School. While in law school, she was a Member, Notes Editor, and Projects Editor of the Public Contract Law Journal. She wishes to thank her parents, Teresa and Roberto, brother, Roberto, and sister-in-law, Nicole, for their endless support. She would also like to thank Judge Jeri Somers and Professor Brian Byrd for their guidance throughout the Note-writing process.  

I.   Introduction

It looks like the Green Bay Packers will soon be the Chicago Packers. Although this scenario remains nearly impossible in the real world, the Madden NFL 16 video game allows for the possibility of team relocation for any team within the game.1 While the Packers may not actually be moving,2 the National Football League (NFL) recently considered three teams for relocation to Los Angeles: the Chargers from San Diego, the Rams from St. Louis, and the Raiders from Oakland.3 On January 12, 2016, the NFL approved the St. Louis Rams’ move to Los Angeles.4 With this deal,  the NFL also gave the San Diego Chargers the right to move, contingent on the two franchises negotiating a deal to share the planned stadium in Inglewood, California.5 Otherwise, the Chargers receive $100 million to help finance a stadium in San Diego.6 The San Diego Chargers confirmed the team’s move to Los Angeles in January 2017.7

As stadium renovation and construction costs continue to rise, many sports franchise owners turn to public financing to fund these projects.Over the past twenty years, approximately 101 new sports facilities opened in the United States, amounting to a ninety percent replacement rate for sports facilities.9 The majority of these facilities received public funding.10 Furthermore, some leagues exempt “income from luxury seating, naming rights, retail, parking, and concessions” from being included in sport league requirements for pooling and sharing revenue.11 As a result, team owners desire more amenities to take advantage of this revenue opportunity.12 At times, the desire for new stadiums and modern amenities entices professional sport franchises to abandon their host city and move to one that offers to finance their preferred facilities, leaving the former host city with an empty stadium and an array of costs.13 “New facilities . . . bring in dollars to the city, but perhaps they bring in only a feeling of pride and economic redistribution of wealth.”14 To realize the benefits of public-private partnerships (PPP or P3), such as those used to finance sports arenas, the partnership agreement must properly allocate the risks, rights, responsibilities, and revenue between the public and private partners. Risk should be allocated to the party most able to mitigate it.15 This, however, might not be the case for current relationships between municipalities and sports franchises. Unfortunately, while professional teams pay for some of the costs associated with building new, luxurious stadiums, many local governments and taxpayers find themselves stuck with most of the bill.16

This Note seeks to find a balancing solution to the current asymmetric risk in sports stadium financing. Part II offers a general background on PPPs. Part II.A discusses types of PPPs, and Part II.B discusses three successful PPPs: the Dulles Greenway, the Chicago Skyway, and the Indiana Toll Road. These three contractual partnerships serve as case studies on how to achieve a successful and viable partnership between the private and public sector.

After setting the table with background on PPPs and case studies, Part III presents the current status and allocation of risks in sport stadium financing — an issue that affects a myriad of municipalities, cities, and teams. Specifically, this Note will touch upon the team-city relationship of the Arizona Coyotes, part of the National Hockey League (NHL); the New England Patriots, a member of the National Football League (NFL); and the Post-Olympic- Post-Braves-Turner Stadium in Atlanta.

Finally, Part IV offers a solution to better balance the risk involved with sport stadium financing. Part IV.A brings in the successes of the Dulles Greenway, Chicago Skyway, and Indiana Toll Road PPPs into the sport stadium arena. Part IV.B continues the discussion on creating effective PPPs by assessing Availability Payments PPPs and their application to sport stadium financing partnerships. Finally, Part IV.C evaluates possible amendments to contract clauses that can further benefit municipalities while still providing appropriate contracts and amenities to professional teams.

II.  Background

The process of developing and rebuilding cities can be costly.17 Accordingly, private participation in public works and services plays an important role in providing infrastructure and service systems.18 Many infrastructure projects, such as roads, bridges, and airports, “have been successfully developed through PPPs.”19

With PPPs, the public sector enters into contractual agreements with members of the private sector for construction or management of public infrastructure facilities or services.20 These agreements may be either medium-term or long-term contracts.21 PPPs are growing in popularity for the delivery of goods and services provided to citizens by the government.22 Currently, twenty-six states and Puerto Rico passed laws allowing the government to enter into agreements with private sector parties to “finance an infrastructure project through risk sharing.”23

PPP agreements can be used to construct an entirely new project or to renovate existing ones.24 These risk sharing contractual agreements incentivize investment in cost and encourage risk reduction and efficiency, making them attractive to governments.25 Public and private financing allows for both entities [to] share in the [contractual] responsibility, and both can benefit in the end.”26

Public entities select private entities in PPP agreements for their expertise in the project area or service to be performed.27 By incorporating specialized technical skills and innovation from the private sector, PPPs help accelerate project completion and quality, and PPPs fill funding gaps.28 Consequently, the public sector can shift risk burdens to the private sector and focus on the desired outcome of the project rather than detailed specifications.29

Two characteristics define all PPP agreements: (1) financial investment from the private sector and (2) a transfer of risk from the public sector to the private sector.30

Typical “payment mechanisms” can include any/or a combination of: full rights to collect user fees, rights to secondary revenue collection (e.g. parking, advertising, commercial rentals), subsidies tied to the usage of the facility (e.g. shadow tolls), upfront subsidies, payments for reaching certain construction milestones, flexible lease periods (lasting until a target [Net Present Value] of revenues is reached) and availability payments.31

Nonetheless, unfavorable fiscal decisions by municipalities demonstrate an asymmetric allocation of risk between local governments and the private sector arises when constructing and maintaining sports facilities.32 This asymmetry exists because in many instances the government holds most of the debt and the private sector most of the rewards.33

