Financing stadium construction can be a risky bet for cities
Martin Daks//October 7, 2019
Financing stadium construction can be a risky bet for cities
Martin Daks//October 7, 2019
Setting up a sports team can be expensive, so some municipalities have chipped in to build a stadium for a local club. New Jersey has a mixed record in this regard, since at least three minor-league baseball clubs — the Camden Riversharks, the Newark Bears, and the Atlantic City Surf —struck out after blowing through tens of millions of taxpayer dollars. But some other teams haven’t.
NJBIZ spoke with a winner — entrepreneur and film producer Steve Kalafer, owner of the Bridgewater Township-based Somerset Patriots — and other experts about what makes the difference between teams that hit a home run and those that don’t.
The Patriots are the winningest franchise of the Atlantic League, according to Visit New Jersey — the state’s official tourism website. The team has been going strong since 1998, “[w]hen the entire season was played on the road, while TD Bank ballpark was being built,” noted Kalafer, whose official title is chairman emeritus of the team, which leases 6,100-seat stadium from Somerset County. “The team has always turned a profit, and we just closed the season on Sept. 22 with the best-year ever by attendance, revenue and sponsorship.”
The New York Red Bulls, a Harrison-based Major League Soccer team, makes a point of giving back to the community, said Christina Giunta-Quarino, the team’s senior director of community relations and field marketing.
In September, the team engaged in its seventh annual “11 Days of Service Community” initiative as a tribute to the victims and survivors from the Sept. 11, 2001 attacks.
Players and staff got up-close and personal with the community, engaging in service activities at Hillside-based Community FoodBank of New Jersey, including assisting with food preparation, and sorting donated food; and donating a Starlight Children’s Fun Center — which offers online access to family-friendly video games, movies and other pro-grams through mobile entertainment units — to the Hospital for Special Surgery in New York City.
The soccer organization “is involved in 300 events a year, including a Newark soccer initiative,” said Giunta-Quarino. She was referring to a five-year partnership — launched in May 2018 — between the Red Bulls, Newark public schools, and Wells Fargo aimed at building 20 small, customized, hard-court soccer surfaces and engaging and mentoring more than 2,500 Newark students.
For Giunta-Quarino, one of the most memorable activities was when Red Bulls General Manager Marc de Grandpre worked with Autism Speaks to convert his office at Red Bull Arena into a “safe space where children with sensory overload conditions like autism can watch the game,” she said. “The room was designed with calming colors and contains headphones and aids to help provide an anxiety-free experience.” It’s about “inspiring the local community,” she added. “We’re repaying fans for their support, while engaging with corporate partners and finding partners to support communi-ty-based initiatives.”
Many companies engage in some form of philanthropy — and nonprofits are grateful for it — but for some reason, there’s more buzz when a sports team does it. We asked Giunta-Quarino why that’s the case. “I think it’s because people feel a connection with a sports team since they see the players at the games or on TV,” she said. “Then they see them right in the community — stuffing bags or making sandwiches with the same kind of competitive passion — and it forges a special connection.”
Kalafer said the Patriots players are primarily responsible for the team’s financial success but pointed out that he also brings a businessperson’s eye to the franchise. “In 1976, when I was 26 years old, my wife and I bought a gas station and one-room car showroom in Frenchtown,” he said. “We grew that to Flemington Car & Truck Co.,” a 16-brand, eight-location dealership.
His non-auto ventures have included private equity, film production, and real estate deals. “I like to participate in things,” Kalafer said, explaining his decision to get into baseball. “I’m open to new ideas, investment and processes.”
Before investing in the Patriots — “we get no grants or subsidies,” Kalafer said — he engaged in “extensive joint feasibility studies with Somerset County. The demographics were good [median household income in Somerset County is about $106,000, according to the most recent U.S. Census Bureau data, compared to $76,475 statewide, and $61,937 nationally] and I saw this as a good business proposition.”
