Charlotte rushes NFL stadium upgrades (06-11-2024--Hour3)

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[00:00:29] The Charlotte City Council held a meeting last night. They got an update before their regular meeting at their, they do like a dinner meeting kind of a deal starts at five o'clock and they kind of run through deeper presentations and council gets to ask a lot of questions.

[00:00:41] And last night it was about the Bank of America stadium deal, the renovations. I've gone over these details in the past week or so. Charlotte Observer headline is Charlotte rushing Panthers renovations decision. Get it rushing. Okay. Um, should the Panthers be passing on these costs? Okay, I'll stop.

[00:01:12] I'll stop. Um, all right. So last night there was a fellow by the name of David Abrams, uh, who addressed the council and he is a consultant with inner circle sports and he has worked with the city of Charlotte in the past on, uh, the soccer stuff.

[00:01:32] I'm not sure if he was part of the failed Eastland mall redevelopment that was supposed to who is there was some team. What was that? What was the ownership group that was, uh, oh, that's right. It's the same. Yeah. It's the same group. Okay.

[00:01:50] So David Abrams is a fellow part of Eastland mall. I'm not sure if he was, what his involvement was, but he said he has worked with the city of Charlotte on the soccer stuff, on the Hornet stuff and on the failed tennis thing, which

[00:01:59] by the way, I heard Pat McCrory say this the other day and I think he's exactly right. It's a good thing that that tennis project failed, right? That the, was it the, whatever the tennis group was that was looking to maybe move here

[00:02:13] and then they ended up just staying in Cincinnati cause they were able to squeeze the local government there for a whole bunch of money. And that worked out to local officials benefit here in Charlotte because there would have

[00:02:26] been no money if they had spent it all on tennis rather than football. Right? I mean, so anyway, this guy, this consultant, it's a financial service firm that focuses on facilities and full-time faculty. He's a full-time faculty member at NYU as well.

[00:02:43] He is currently working on, he said, seven NFL projects, two major league baseball projects and two arenas. So that's 11 different projects that he's working on. And he says he considers full employment at for inner circle sports to be just two to maybe three projects at a time.

[00:03:02] He's at 11. So business is booming for him. He was asked about the roof and he said he does not think that a roof would be necessary. I think it's somewhat unaffordable, but it's not about whether you should have a roof or what you should be spending to build.

[00:03:23] If you look at the economic impact of this stadium in the community, it's rare to have soccer and, or, or, you know, American football and European and soccer played in the same buildings in an urban core.

[00:03:38] And the opportunity to do something and keep this, these, both these teams here for, you know, a decade and a half or more, two decades is unique around the country. The amount of income generation, the amount of jobs created, the amount of spending that

[00:03:58] happens, the visitation that happens is substantial. I think that you have an opportunity to invest and the question then becomes, is it the appropriate amount is what we're considering the appropriate amount. And I would say absolutely it's the appropriate amount.

[00:04:15] And should the team be investing as much if not more? And so the city of Charlotte has been in the stadium business for a number of years and because it's been in the stadium business, it's actually had to fund both capital improvements

[00:04:29] and operating expenses over a long period of time. This investment is going to take the city out of that business and shift it towards the private sector. Initial capital versus operating expenses and capital improvements or CapEx, capital expenditures.

[00:04:48] So in other words, we'll put the money up front to do the reno, everything then from now on is yours to deal with. That's that's the pitch here, right? He said there are guardrails set up to ensure that the Panthers are paying for it as well.

[00:05:04] He said there are three main components to investing in any sports facility. There's the initial capital, there's operating expense and there's capital improvement. CapEx is what we call capital expenditures. And the CapEx can sometimes be as much, maybe two thirds the cost of actually investing in the building.

[00:05:22] That's the Panthers responsibility. So that's what you see in renovations. And so we're shifting that to the team and we're investing in the capital up front. The guardrails that we're going to put in place to protect the city's interests are

[00:05:37] going to be no less short of any other project I've worked on around the country. And I have been doing this since the early 90s and done dozens of transactions and worked with the leagues. We'll make sure that we're protecting the city's interests.

[00:05:50] Well, I mean, as best you can, that's as best you can, because when you're dealing with somebody who's got $20 billion, they can walk away, pay whatever penalties and it's not going to matter. Right. So as best you can. That's something always keep in mind.

[00:06:02] City Council Member Dimple Ajmera, I got to tell you, watching it last night, she was really the only one that I thought asked substantive questions and pushed back on some of the sort of assumptions that were kind of baked into the presentation.

[00:06:18] She said the most frequent question she gets is why is Charlotte not an equity partner in the profits? You have to define equity. We're talking about equity in the team or equity in the stadium. Right. And so I'm going to tell you about both.