A.  Types of PPPs

“Public-Private Partnerships (P3) come in a variety of forms and no two P3 projects are exactly alike.”34 PPP agreements can involve transfer of control of a facility to the private sector, building or renovating public facilities, or use of the public facilities by the private sector for a defined period of time.35 Typically, the type of PPP responds to the scope of responsibility and degree of risk assumed by the private partner.36 The primary types of PPPs include: Private-Contract-Fee-Services, Design-Build, Design-Build- Operate-Maintain (DBOM), Design-Build-Finance-Operate-Maintain-Transfer (DBFOMT), and Build-Operate-Transfer.37

1.  Private-Contract-Fee-Services

Private Contract Fee Services PPPs shift the responsibility for operations, maintenance, programming, and/ or financial management services to the private sector.38 Common examples of shifting responsibility include Operations and Maintenance PPPs and Operations, Maintenance, and Management PPPs.39 Operations and Maintenance PPPs provide the private partner with operation and maintenance of a service system or facility.40 On the other hand, ownership and overall management of the facility remain in the public sector.41 

Water treatment services contracts typically use Operations, Maintenance, and Management PPPs.42 This type of PPP, similar to Operations Management Contracts, transfers maintenance and operation to the private sector.43 The public sector retains ownership of the service system or facility.44 However, unlike in an Operations and Maintenance agreement, under this contract option the private partner may invest its own capital in the facility or system.45

2.  Design-Build and Similar Models

Design-Build and DBOM agreements incorporate construction into the risk sharing structure of the PPP, bundling the design and construction into one fixed-fee contract46 under FAR 16.201.47 Under Design-Build and DBOM contracts, the government retains the ownership, planning, financing, operations, and maintenance responsibilities.48 Design-Build and DBOM agreements, therefore, “can reduce time, save money, provide stronger guarantees and allocate additional project risk to the private sector.”49 DBOM agreements add operations and maintenance responsibilities to a Design-Build PP.50 Under a DBOM agreement, the public sector retains ownership and significant oversight over the operations through the term of the contract.51

DBFOM agreements go one step further than DBOM agreements by adding project financing into the structure of the PPP.52 DBFOM contractual agreements shift the financing to the private sector, in addition to the responsibilities shifted with DBOM and Design-Build contracts.53 With no two PPPs identical, DBFOMs come in various types, especially differing in the degree of financial responsibilities transferred to the private sector.54 However, debt leveraging revenue streams dedicated to the project,55 such as direct user fees, finance most DBFOM projects in part or in whole.56 Public transportation agencies commonly use DBFOM contracts because “they can provide access to new sources of equity and financing, and deliver similar schedule and cost-efficiency benefits as design-build and DBOM procurements.”57

3.  Build-Operate-Transfer

Under Build-Operate-Transfer contractual agreements, the private partner builds a facility to the specifications of the public partner.58 The private sector partner operates the facility until the end of the contract or a designated franchise period.59 At the end of the private operation stage, the public partner may undertake operations and responsibilities for the facility or award a new contract to the original franchisor or a new partner.60 In many cases, the private sector provides all or some degree of the financing.61 Therefore, the length of the contract or franchise period generally mirrors the period of time necessary for the private partner to realize reasonable returns on its investment.62

Although similar in most aspects to the Build-Operate-Transfer model, a Build-Transfer-Operate contract63 transfers the property after the completion of construction rather than at the completion of a contract or franchise period.64

4.  Availability Payment PPPs

Availability Payment PPP agreements transfer the design, build, financing, operating, and maintenance risks to the private partner while ownership rights remain with the government.65 Availability of a facility can be categorized in two ways: pure availability or constructive availability.66 Pure availability requires the asset, or portion of it, “to be open, functioning and unobstructed, permitting full use by the public.”67 On the other hand, constructive availability requires meeting the pure availability requirements in addition to the asset, or part of it, “meet[ing] performance, safety and quality criteria specified in the contract.”68 Constructive availability allows for higher metrics and management tools to guarantee higher quality services.69

An availability payment is based on performance unrelated to demand.70 The Availability Payment PPP structure can be an attractive alternative for projects that may not be feasible or advisable using user-fee based allowances.71 In other words, Availability Payment PPPs may be attractive for projects “where the revenue stream is not self-sustaining.”72 Ideally, in a well-structured PPP, the contractor or concessionaire profits when the infrastructure fully meets the government’s objectives.73

In availability payment procurement agreements, contractors “bid the maximum availability payment amount they would earn for providing 100 percent availability in a given year” in order to determine the price.74 The yearly payment decreases if a contractor fails to meet the pure or constructive availability requirements set forth in the contract.75 A pre-determined formula takes into account the circumstances surrounding the incident, including the duration and severity, and calculates the payment reduction.76 Under availability payment agreements, significant or continuous underperformance can result in a contract’s termination by default.77 Therefore, this agreement ties payments to performance, ensuring “investors make money only if they keep their part of the agreement,”78 as seen in the reconstruction of I-595 in Florida.79

B.  Successful PPPs

The availability payment PPPs have proven successful in projects such as the Dulles Greenway, the Chicago Skyway, and the Indiana Toll Road. This Part discusses elements and characteristics of each project in order to under- stand how these three projects effectively executed availability payments.

1.   Dulles Greenway

The Dulles Greenway is a privately owned road in Northern Virginia.80 Built under the Virginia Highway Act of 1988, the Greenway became the first of its kind in 1816.81 The Greenway extends the Dulles Toll Road (DTR), which the Virginia Department of Transportation (VDOT) built and owns.82 Although privately owned, the Greenway forms a portion of the publicly owned Virginia State Route 267.83 Users criticize the Greenway for its high toll rates,84 with already-approved travel demand increases through 2020 and expectations of future escalation.85 However, the DTR remains subject to regulation by the Virginia State Corporation Commission (SCC).86

After an indicated period, the Greenway will transfer over to the Commonwealth of Virginia at no cost to the Commonwealth.87 After the transfer, the private investors will have no additional involvement in Greenway nor will they receive proceeds from the Greenway’s operations.88 Prior to the transfer, the Greenway owners benefit from the toll’s revenues while paying real estate taxes on the property on which the road is built.89 In 2013, the owners of the Greenway paid $3.28 million in real estate taxes.90 Between 2005 and 2010, the Greenway mainline plaza experienced some traffic reduction.91 Notwithstanding controversies, however, traffic remained constant the past few years despite further toll increases.92

