Market Overview

The Boom In New Sports Stadiums Has Finally Ended

It all started with Baltimore’s Oriole Park at Camden Yards. As the 1980s drew to a close, there was a growing sense of nostalgia for the classic, urban ballparks of a bygone era—like Chicago’s Wrigley Field and Boston’s Fenway Park—and a growing distaste for the utilitarian “multi-purpose” cookie-cutter stadiums that had sprouted up in the suburbs of most cities with major sports franchises.

Camden Yards hosted its first game on April 6, 1992 and proved to be so popular that it ignited the biggest boom in sports construction in American history. Between 1992 and 2010, well over two thirds of ALL major North American sports venues were replaced: 67% of baseball teams, 69% of football teams, 77% of basketball teams, and a shocking 83.3% of hockey teams got new homes or had their old ones substantially renovated to the point of being virtually new.

Think about that for a minute. The Colosseum has been standing in Rome for more than 2,000 years, and it was actively used for sporting events from 80 AD until the early medieval era—a run of more than 500 years. In contrast, Americans have demolished more than two thirds of their stadiums and arenas, many of which were barely thirty years old! (The loss of most of these is certainly not worth lamenting. As a native Texan, your humble writer was not at all sad to see the old Rangers stadium torn down, nor was he sad to see the Cowboys move out of Texas Stadium…which always resembled an oversized airline hanger with a hole in the roof.)

Alas, you can get too much of a good thing. The ensuing bull market in sports construction inspired by Camden Yards soon took on a life of its own, eventually reaching speculative excesses every bit as absurd as the 2000s Florida housing bubble and the 1990s “dot com” mania. Adjusted for inflation, Camden Yards cost $168 million in 1992. The Yankees new stadium, inaugurated in 2009, cost $1.5 billion—nearly ten times as much, even after the inflation adjustment!

It is now not uncommon to find sushi bars and high-end coffee joints in stadiums. Some of the more ridiculous dining options at the new Yankee Stadium include:

  • Boar’s Head made-to-order deli sandwich stand, including soups and salads
  • Latin Corner, serving hot-pressed Cuban sandwiches, nachos and burritos
  • Noodle Bowls stand with other Asian-inspired items
  • Soy Kitchen sushi and salads
  • Melissa’s, a traditional farmers market, carrying fresh fruits and vegetables

Perhaps the most over-the-top feature is the Audi Club. Taken directly from the Yankees’ website, we see:

The Audi Yankees Club is a climate-controlled, air conditioned membership club… with a panoramic view of the playing field. The Audi Yankees Club offers members an opportunity to enjoy exquisite, first class dining while at the Stadium. The cuisine available at the performance action cooking stations will be prepared by our highly trained chefs, right in front of you and your guests, using the freshest ingredients from around the world. Fine wines by the glass and bottle, domestic and imported beers and full spirits will all be available for purchase from the unique Audi Yankees Club bar.

Fine wines? World-class chefs? Keep in mind, all of these cosmopolitan dining options are for a sport in which the players are famous for spitting tobacco and very publicly scratching and adjusting their crotches. Baseball would never in the past have been mistaken for a gentlemen’s sport.

What Happened?

Though it is impossible to quantify this with hard numbers, the sports building boom was no doubt partially driven by generational patterns; by the onset of the 1990s, the Baby Boomers were starting to reach early middle age. Having kids of their own, they fondly remembered boyhood trips to the ball park with their dads and found the existing venues to be sorely lacking. Camden Yards was a throwback, a “retro” concept that created such a great atmosphere that the park itself became half the appeal of going to a game. If the Orioles had a bad game, who cares? Lean back, enjoy your hot dog and beer, and soak in the ambiance.

The stadium boom also benefited from a general increase in prosperity and the broader gentrification of American society spearheaded by the Baby Boomers and Generation X. Unlike the more Spartan Bob Hope Generation, which cut its teeth in the difficult conditions of the Great Depression and World War II, the Baby Boomers grew up in an era of mass affluence. “Everyone” could live in a McMansion, drive a luxury car, and eat in smart restaurants; and they were willing to pay for it. Gen X took it a step further. The generation that gave us “grunge” bands like Pearl Jam and Nirvana also gave us Starbucks and the $5 coffee—all of which, oddly enough, came out of Seattle.

In short, the bubble boom in sports construction was based on solid demographic and cultural trends. But, like all bubbles, this one reached extremes far in excess of what the fundamentals would have justified.

A Look at the Numbers

Chart 1  is something we cooked up in house to illustrate the bubble (click on chart to enlarge). It is a scatter plot of every Major League Baseball park by price and year, adjusted for inflation. You will notice that in the mid-1990s, there was a sudden jump in both prices and in the number of stadiums built that corresponds to the opening of Camden Yards. You will also see one anomaly that is significantly above the trend line. Yep, you guessed it: Yankee Stadium!

Let us now move to NFL football.

In the list in Chart 2, two football stadiums clearly stand head and shoulders above all the others. At $1.4 billion and $1.3 billion, respectively, the new Meadowlands and Dallas Cowboys stadiums are nearly twice as costly as number three on the list, Indianapolis’s Lucas Oil Field, which came in at $740 million.

Given the comparatively expensive cost of land and labor in New York, Meadowlands Stadium seems slightly less excessive that the raw numbers would suggest (though still absolutely absurd).

The real standout is Dallas Cowboys Stadium, which is located in Arlington—a nondescript suburb about halfway between Dallas and Fort Worth. Land and labor in Arlington are a fraction of what they are in New York, making the Cowboys’ new home a truly ridiculous spectacle—flashy even by Dallas standards, and that is saying something. This is a city that gave us the image of J.R. Ewing and where women wear fur coats to hockey games...to watch players who often times don’t have teeth.