[00:06:31] So the leagues don't want government being an equity partner in their sports teams for the simple reason is they have no way of controlling information going two directions. Right. So the leagues would like to, all leagues. Right.

[00:06:47] They want to keep the business of running their sports leagues as private as they can. I'm not saying they're doing anything that they shouldn't be out in the public. It's just they're running a professional sports league and they would like it not to be government in the sunshine.

[00:07:02] And so they probably don't want government to own a portion of their teams. Right. That said, it's really interesting that all of the leagues except the NFL, which is taking this issue up just as, you know, right now having private equity invest in their franchises. Small amounts.

[00:07:23] Not that they can have control. They have to have a certain amount of time that they have to hold that equity. So there are guardrails to protect the league from dissemination of information and also having a bad actor being a part of their ownership group.

[00:07:37] So it's happened at all the other leagues. Just hasn't happened in the NFL yet. That's team side. Right. I have not seen governments own a piece of teams. Now on the building side, we see it all the time. Right. We don't call it equity though, do we?

[00:07:55] It should be called equity because many, you own the Spectrum Center. You have basically 100 percent, well I think it's 100 percent owner. Maybe Patrick you would tell me, make sure I'm right about that. You have 100 percent ownership of that building with your leasing it to an operator. Right.

[00:08:13] So it happens all the time in government. And this is the public domain of where the outward facing part of sports, it makes sense to have government participate in that because there are so many other events. All right.

[00:08:25] So Abrams said that he counsels against revenue sharing agreements because it's hard for the government entity to audit the revenue. It's hard to get a sightline on the revenues because leagues, which are private businesses, do not want that information to be out in the public.

[00:08:46] So they don't want to share the information, which makes it hard to audit the revenue side of the equation. So that's why he counsels against that kind of a model. When he was asked about the Green Bay Packers model, which everybody always asks about,

[00:08:58] he said he is not familiar with the financials of that team. He has never done any work with that team so he doesn't know, which I find to be kind of odd. I've heard about the Green Bay Packers for 20 something years.

[00:09:12] Every single time you hear about any kind of one of these deals, everybody always talks about the Green Bay Packers. He says that is an outlier. That's an outlier kind of example. But still, how do we not know the details of how that works? Right?

[00:09:26] Anyway, so he counsels against revenue sharing agreements. Do the capital up front and then your part is over and then the team takes up any cost overruns and then pays for all of the CapEx, which is the capital improvements or capital

[00:09:42] expenditures, CapEx, capital expenditures over time going forward the 20 years. Which is by the way what the city got stuck with on the Hornets facility that they had to come up with like a hundred plus million dollars the other year because they're on

[00:09:57] the hook, we are on the hook for the CapEx. All right so back to the Charlotte City Council meeting last night. Council member Ed Driggs, he said that the opportunity to partner with Tepper Sports is an entertainment TSC is potentially a huge benefit to the city.

[00:10:16] He said the investment that Tepper has made has been beneficial to us with the acquisition of the soccer team and he said there is value there and by the way he is an economist. I'm very mindful as I consider this transaction of the strong support from the hospitality

[00:10:31] industry and the business community who are the most immediately affected by this commitment of hospitality dollars. So that's pretty critical to me. At the same time as I look at the deal structure, I think there's a responsibility for us to

[00:10:46] kind of look after the interests of the city and of our community, recognizing that these are not general fund dollars. This is not your property tax. This is not sales tax. These are revenues that are collected by the hospitality industry for the purpose of investment

[00:11:04] in ventures like this. Nonetheless, we want to be sure the terms of the deal protect our interests and in that sense for one, Mr. Abram I agree with you.

[00:11:19] My own view is I don't think there is an upside for us in trying to be some sort of an economic partner in this venture. I think what we need to do is decide what the value is to us of having this investment

[00:11:30] take place, having that team here. I don't trust economic impact studies and stuff like that. Yes. But we know there's a great deal of development that could be driven by it. There's a huge opportunity for the hospitality industry.

[00:11:42] I think it raises the profile of Charlotte and those are the things that drive our willingness to invest and the knowledge that a team like this could get offers from other cities so that we have to be competitive and make it economically viable for them to stay here.

[00:12:02] So Driggs, I mentioned he is an economist. He said his biggest concern is the timeline on when the team puts their money in. The team commits to the operation and maintenance and we were told the number of four hundred and thirty one million. We've talked about this briefly.

[00:12:19] I need to know exactly what that looks like. I need more detail. I need a bigger commitment. I need an actionable commitment by the team that gives us remedies if they don't stay on the schedule.