2.  Chicago Skyway

The Chicago Skyway, an eight-mile toll road, connects the Dan Ryan Expressway, located south of Chicago, with the Indiana Toll Road.93 A private group of Spanish and Australian toll road developers operate and maintain the Skyway.94 In 2005, the agreement contracted operation and maintenance of the Skyway to the private consortium for ninety-nine years, after which it will return to the city.95

The private contractors paid the city $1.8 billion at the start of the agreement; in exchange, they will collect all revenue during the ninety-nine-year period.96 The agreement also established toll rate increases, capped at “the greater of 2 percent, the consumer price index or per capita gross domestic product.”97 The City of Chicago used the $1.8 billion payment to repay out- standing road debt and pay general city obligations, placing $875 million in reserve funds.98

3.  Indiana Toll Road

The Indiana Tollway, an example of a successful BOT agreement PPP,99 connects the Chicago Skyway to the Ohio Turnpike.100 Since 2006, the same Spanish-Australian developers operating the Chicago Skyway have been operating the Indiana Tollway as well.101 Outbidding ten other proposals, the company offered an upfront payment of $3.8 billion in exchange for a seventy- five year BOT agreement.102 Like the Skyway, the Indiana Tollway agreement established toll increases up to “the greater of 2 percent, the percentage change in the consumer price index, or the percentage increase in per capita nominal GDP.”103

The Indiana Department of Transportation used the $3.8 billion upfront payment to fund “200 highway construction projects and 200 highway major preservation projects under a 10-year program called Major Moves.”104 Additionally, the seven counties the toll road passes through receive payments, ranging from $40 million to $120 million, for local transportation projects.105

Successful PPPs can improve services offered by the government at a lower cost to taxpayers due to the shift of parts of the financial burden onto the private sector, as seen by the three examples discussed above.106 The successes of the Dulles Greenway, the Indiana Toll Road, and the Chicago Skyway can be transferred to sport stadium financing to address the current asymmetric arrangements.

III.  PPPS & Sports Arenas

PPP agreements raise the concern that “if a private company fails to [properly] manage [the project], the state would be forced to step in, sticking taxpayers with the bill.”107 Although not necessarily a failure in the agreement, this concern extends to the funding and management of sports stadiums because taxpayers often do end up footing the bill.108 Based on facts and current situations discussed below, the government and professional sports team partnerships, structured in a combination of Design-Build, DBOP, and BOT Agreements, best benefit the sports franchises.

Moreover, opportunity costs109 are the fundamental social issue associated with government spending on sports facilities since taxpayer funds are involved.110 Tax dollars spent on sports stadiums could be expended on other government-provided services or retained by the taxpayer.111 Without sport stadium contracting expenses, the most likely alternative would be rescinding tax increases associated with the stadium contract rather than authorizing the increase and redirecting the funds to other services and community needs.112

A.   The Facts: Sport Stadium Financing

In 2013, stadium investment totaled an estimated $12.9 billion, of which public tax funds contributed $6.7 billion.113 In addition to venue construction costs, many nuanced costs, such as property taxes and costs for maintenance and operations, remain under the radar when contracts are first negotiated for these stadiums.114 Furthermore, the expense goes beyond the stadium itself: teams also contract for parking facilities, luxury boxes, dedicated highway ramps, and other amenities.115 The overburden on local governments to cover these costs demonstrates the need for a solution to the asymmetric risk involved in contracts between municipalities and professional sports teams.

For example, Glendale, Arizona, contractually must pay $15 million per year over two decades to the owner of the Coyotes hockey team as well as a $12 million annual debt payment for construction of the team’s arena, despite facing a budget deficit of $35 million.116 In return, the city “receives $2.2 million in annual rent payments, ticket surcharges, sale taxes, and other fees.”117 Unfortunately, the city still loses $9 million annually from this deal — even if the Coyotes go to the NHL championships for twenty consecutive years.118 In June 2015, a five-to-two vote by the Glendale City Council ended the fifteen-year, $225 million agreement with the Arizona Coyotes.119 Immediately after the decision, the team filed a lawsuit against Glendale and speculations concerning the team’s relocation arose.120

One month later, the Glendale City Council unanimously approved an arena management deal between the Arizona Coyotes and the city.121 Instead of a $15 million annual payment, the city will now pay the Coyotes $6.5 million to manage the arena while the contracting team retains all revenue from ticket, parking, and naming rights.122 This totals approximately $6 million that the city would have collected under the old agreement.123 However, the new deal ends the contract with the city a year earlier than the previous one, leaving the Coyotes free to move elsewhere.124 Team president, Anthony LeBlanc, expressed some uncertainty regarding the Coyotes future in the Glendale arena, leaving unresolved the issue of relocation and its effects.125 Furthermore, tension between Glendale and the Coyotes remains strong after the city issued a new request for proposals to manage the Glendale arena, which is currently managed by the Coyotes.126

Glendale’s call for proposals ignores the revenue spilt agreement with the Coyotes.127 Correspondingly, the Arizona Coyotes began discussions with possible partners and organizations for the prospect of a new arena.128 Whether the new city contract ensued from better negotiation, cooperation, desperation, or transfer threats, the results of the new Coyotes-Glendale agreement will be seen over the next few years. Unfortunately, the amount of negotiating power and tools held by the teams and leagues aggravates the financial burden on municipalities.129

B.  Aggravating the Problem: Too Much Power

Since professional leagues control the supply of teams, the threat of relocation acts as a powerful and credible tool when negotiating new stadiums or renovations.130 Additionally, “urban populations have been growing faster than professional sports leagues have been adding teams. As a result, [they] hold a great amount of sway over localities.”131 The relocation trend is not a new phenomenon in the sports industry.132