Future Texas historians may someday view Jerry Jones’s pet project as a monument to hubris that rivals the wildest excesses of the Roman emperors. The only thing the stadium lacks is a marble statue of Jones himself in a chariot with a laurel wreath in his hair. Our condolences to the taxpayers of Tarrant County, who will never see a return on this “investment,” and to the Cowboys’ fans who saw the price of the average ticket rise by 90%.

Keep in mind, several billion dollars has been spent in total for stadiums that might get used ten or twenty times per year at most. For what it is worth, at least baseball fields get used a minimum of eighty times per year, and arenas, if used for multiple basketball and hockey teams, can be used even more than that. But given that the average NFL team plays only eight regular season home games, the bubble seems all the more excessive.

Moving on to basketball and hockey, we see more of the same, albeit at a slightly less ludicrous level.

Jerry Jones isn’t the only Dallas-area team owner with…shall we say, “expensive taste.” Mavericks owner Mark Cuban gives him a run for the money. Dallas’s American Airlines Center, used by the Mavericks and the Stars, tops both the basketball and hockey lists at $515 million, followed by the Los Angeles Staples Center at $483 million. These two arenas stand out as clear outliers in the scatter plot in Chart 3.


Parting Thoughts

As we wrote at the beginning of the article, the opening of Oriole Park at Camden Yards was the spark that started the biggest boom in sports construction in history. Just like the residential housing boom in the 2000s, the sports boom was initially based on sound demographic and social trends. In both cases, however, the booms took on lives of their own and snowballed into bona fide bubbles with wild excesses.

Bubbles do not last forever, of course. They eventually become unsustainable and collapse under their own weight. In the case of residential housing, the supply of new homes expanded far beyond the supply of high-credit-quality borrowers, leading to a surge in subprime borrowing based on laughably unrealistic assumptions. The resulting credit crisis, which took down the world economy, is well known and does not need to be explained here.

The stadium bubble is slightly different. First of all, the dollar amounts are much smaller. Though collectively many billions of dollars were spent on construction, a fair sum of it at local taxpayer expense, this pales in comparison to the size or the U.S. residential market. Plus, there is really no such thing as a “spec home” in sports construction. Before the money is shelled out to build a stadium, the owners generally have a tenant or two lined up to play there. It’s not as if there are a large inventory of empty stadiums just waiting for a team to move in.

This is not to say that there were not excesses. All things have limits—including sports ticket prices. Even the Yankees—the most successful baseball team in history—cannot raise their prices at will, particularly in a recession. In a 2009 Wall Street Journal article, Matthew Futterman wrote:

Acknowledging their prices were too steep even by Yankees standards, the 26-time world champions announced a plan to fill thousands of empty high-priced seats by reducing prices and giving away much of the unsold inventory.

The plan…hopefully ends an embarrassing first month of the season for the New York team and its new $1.5 billion ballpark. The stadium was designed before last fall's collapse of the U.S. economy at a time when New York's business community was still willing to spend a premium for the best sports and entertainment the region had to offer.

The unsold seats, some priced as high as $2,500 were creating an odd spectacle at the new park: While the rest of the stadium was packed during the baseball team's first homestand, many of the best seats located closest to the field sat empty.

$2,500 tickets for a common baseball game is, for lack of better word, insane. No one would spend their own money on that. Only with a generous corporate expense account is something like that thinkable. During the boom, shareholders let little indiscretions like this go. But during the bust? Don’t count on it. When dividends are getting cut and profit forecasts getting slashed, there isn’t a lot of room in the budget for this kind of wasteful spending. Hey, not every company is as frugal as Wal-Mart—a company so famously protective of shareholder money as to make its executives fly coach and share hotel rooms—but $2,500 sports tickets are a pretty easy line item to cut for even the most extravagant firm.

2010 could be a transitional year for professional sports, and basketball could be the bellwether of sorts. The NBA salary cap is already shrinking due to falling revenues during the crisis. Many of the league’s best players—including LeBron James Dwyane Wade, Chris Bosh, Amare Stoudemire, Paul Pierce, Ray Allen, Tracy McGrady, Yao Ming, and Dirk Nowitzki—will be free agents at the end of this season. While we don’t see pay cuts in store for these star players, we suspect that their new contracts will be significantly less lucrative, at least in terms of percent rise, than those of previous free agent classes. We would expect much of the same in baseball, football, and hockey as well.

Could this be the start of a new trend? A “bear market” in professional sports salaries, if you will? With team owners not making as much money as they forecasted—and with large bills to pay for their new stadiums and arenas—something has to give. The Yankees proved that you can’t pass on the soaring costs of player salaries and stadium construction to fans forever. This might mean that the players are about to feel the pinch.

One thing is certain: the bubble in stadium construction is over. Even if we weren’t in a weak economy, the fact remains that virtually every team now plays in a new venue already. The few franchises that do not have state-of-the-art new homes are concentrated in California and Florida—states with serious budget problems in which new taxpayer-funded stadiums would be unthinkable.

Bubbles aren’t all bad of course. After all, you can get sushi and gourmet coffee at a ball game. Of course, if you do, you really deserve to have the Gatoraid cooler dumped on your head.

Charles Lewis Sizemore, CFA

This blog is a free service of Sizemore Financial Publishing LLC, publisher of the Sizemore Investment Letter.

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The following article is from one of our external contributors. It does not represent the opinion of Benzinga and has not been edited.

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Charles Lewis Sizemore, CFA

If you're not reading the Sizemore Investment Letter, then you are missing out on rock-solid investment recommendations designed to profit from the major macro trends shaping the world today.

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