[00:12:30] And I've mentioned before, if you look at our ownership of the arena and the deal we have there, the team can come to us and say, hey, you've got to get us up to here. And we just paid a hundred and seventy million dollars because of that.

[00:12:44] So I would like an arrangement that lets us monitor the investment in the stadium and gives us the right to intervene if certain things that we're expecting don't occur. And that's, I think, my biggest issue. I appreciated your comments about guardrails.

[00:13:00] I guess I'll just say that I'm interested to know what they are. And I certainly can't count four hundred and thirty million dollars as has been described to us, estimated investment for these things without having a framework that tells me

[00:13:17] if these things don't happen, then I have these remedies. Exactly. Councilman Malcolm Graham, he chairs the Economic Development Committee and he has been sort of the lead in the development of the deal from a city council member standpoint.

[00:13:31] He said that the money is not going directly to Tepper. It's not going directly to Tepper Sports and Entertainment. It's going to contractors that they hire, which employ people in the community. And so it's reimbursable.

[00:13:47] And so there's trust, but verify there that they have to do the work and produce invoice and receipts before payment is made. So it would be literally going to contractors that's doing the work that employ people.

[00:14:02] Okay, so they're going to the city money is going to be spent on the contractors doing the work. Okay, fine. But as Ed Driggs just pointed out, you can say that you're putting up all of these guardrails, but what are the guardrails?

[00:14:16] And when he was talking about the four hundred thirty million dollars, that's what Tepper is supposedly putting in. TSE is putting in going forward over the next two decades. But we don't even know if that's in today's dollars, right?

[00:14:29] Or is that in twenty fifteen or fifteen years down the road? So is that in twenty forty dollars because that would be worth less because of inflation? Thanks Joe Biden. But like the inflation adjustment would have to occur if you want an apples to apples comparison, right?

[00:14:48] This kept coming up this timeline, the discussion of the timeline and the spending commitments that kept coming up. And maybe we'll get some clarity on that. Going over the Charlotte City Council meeting audio from last night. I watched it, so you didn't have to. You're welcome.

[00:15:02] I am a giver. What can I say? All right. So next up here, council member I mentioned earlier, Dimple Ajmera, city council member at large. She had the most and I would submit the most in-depth questions and the most questions by number as well.

[00:15:17] Quality and quantity, you might say. She asked about performance based measures that could be applied to the team. No, it's not about like number of wins per season, but performance based measures that could be applied. Yeah.

[00:15:32] Early in my career, a project that I was working on was an arena project had a revenue sharing performance base. So over a certain amount of of net income, there was a sharing between the community

[00:15:44] and that sponsored the building and the and the and the arena or this and the team that played in it. And what was interesting is, is that they only hit that performance metric where there was revenue sharing in the first year and it was a very small amount.

[00:16:02] And the reason being is, is that as the team or the building did better, right, they were investing more in the building and it created some hard feelings because they were actually improving financially, but they were investing. Remember, it's a net income metric, not a gross revenue perspective.

[00:16:22] So from a net income perspective, if they were investing more, you know, they never hit that threshold again. And so the elected body was, you know, years later and many of them weren't there, the

[00:16:34] initial initial negotiations felt that they felt they felt deceived a bit that that project should have generated more income for the for the community direct benefit because it was a revenue sharing arrangement when in fact it made no sense to invest in their building

[00:16:50] and in their in their in their team as well. So it wasn't a clear it wasn't a clear directive as to how that was going to work. And so that's, you know, over the last 20 or 30 years, I have shied away from those those revenue sharing agreements.

[00:17:06] If there's a contractual rental payment, a contractual ticket tax, a contract, you know, that I don't see an issue with. But when you have a metric that says, well, if you have, you know, X amount of fans, you know, you need to pay us more, more money.

[00:17:22] And it's rare that you see that in the modern era of stadiums. All right. He said he did not name the team that he was talking about there, but he did say they are in the Stanley Cup. And that they are U.S. based.

[00:17:37] Which means it's the Florida Panthers. OK, so. All right. He went on to say he advised against the revenue sharing model here. I would guide you against that for this reason why it didn't work well back then is

[00:17:52] that the team will do what the team in the building. I'm not saying they're trying to do something nefarious, but they're trying to maximize profit potential. And so whether to to share revenue where it goes outside of their

[00:18:07] business rather than invest in their business where they feel there's more profit potential, it puts you at odds with them making a profit. You want your partner to be as successful as possible for the simple reason is you want maximized visitation.

[00:18:21] You want them to be successful on the field, on the ice, on the turf, whatever you want to call it, as well as be financially successful because they're going to be investing in the asset which you both have invested in. That's that's the reason.

[00:18:34] So you want to incentivize your partners to invest every dollar they can back in the business. And if so, if there's a revenue sharing arrangement, it disincentivizes them. And that's why I've stayed away from that. All right. So does that make sense?