In the late 1990s, the governor of Connecticut attempted to lure the New England Patriots to Hartford.133 The governor signed a bill binding the taxpayers to pay $374 million for a new riverfront stadium in a very public deal.134 Yet, the same bill also committed $250,000 per year for the team’s insurance, $15 million for a practice facility, a capital replacement fund of $115 million to pay for renovations, and $800,000 for the owner’s legal fees, among other costs.135 Although the Patriots ultimately refused Connecticut’s enticing deal,136 this situation provides a clear example on how easily the government’s financial risk can increase in these contracts.137 Overlooking additional costs such as these “is roughly equivalent to a certified public accountant omitting a balance sheet’s liabilities and then touting the success of the company.”138 Furthermore, due to the increase in stadium replacements, cities and counties find themselves stuck with costly sports stadiums, unable to find a new tenant when a contracted team abandons a stadium.139 Upkeep of these unused stadiums costs local governments millions of dollars in maintenance and missed property tax revenue.140 Judith Grant Long, a professor at Harvard University, and Andrew Zimbalist, a sports economist, estimate that stadiums built between 2000 and 2006 add up to an average of $319 million in public expenditures.141

Creating an even larger problem, abandoned sports facilities might not be useful for anything other than sports.142 For example, Atlanta built Turner Stadium for the 1996 Summer Olympic Games and later converted it into a baseball-only stadium.143 Although the conversion extended the stadium’s lifespan for twenty years, the Braves moved to a new stadium earlier this year.144 Unable to repurpose the newly abandoned baseball field, Atlanta decided to demolish the field.145 Unfortunately, the stadium’s demolition does not lift the burden from the city — many municipalities carry the debt payments for years to come even after replacing or demolishing the stadiums.146

IV.   Balancing the Risk

The Arizona Coyotes, New England Patriots, and Turner Stadium in Atlanta illustrate the asymmetric risk and power involved in agreements between professional sport teams and municipalities. The easy solution would be for governments to say “no” and not give in to a sports team’s demands. Without a doubt, many factors impact relocations; however, when a sport franchise relocates, the public can reasonably assume that the government declined to meet the owner’s demands.147 The resulting relocation can have political, social, and community morale effects.148

Subsidizing teams proves problematic because the social benefit of hosting and building public stadiums weighs in favor of the wealthy and consequently levies the costs on the middle and lower classes.149 Along with stadium improvement come increases in ticket prices, meaning the new cost of attending professional sporting events precludes attendance from the lower and middle class segments of the population — the very individuals financing the stadium.150

Politicians have proposed numerous solutions to help reduce sports teams’ upper hand in contractual negotiations with local governments.151 Generally, the proposed solutions include “enforcing state lending of credit and public purposes doctrines; ordering league expansion; requiring breakup of the big leagues (divestitures); and implementing congressional statutes.”152 Moving forward, the disparity can be optimally remedied by reconsidering the structure of the partnership between the government and professional sports.

A.  Balancing the Risk: Greenway, Chicago, and Indiana in Sports

A successful contract requires the right PPP structure. The Greenway’s contractual structure assigns the financial risks on the private party entirely, whereas the current sports stadium contracts skew the financial risks asymmetrically toward the government.153 For instance, Connecticut’s attempt to lure the New England Patriots to Hartford demonstrates how much risk local governments assume in order to host professional teams.154 Although surrounded by controversies, the Commonwealth of Virginia’s experience with the Greenway can be adopted, with some modifications, to government contracts with sports teams.

To balance the financial risk, governments should require the private sports teams to contribute more financial resources toward building, operating, and/ or managing the arenas. For example, instead of burdening local governments with future maintenance or renovation costs, the contract, similar to that used in the Greenway structure, can set forth a fund subsidized by the sports team to be used when those needs arise. Using the New England Patriots example, this transfer of financial allocation toward the stadium could reduce the city’s costs by $115 million.155

Another way to eliminate unnecessary tax burdens on local governments would be to require teams to pay real estate taxes on the stadiums the same way the Greenway owners pay taxes to the Commonwealth of Virginia. Even though the professional teams do not enter into an ownership contract with the government, the lease agreement should account for tax payments in order to underwrite government debt issued for the arena’s financing. Additionally, tying the real estate tax revenue collected from the contracted teams reduces the burden on the city’s taxpayers. For example, if the Patriots relocated, the City of Hartford could have retained up to $250,000 a year of taxpayer’s money to pay for the team’s insurance under the proposed plan.156 In the alternative, if the Greenway structure does not seem amenable to sports franchises, BOT agreements, such as the ones used in the Indiana Toll Road and Chicago Skyway, offer a more balanced relationship.157 Although BOT agreements require a large lump sum payment upfront, it can be beneficial to both the government and sports teams without substantially altering current practices. Under such an agreement, the team can receive concession, ticketing, and other revenues for the lease period while the local municipality can use the upfront payment to pay off debt or fund other projects. Additionally, the lump sum payment from the team can fund city needs and expenses instead of cutting costs elsewhere, such as public hospitals, school budgets, or jobs.158

B.  Balancing the Risk: Availability Payment PPP

Using availability payments in sport stadium contracts can balance the risk currently asymmetrically allocated to local governments. Availability Payment PPPs guarantee long-term budget certainty because payments will never exceed the maximum availability payment, and payments classify as binding obligations subject to appropriation rather than debt.159 Since payments begin at the start of the project and continue to be tied to performance, it incentivizes the public partner to provide faster delivery and a specified standard of service.160

Although sport stadium agreements do not involve tolls, various revenue options exist using this type of agreement, including revenue from ticket sales, luxury seating, parking, retail, or concessions. The league revenue pooling shared with the athletes would likely include ticket sales,161 and it would be unrealistic to think teams would agree to give up an additional percentage of those earnings to the government. However, revenue sources such as luxury seating, naming rights, retail sales, parking, and concession stands may be negotiable. Furthermore, because league revenue pooling excludes these revenue sources, profits depend on the performance of the facility — a key characteristic of Availability Payment agreements.162 Availability Payment PPPs can also be combined with a BOT or Lease-Agreement structure to further incentivize teams while keeping the risk sharing balanced.