The ballpark’s location, right off Interstate 287, and near Routes 28 and 22, “offered good mobility without creating traffic problems,” he said. “We’ve got adequate parking and we’re near a [Raritan Valley Line] train station, too.”
But as an experienced business owner, Kalafer also sees the need to continually improve his product. “If you invest in fans, employees, processes and the community, you’ll be successful,” he said. “You have to keep giving people a reason to come here, with quality events, promotions, food, and customer service. You want to attract people, so the ballpark becomes a community meeting place. There’s never a finish line.”
The Patriots’ off-field activities include the Somerset Patriots Children’s Education and Sportsmanship Foundation, a 50-50 raffle at each home game to raise funds for local non-profit organizations, and an annual Golf Classic, or “five-player celebrity scramble” that matches up foursomes with a Patriots player or coach at Neshanic Valley Golf Course in Neshanic Station to raise funds for the foundation.
“We work hard for the community’s support,” he added. “It’s the beginning of the end if people take you for granted. One of the reasons people say they relocate to Somerset County is because of the public amenities, like the ballpark.”
The Patriots — and by extension, the county’s investment — are doing well now, “but can they continue it?” wondered Arthur Guarino, an associate professor of Professional Practice at Rutgers Business School Newark and New Brunswick. In general, he’s not thrilled about government getting involved with sports teams. “It’s a bad idea because a municipality or state will often pay a substantial amount of the cost to build a stadium, and then the team may move away, like the way the San Diego Chargers moved to Los Angeles. A contract may try to prevent this, but if a team has a good lawyer, they may be able to find a loophole.”
He also said there’s a difference between subsidizing the construction of a baseball stadium — which has limited uses — and pumping taxpayer money into a project like New York City’s Hudson Yards, a 28-acre mixed-use development on the West Side, which one study estimated gobbled up more than $2 billion in taxpayer funding.
“At least with Hudson Yards, if some businesses go under or relocate, you still have facilities and buildings that can be used by other tenants,” Guarino noted. But if a sports team leaves or fails, you often have to knock down the stadium,” like the Newark Bears’ stadium, which was razed and sold to a developer after the team failed.
“In some respects, a stadium could benefit a community or other municipality,” he added, by bringing in new visitors, and perhaps enhancing its identity, “but as cities look for revenue, they have to ask if they can really subsidize these projects.”
Kalafer believes his team has a healthy future. The fact that the ball club is family owned — his sons, Jonathan and Josh are co-chairmen, with longtime employee Patrick McVerry serving as president and general manager — makes a big difference, he said. “We’re one of the last 100 percent family-owned sports teams,” according to Kalafer. “We’re also debt-free — the Patriots have paid 100 percent of the debt service on the ballpark — which gives us the flexibility to make intelligent, long-term decisions.”
Those long-term decisions include significant capital improvements to TD Bank ballpark, which is going on 20 years old.
“We’re in this for the long term, and the Patriots are considering new revenue stream to fund future improvements to the ballpark,” he said. “We may repurpose some underutilized parking lots, perhaps for senior living, a community health center, a hotel, or other purpose. Options are being studied and we expect recommendations will be offered in the next three months.”
The financial success of teams like the Patriots may be due — at least in part — to something as simple as their surroundings, said Joseph Shinn, an adjunct professor in the Rutgers-Camden Economics Department who has taught Sports Economics and other courses.
“The success of this stadium was likely because there are more limited entertainment options in Somerset compared to other places,” he said, referring to the failed ventures in Atlantic City, Newark and Camden. “There are alternatives in place for entertainment options in those other locations. For example, Camden is near the Phillies while Newark has other entertainment options available. But the Somerset team is able to pull more people in because of the limited alternatives.”
He pointed to another success — the Lakewood Blue Claws — as an example. “There are limited options for other entertainment in Lakewood,” Shinn said. “So, more people are likely to go to the local ball game. But then consider Las Vegas, which lured the Raiders away from Oakland,” and is contributing a reported $750 million of the total $1.97 billion cost to construct a new stadium there. “Do you really think Las Vegas needs a football team to attract more people?”n