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.

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UAB On Campus Stadium Proposal

Let me preface this by putting a few things out there.

  • These are my views and do not reflect the views of my university, college, or department
  • This is based solely upon the one document that I received that was stated to be official
  • This discussion with me having not worked in sports marketing, my work experience is in manufacturing
  • I do not know if I am allowed to host the document, if I receive word that I can I will put up a link

Now that we have those details out of the way, let me talk about the background to the proposal. The University of Alabama at Birmingham (UAB) is a school that competes in Conference USA. The Blazers, as the team is called, currently play at an outdated facility named Legion Field. There is a push for some members of the UAB community including the Athletic Director that a on campus stadium be built. As the stadium is not part of the approved multiyear master plan the construction must be approved by the board of trustees for the entire system. The board of trustees did not put the construction on the agenda so as of this post there is no current plan to build the stadium.
The stadium proposed is a 27,500 seat “U” shaped stadium which will be located on the campus itself. This number of seats is no doubt due to the fact that they average 23,139 attendees as of last season even though the current venue seats 71,000. The proposal suggests 16,060 tickets would be sold for each of the 6 home games in addition to 1500 student tickets and the season tickets for suites, loge and club level seating. The total ticket sales of 23,497 is in keeping with the current average so on its face it is reasonable presuming the ticket prices are in keeping with that of the current venue.

There is also an assumption that they sell all boxes and 80% of premium seats. I don’t know how reasonable that assumption is but given the statement that all interviewed schools with on campus stadium wish more had been built I am willing to accept it.

I won’t go line by line for the other assumptions for revenue or expenses other than to say that the numbers were based on the numbers from Legion Field, Bartow Arena (the on campus basketball arena), and input from the other on campus stadium visited (UCF, Akron, SMU, Troy, Louisville, & FAU). If these assumptions are accepted on their face it would result in approximately $5MM a year in operating income.

This leads to the question of financing. The construction cost for this stadium is $60MM. According to the numbers presented it is assumed that this would be by a bond issue with a nominal rate of 5% and a 30 year term. That rate is similar to the issue (Aa2 rated in 2010) of $142MM based on general revenue which helped to partially fund upgrades to Bartow Arena in addition to several capital improvements on the campus.

Given all of the caveats, the plan looks viable. Perhaps the best way forward would be for a group of investors to form a special purpose group to secure the land, build the stadium, and then lease it back to UAB if the school president is unable to get it on the master plan in future Board of Trustee meetings.