C.  Balancing the Risk: Contract Clause

In addition to mirroring successful aspects of other PPPs, the contracts between the government and the teams should include clauses to limit public investment and prevent teams from leaving to reduce city competition and relocation. For example, Hartford’s mayor offered to pay for the owner’s legal fees among other additional costs.163 Offering to cover additional costs such as parking facilities, hotels, and legal fees serves as bargaining chips in negotiations.164 However, to reduce competition among cities on who can offer the best deal, contractual agreements should include a clause limiting the investment ratio.

For example, the clause can set a limit that no more than sixty percent of the investment can come from the government. Within this limit, cities would still enjoy some wiggle room on what they can offer teams. Further, the clause could also set a limit ranging from five percent to ten percent on the “additional things” the government can expense, such as legal fees, roofs, or holographic replay machines.165

Establishing a penalty on teams that abandon their stadiums before the debt repayment serves as another important contract clause available to reduce teams leaving. For instance, if a team, like the Braves,166 leaves or requests a new stadium before the repayment of debt, the team would be responsible for the debt repayment. In the Braves’ case, the team would be responsible for the remaining $110 million.167 In the case of a team relocating and a city finding a team to occupy the empty stadium, the leaving team can be released from the penalty as long as the incoming team agrees to take over the outstanding debt. Furthermore, given that the government invests a substantial sum into sports arenas, the penalties and limits on government costs should be tied to the team’s expected estimated revenue.

V.  Conclusion

Americans love sports. The professional sports franchise has a hypnotic effect over its fans, whether they are watching football on a Sunday afternoon, going to a baseball game with the family, or spending a night out at a basketball game. However, the current relationship between professional sports teams and local governments calls for change. For years, teams have misused billions of dollars in subsidies by local governments for their stadiums.168 “[T]his isn’t about whether we love our teams in our towns; we all have a great and passionate love for our home team. But this is a separate issue as to where do we put our infrastructure money.”169 Given the excessive power teams exert over cities and communities, there exists a need for new efforts to discontinue this behavior. Adding limits on public financing and increasing revenue collected by the government can incentivize teams to stay. Furthermore, a balanced PPP agreement structure between the sport franchise and local municipalities would help reduce the burden on the public sector while best achieving the true purpose of these deals: increase morale and pride from hosting a professional team.

