UAB Follow Up

My previous post did generate some discussion, at least on twitter, and a question was raised regarding the issue of forming a private group to build the stadium. To paraphrase, would the venture be viewed as legitimate since it is operating outside of the athletic department?

This is a good question but before I answer it, let me explain perhaps in a bit more detail what I meant by the alternative solution. This would be a private venture which would form for the sole purpose of building, maintaining, and marketing the stadium as a venue for UAB football as well as any other off season events.

(This bit is a business refresher for anyone that doesn’t deal with corporate finance often.)

As with any company there would need to be capital. The two types of capital are debt (which is a claim for a set dollar amount) and equity (a claim on residual income after debt holders are paid). If the project were built by UAB itself then no equity is possible so it is a debt issue specifically a 30 year bond issue. With a group of investors instead of the university it would be possible to have partners form and give money for an equity stake in the venture. This equity position means that less debt would be required which makes getting the debt easier.

(End of the refresher)

So if there was a group of investors that wanted to make this happen, how could they establish that they are legitimate? The first thing would be to secure property near UAB campus. This is an “On Campus” stadium but for UAB that is a good part of Southside. I am not going to pretend to be up on real estate prices in Birmingham so I do not know what it would cost to get that property, especially since it is a good bit of land and located next to UAB and medical complex. Once property is secured there would need to be a commitment from UAB that if such a stadium were built in a certain time frame that they would stop playing games in the current venue, Legion Field, and switch to the new stadium. Given the contracting this could be easy to plan for and should be something that UAB could commit to since they are currently contracting to use a private facility.

How much money needs to be raised? Well when FAU built an on campus stadium they received $12MM from a builder which they combined with campus funding for a total of $25MM and used that to help secure an additional $44.6MM, in the form of a loan, of debt. Having so much capital before the loan was required because the loan was backed only by the revenue of the stadium so Regions would be unable to go after the school itself if FAU had defaulted. The stadium has been very successful so that is not a concern.

The UAB plan would be $60MM plus the cost of securing the land and administrative costs in establishing the venture and securing investors/lenders. Getting debt of 60% of the value of the project is clearly easier than getting debt of 100% of the project so the more of their own money investors put up, the faster the process and the lower the rate.

I do not know if legally the group could take money in advance for boxes, priority seating, naming rights and the like (to be held in escrow) which could perhaps assist in demonstrating the potential cash flow for lenders. Even without such though, by having investors with an equity stake the on campus stadium could be a reality in a short period of time.

To answer the question of legitimacy, stadiums, arenas, auditoriums, fields, etc. are often run by private organizations. It is not as common that they are built without it being done through some city or state government but that is in large part due to lower cost of borrowing in municipal bonds because of their tax exempt status. If muni bonds are required then the city, county or state could get involved but given the lending issues in the past in the area that may not be easy to swing. As the FAU example showed, muni bonds are not always used and so the project could be financed without them.

In short, I think that an investor group could be formed from business people in the Birmingham area to establish an on campus stadium.