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  1. See Bryan Wiedey, How to Move the Rams to Los Angeles in Madden NFL 16, SPORTING NEWS ( Jan. 13, 2016), [].
  2. Currently, no news source shows that the Packers plan to relocate.
  3. See generally Louis Bien, NFL Relocation Can’t Be Stopped Because You Care Too Much: The NFL is headed back to Los Angeles, no matter how many hearts it breaks in the process, SB NATION (Sept. 2, 2015), raiders-chargers [].
  4. Matthew Futterman & Stu Woo, NFL Owners Approve Rams’ Return to Los Angeles, WALL ST. J. ( Jan. 12, 2016, 9:51 PM), [].
  5. See id.
  6. See id.
  7. Zachary Zagger, Chargers Owner Confirms Team Will Move to LA, LAW360 ( Jan. 12, 2017, 4:47 PM), [].
  8. See Aaron Kuriloff & Darrell Preston, In Stadium Building Spree, U.S. Taxpayers Lose $4 Billion, BLOOMBERG MONEY (Sept. 5, 2012, 12:01 AM), [].
  9. Aaron Gordon, America Has a Stadium Problem, PAC. STANDARD ( July 17, 2013), [].
  10. See id.
  11. See Kuriloff & Preston, supra note 8.
  12. See id. “Under the [NFL] collective bargaining agreement, a percentage of ticket sales, sponsorship money and media deals go into the [revenue] pool shared with players.” Claire Groden, NFL May Owe Players Over $100 Million after Being Caught in Accounting ‘Fiction’, FORTUNE (Feb. 23, 2016), []. However, revenue from premium seating and corporate megadeals are excluded from the revenue sharing pool. See id.
    The valuation of professional sport franchises varies significantly, both within and across the different leagues. See Jeff Phillips and Jeremy Krasner, Professional Sports: The Next Evolution in Value Creation, in THE BUSINESS OF SPORTS 446, 447 (Scott R. Rosner & Kenneth L. Shropshire eds., 2d ed. 2011). In order to remain competitive, teams build new, modern stadiums with amenities, such as club seats and suites. See id. This trend helps explain the valuation disparity among franchises. See id. In a league with salary caps, building new stadiums offers owners premium sources of revenue because the higher cash flow and value is not tied to player salaries. See id. Instead, this additional cash flow can be used toward debt, investment, or distribution to the owners. See id.
  13. See ROBIN AMMON, JR. ET AL., SPORT FACILITY MANAGEMENT: ORGANIZING EVENTS AND MITIGATING RISKS 29 (Geoff Fuller et al. eds., 2004); see also Ken Belson, As Stadiums Vanish, Their Debt Lives On, N.Y. TIMES (Sept. 7, 2010), [].
  14. See ROBIN AMMON, supra note 13, at 31.
  15. Pauline Hovy, Risk Allocation in Public-Private Partnerships: Maximizing Value for Money, INT’L INST. FOR SUSTAINABLE DEV. 1 (Aug. 2015), [].
  16. See Chris Isidore, The short life of an NFL stadium, COLONIAL CAPITAL LLC (Sept. 8, 2014, 12:20 PM), [].
  17. See generally Kuriloff & Preston, supra note 8.
  18. S. Ping Ho, Model for Financial Renegotiation in Public-Private Partnership Projects and Its Policy Implications: Game Theoretic View, 132 J. CONSTR. ENG’G & MGMT. 678, 678 (2006).
  19. Xueqing Zhang, Critical Success Factors for Public-Private Partnerships in Infrastructure Development, 131 J. CONSTR. ENG’G & MGMT. 3, 3 (2005).
  22. Vincent Napoleon, Are P3s the ‘New’ Thing in Government Contracting?, LAW360 (June 16, 2015, 5:39 PM), new-thing-in-government-contracting [].
  23. SLONE, supra note 20, at 1.
  24. See id. at 2.
  25. See Eva I. Hoppe, David J. Kusterer & Patrick W. Schmitz, Public-Private Partnerships Versus Traditional Procurement: An Experimental Investigation, 89 J. ECON. BEHAV. & ORG. 145, 146 (2013); see also SLONE, supra note 20, at 1.
  26. AMMON, supra note 13, at 33.
  27. See SLONE, supra note 20, at 2.
  28. See Napoleon, supra note 22.
  29. See SLONE, supra note 20, at 2.
  30. See generally INT’L MONETARY FUND, PUBLIC-PRIVATE PARTNERSHIPS 4–5 (2004), [].
  31. See Silviu Dochia & Michael Parker, Introduction to Public-Private Partnerships with Availability Payments, JEFFREY A. PARKER & ASSOCS., INC. 3 (2009), [].
  32. See Professional Sports Stadiums: Do They Divert Public Funds from Critical Public Infrastructure: Hearing on H.R. 193 Before the Subcomm. on Domestic Policy of the Comm. on Oversight & Gov’t Reform, 110th Cong. 2 (2007) [hereinafter Hearing on H.R. 193] (Statement of Dennis J. Kucinich, Chairman of Subcomm.). For example, the Minnesota Twins received approval of public funding for a new stadium just a year before the I-35 West bridge collapsed. Id. In 2003, Minnesota Governor Tim Pawlenty opposed and vetoed an increase in the gasoline tax but later signed a bill increasing sales tax in Hennepin County. Id. The gasoline tax revenue was intended to fund bridge repairs whereas the sales tax increase was dedicated to paying the debt service on bonds for the new Twin Stadium. Id.
    Similarly, in 2010, only two years after the City of Orlando issued bonds, backed by an increase in the tourism development tax to finance the new Amway Center Arena, the rating of the city’s bonds was downgraded to junk with a default warning for 2012. See JUDITH GRANT LONG, PUBLIC/PRIVATE PARTNERSHIPS FOR MAJOR LEAGUE SPORTS FACILITIES 1 (2013). Likewise, Harris County in Houston financed its baseball, football, and basketball stadiums with motel/hotel and rental car taxes. This plan left the county wanting and unable to cover costs because the expected tax revenues dipped approximately twelve percent during 2009. Id.
  33. See Hovy, supra note 15, at 1; see generally Kuriloff & Preston, supra note 8; Aaron Kuriloff & Darrell Preston, Cincinnati Stadiums Bury County Government in Debt, BLOOMBERG MONEY (Dec. 17, 2013, 10:41 PM), [].
  35. See Public Private Partnerships: Issues and Considerations, PRACTICAL LAW COMPANY 1–2 (2013), [].
  36. SLONE, supra note 20, at 2.
  37. See Types of Partnerships, supra note 34. The contractual agreements discussed in this Note are not meant to be an exhaustive list of types of PPPs. There are several other examples of types of PPPs. See generally id.
  38. See SLONE, supra note 20, at 2.
  39. See Types of Partnerships, supra note 34.
  40. See id.
  41. See id.
  42. See id.
  43. See id.
  44. See id.
  45. See id.
  46. See SLONE, supra note 20, at 3.
  47. FAR 16.201:
    a) Fixed-price types of contracts provide for a firm price or, in appropriate cases, an adjustable price. Fixed-price contracts providing for an adjustable price may include a ceiling price, a target price (including target cost), or both. Unless otherwise specified in the contract, the ceiling price or target price is subject to adjustment only by operation of contract clauses providing for equitable adjustment or other revision of the contract price under stated circumstances. The contracting officer shall use firm-fixed-price or fixed-price with economic price adjustment contracts when acquiring commercial items, except as provided in 12.207(b).
    b) Time-and-materials contracts and labor-hour contracts are not fixed-price contracts.
  48. See SLONE, supra note 20, at 3.
  49. Types of Partnerships, supra note 34.
  50. See SLONE, supra note 20, at 3.
  51. See Types of Partnerships, supra note 34.
  52. See id.
  53. See id.; see also P3 Defined, U.S. DEP’T OF TRANSP. FED. HIGHWAY ADMIN., [].
  54. See Types of Partnerships, supra note 34.
  55. See P3 Defined, supra note 53.
  56. See id. (noting that a common type of direct user fee would be bridge tolls).
  57. See id.
  58. Types of Partnerships, supra note 34.
  59. Id.
  60. Id.
  61. Id.
  62. Id.
  63. Id.
  64. Id.
  65. See SLONE, supra note 20, at 3.
  66. See Dochia & Parker, supra note 31, at 3.
  67. See id.
  68. See id.
  69. See id.
  70. See id. at 1.
  71. Id.
  72. Jeffrey A. Parker, Availability Payments Can Add Value, PUB. WORKS FIN. (Apr. 2013),$FILE/Availability-Payments-Can-Add-Value.pdf.
  73. See Dochia & Parker, supra note 31, at 3.
  74. See id. at 3.
  75. See id. at 4.
  76. See id.
  77. See id.
  78. SLONE, supra note 20, at 3; see Dochia & Parker, supra note 31, at 4.
  79. See Dochia & Parker, supra note 31, at 1.
    I-595 Express LLC’s sources of financing to construct the project include $781 million in 10-year debt from a club of 12 commercial banks; a subordinated $603 million TIFIA loan; $208 million in equity from the developer; and $10 million in other revenues. Project debt will be repaid from final acceptance and availability payments made by FDOT. . . Annual availability payments from FDOT are projected to total $3.65 billion over the life of the concession through 2044, including a $2.68 billion portion for capital expenditures; a $754 million portion for operating expenses; and $206 million for future resurfacing projects during the concession term.
    I-595 Corridor Roadway Improvements, Fort Lauderdale, FL, U.S. DEP’T OF TRANSP. (Sept. 9, 2014), [].
  80. See Public-Private Partnership Failures, MINN. TRUCKING ASS’N (Sept. 24, 2012), [].
  81. See Facts & Myths, DULLES GREENWAY, [].
  83. See Public-Private Partnership Failures, supra note 80.
  84. See generally Caitlin Gibson, Critics of Dulles Greenway Tolls Vow to Keep Fighting, Appeal SCC’s Ruling, WASH. POST (Sept. 21, 2015), []. In 2012, rush hour rates were at a high of $5.55. Public-Private Partnership Failures, supra note 80.
  85. See METRO. WASH. AIRPORTS AUTH., supra note 82, at ES-4.
  86. Corporate Overview & SCC Governance, DULLES GREENWAY, []. Any toll increase in the Greenway toll must be approved by the commission. See METRO. WASH. AIRPORTS AUTH., supra note 82, at 1-5.
  87. See Corporate Overview & SCC Governance, supra note 86.
  88. See id.
  89. See Facts & Myths, supra note 81.
  90. See id.
  91. See METRO. WASH. AIRPORTS AUTH., supra note 82, at 2-1.
  92. See id.
  93. SLONE, supra note 20, at 3.
  94. See id.
  95. See id.
  96. See id.
  97. Id.
  98. Id.
  99. See id.
  100. Id.
  101. See id.
  102. See id.
  103. Id.
  104. Id.
  105. See id.
  106. See John Forrer et al., Public-Private Partnerships and the Public Accountability Question, 70 PUB. ADMIN. REV., 475, 482 (2010).
  107. SLONE, supra note 20, at 1.
  108. See id.
  109. An opportunity cost can be defined as “[a] benefit, profit, or value of something that must be given up to acquire or achieve something else.” Opportunity Cost, BUSINESS DICTIONARY, [].
  110. See John L. Crompton & Dennis R. Howard, Costs: The Rest of the Economic Impact Story, 27 J. SPORT MGMT. 379, 379–80 (2013).
  111. See id. at 380.
  112. See id.
  113. See id. at 379.
  114. See id.
  115. See Hearing on H.R. 193, supra note 32, at 3.
  116. See Pat Garofalo & Travis Waldron, If You Build It, They Might Not Come: The Risky Economics of Sports Stadiums, ATLANTIC (Sept. 7, 2012), [].
  117. See id.
  118. See id.
  119. See Peter Corbett & Sarah McLellan, What’s the Deal with the Coyotes Arena Lease?, ARIZ. REPUBLIC ( June 10, 2015, 12:54 PM), []. Although many specifics were not given, it seems that the contract was terminated on the basis of an ethics complaint against a former city attorney. See id. The claim was filed under a state statute, which allows government entities to end a contract within three years of signing if a person involved in the negotiations for the city is essentially an employee or agent of the other party in the contract. See id. The allegations claim the city attorney went to work for the Coyotes in 2013 while still receiving a severance payment from the City of Glendale. See id.
  120. See id.
  121. See Peter Corbett & Katy Roberts, Glendale Council Unanimously Approves New Coyotes Arena Deal, ARIZ. REPUBLIC ( July 24, 2015, 10:35 AM), [].
  122. See Peter Corbett, Glendale and Coyotes Say Arena Deal Dispute Is Resolved, ARIZ. REPUBLIC ( July 23, 2015, 10:23 AM), [].
  123. See id.
  124. See id.
  125. See Paul Giblin, 3 Companies Bid to Run Glendale’s Gila River Arena, ARIZ. REPUBLIC (Dec. 18, 2015, 6:59 PM), [].
  126. See id.
  127. See id. Strikingly, the Coyotes did not submit a bid for the management of the arena, underscoring the strained relationship between the team and the city and the team’s uncertain future in Glendale. See id. Coyote’s team president LeBlanc expressed his opinion that the city should have negotiated a new long-term deal with the team instead of issuing a request for bids. See Paul Giblin, Arizona Coyotes, Arizona Cardinals Won’t Bid to Manage Glendale’s Gila River Arena, ARIZ. REPUBLIC (Dec. 2, 2015, 9:55 PM), news/local/glendale/2015/12/02/arizona-coyotes-arizona-cardinals-wont-bid-manage-glendale-gila-river-arena/76564718/ [].
  128. See Rodney Haas, Possible Arena Announcement for the Arizona Coyotes Could Come in the Next Couple of Months, ARIZ. SPORTS 98.7 FM ( Jan. 27, 2016, 12:00 PM), [].
  129. See Henry Grabar, How to Stop the Stadium Wars, SLATE (Mar. 17, 2015, 4:30 PM), [].
  130. See Andrew D. Linden, Franchise Relocation, Public Money, and Community in U.S. Sport, SPORT AM. HIST. (Mar. 9, 2015), []; see also Ken Reed, NFL’s Relocation Game Screws Fans, HUFFINGTON POST: BLOG ( Jan. 20, 2017, 12:47 PM), []; DUANE W. ROCKERBIE, THE ECONOMICS OF PROFESSIONAL SPORTS 1 (2013), [].
  131. Ryan Holeywell, When Teams Leave, What Do You Do with the Stadium?, GOVERNING STATES & LOCALITIES (Dec. 2011), [].
  132. See Grabar, supra note 129. “In March 1984, the Colts left Baltimore one snowy morning for Indianapolis and a new $95 million stadium built partly with public debt. Baltimore lured the Browns from Cleveland after the 1995 season with a $229 million muni-bond-financed structure.” Id. The tax-exempt bonds that financed the new Baltimore and Cleveland venues cost federal taxpayers $69.3 million. See Kuriloff & Preston, supra note 8.
    More recently, in 2013, after more than 50 years of calling San Francisco home, the 49ers left its “outdated” Candlestick Park stadium for a new $1.2-billion-dollar-stadium in Santa Clara, financed with a $114 million approved public funding. See John Upton, The San Francisco Retreat, SLATE ( Jan. 31, 2013, 5:28 PM), [].
  133. See Crompton & Howard, supra note 110, at 379; see also Bill Speros, When the Hartford Patriots Almost Happened, BOSTON.COM ( Jan. 15, 2015, 10:31 AM), [].
  134. See Speros, supra note 133; see also See Stadium Financing and Franchise Relocation Act of 1999: Hearing on S. 952 Before the Comm. on the Judiciary, 106th Cong. 23 (1999) [hereinafter Hearing on S. 952] (statement of Hon. Edith G. Prague).
  135. See Hearing on S. 952, supra note 134, at 23.
  136. See Speros, supra note 133.
  137. See Hearing on S. 952, supra note 134, at 23. Instead, the New England Patriots accepted a $72 million deal from Massachusetts, financing the rest on their own, with a twenty-five year repayment plan for the construction of the now Gillette Stadium in Foxboro. See Remember When the Patriots Almost Moved to Hartford?, BOSTON SPORTS THEN & NOW, []. Many believe Connecticut’s offer was used as bait to get Massachusetts to agree to the Patriot’s stadium in Foxboro. See Speros, supra note 133.
  139. See Holeywell, supra note 131.
  140. See id.
  141. See id.; see also Rob Neyer, Just in Time, Government Investigating Marlins’ Ballpark Deal, SB NATION (Dec. 3, 2011, 2:32 AM), [].
  142. See Eric Levenson, Turner Field Is the Latest in a Long Line of Abandoned Olympic Stadiums, ATLANTIC (Nov. 12, 2013), [].
  143. See id.
  144. See id.
  145. See id.
  146. See Belson, supra note 13. Similarly, the previous Giants Stadium was demolished to make way for the New Meadowlands Stadium but the government still has an approximately $110 million liability, even though the space is now a parking lot. See id. The story is the same for residents of Seattle, Indianapolis, Kansas City, Houston, and Philadelphia, who still pay for arenas abandoned by the team they were built for. See id. The amount of debt acquired by municipalities for buildings that have now been torn down or are underused “illustrates the excesses of publicly financed stadiums and the almost mystical sway professional sports teams have over politicians, voters and fans.” See id.
    Fortunately, not all host states and cities, however, are struggling to pay ongoing sports facilities debt. See LONG, supra note 32, at 2. For example, the City of Denver’s tax revenue tied to stadium bonds exceeded expectations. See id. The Denver’s Coors Field bonds were financed by levying an additional sales tax on one-tenth of one percent. See id. The payment plan for the bonds was expected to mature in twenty years. See id. However, the actual sales tax revenue exceeded initial projections and the bonds for Coors Field were projected to be paid in full by 2001. See id.
  147. Roger I. Abrams, Hardball in City Hall: Public Financing of Sports Stadiums, 3 PACE INTELL. PROP. SPORTS & ENT. L.F. 164, 184 (2013).
  148. See generally Jeffrey G. Owen, The Intangible Benefits of Sports Teams, 6 PUB. FIN. & MGMT. 321, 321–22 (2006); Linden, supra note 130.
  149. Marc Edelman, Sports and the City: How to Curb Professional Sports Teams’ Demands for Free Public Stadiums, 6 RUTGERS J. L. & PUB. POL’Y 35, 50, 54–55 (2008).
  150. See id. at 55. In 2014, the average ticket price for the New England Patriots was $122. The Patriots Have the Most Expensive Average Ticket Price in the NFL, N.Y. DAILY NEWS (Sept. 4, 2014, 5:37 PM), [].
  151. See Edelman, supra note 149, at 56. Intending to halt tax-exempt stadium financing, the Tax Reform Act of 1986 amended the types of projects that could qualify for tax subsidies, eliminating sports facilities from the approved list. See generally Kuriloff & Preston, supra note 8. The amendment made bonds taxable if more than ten percent of the debt for a facility built mainly for nongovernment use was to be repaid with private business revenue. See id. Nonetheless, taxexempt stadium financing has not ceased. See id. Instead, it has backfired since the wording of the statute encourage cities to increase the tax-revenue-backed borrowing to ensure that no more than ten percent of the debt repayment comes from private businesses. See id. This gives the contracting teams more favorable financial assistance from states and cities resulting in the government taking responsibility for a higher amount of the debt in order to maintain the tax- exempt status. See id.
  152. See Edelman, supra note 149, at 56.
  153. See discussion on the current sport stadium financing arrangement, supra Part III.A.
  154. See discussion on New England Patriots, supra Part III.A.
  155. See Crompton & Howard, supra note 110, at 379.
  156. See discussion on New England Patriots, supra Part III.A.
  157. See discussion on Indiana Toll Road and Chicago Skyway, supra Part III.B.
  158. Hamilton County’s deal with the Bengals has been called the worst stadium financing yet. See Dashiell Bennet, The Worst Stadium Financing Deal Ever Is Still Crippling Cincinnati’s Taxpayers, BUS. INSIDER ( July 12, 2011, 2:16 PM), []. In 2010, Hamilton County had to sell off a hospital, cut jobs and school and other program budgets, and raise property taxes in order to afford more than $50 million debt service and other costs on the recently built Bengals’ Paul Brown stadium and Cincinnati Reds’ Great American Ballpark stadium. See Preston & Kuriloff, supra note 33. In 2011, stadium costs accounted for 16.4% of the county budget and provided almost no benefit to the surrounding area’s economy. See Bennet, supra note 158; Reed Albergotti & Cameron McWhirter, A Stadium’s Costly Legacy Throws Taxpayers for a Loss, WALL ST. J. (July 12, 2011), [].
  159. See Dochia and Parker, supra note 31, at 4.
  160. See id.
  161. See Groden, supra note 12.
  162. See discussion on PPP, supra Part II A.4.
  163. See Hearing on S. 952, supra note 134, at 23.
  164. See generally id.
  165. Additionally, Hamilton County agreed to pay for nearly all operating and capital improvement costs and to “foot the bill for high-tech bells and whistles that have yet to be invented, like a ‘holographic replay machine.’ ” See Albergotti & McWhirter, supra note 158.
  166. SeeLevenson, supra note 142.
  167. See discussion on Turner Stadium, supra Part III.A, and demolition of previous Giants Stadium for the new Meadowlands Stadium, supra note 143.
  168. See Edelman, supra note 149, at 76.
  169. Hearing on H.R. 193, supra note 32, at 2.