[00:18:48] Revenue share, not a great idea because then if the team just plows that money back into improvements or the team, new weight facility, whatever, then it generates hard feelings because the local government officials years down the road knew, you

[00:19:05] got new elected officials in place and they're like, hey, where's this revenue? Why are you spending it on this? You should be splitting it with us. Right. So he steers clear of that, although he did say you heard him like a ticket tax.

[00:19:17] You could do something like that, but that would require state approval. He went on to say there were other ways to create this sort of reinvestment, like you can give access to the games, discounted ticket prices, community events like that's

[00:19:28] the way you do these other types of quote reinvestment for as part of the deal, which they are. They are building that out regarding the roof. Abrams said that it might cost twice as much as the current price tag could be like half

[00:19:43] a billion dollars to two, three quarters of a billion dollars. And it might not even be feasible from an architectural standpoint. Well, if you were to put a roof on Bank of America Stadium, I would have to come back to you after I went to architectural school.

[00:19:57] So so I couldn't hazard a guess. No, it's a common wisdom of if you were to add a roof to a new building, half a billion to six hundred million maybe might be the answer.

[00:20:09] And I hope my friends at Populous and HOK and all the other architectural firms don't yell at me. I mean, I think that's that's probably the number. Could you put a roof on this building? I don't know the answer to it.

[00:20:22] Typically to have it wouldn't be able to close in the building from a HVAC standpoint, but you might you could put a shade feature above. It's sort of like what the Dolphins have done in Miami where the fields open, but there's a

[00:20:35] shade feature. I couldn't hazard a guess as to what that would cost or whether you could retrofit this building to do that. I just don't know. All right. So doesn't sound like they were getting a roof.

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[00:21:31] materials that you're going to need for any kind of emergency. Veteran owned Carolina Readiness Supply. Will you be ready when the lights go out? All right. More audio here. This is Council Member Dimple Ajmera. Finally, somebody asked it. It was Ajmera asking about David Tepper.

[00:21:50] So I think we got to talk about the elephant in the room here, which is. Which is really the partner that we are talking about because of the history of. Not following through on other deals in the past. The question I make it easier for you.

[00:22:13] I'm sorry. I make a question easier for you. Sure. Every transaction. I'm going. Every transaction I work on and probably anybody who I know works on it. We make sure that the counterparty agreements protect both sides. Right. You want to make sure.

[00:22:29] Forget about the history of of what has happened elsewhere. Everything we're going to put together in the city of Charlotte would be no different than what we do in every other community is to make sure that you're protected, that everybody's obligations are lived up to.

[00:22:45] They're they're they're legally defensible and there's there's recourse if they're broken. Right. That's what you want. You want to keep one more just like any other business agreement. That's what we'll strive to do. You've got a great legal team, both internally in the city and your external attorneys.

[00:23:03] Those protections are already being discussed and put in place. Right. I think ultimately the question is how do we ensure that we are not left with something half baked. Yes. Half done and that our whatever was our share or whatever we spent. Other party has delivered on their.

[00:23:29] So we will. So if you talk about what would that look like. What right. What protections would look like. If you're talking about the construction of the facility and not the operational and CapEx side. It's two different two different issues. One is that you have a construction.

[00:23:46] First of all, you get GMPs rolling GMPs to guarantee maximum prices for each of the projects. So you know what they're going to cost. We only put in money into pay for those as those projects come up.

[00:23:58] Right. We're not sticking money in an account and here you go and do it. And then, you know, we'll come back and see it later. No, there'll be that we'll be looking at this all along the way.

[00:24:06] So you have what you call is either a construction monitor or an owner's rep that's watching that and making sure that what is being built is what we agreed to. And it's being and what is being spent is what we think the amount is supposed to

[00:24:19] be. Now, there's always going to be some minor differences. Right. Things cost a little bit more. You know, some labor is you might need more labor. Shut down construction. That shouldn't be an issue in this particular instance. And Tracy will show you in some of the other slides.

[00:24:33] The the the agreement is that the team is going to be paying for all the cost overrun. So if it costs more than we anticipate, that's not our responsibility. What you're asking is, is it going to be built?

[00:24:46] So we'll put all those controls in up front, making sure that there's checks and balances along the way to make sure that that happens. If things don't happen the way we anticipated, you know, we turned the dial back on

[00:24:59] the funding and we stopped. Now, then the question is, well, wait, do we have a half built building and we have obligations that everybody agreed to and it's not going it's not being finished? And that's a really good question.

[00:25:11] One that a litigator or somebody in real estate law should really answer for you. But we will put in these sort of if you default, what happens right more often than than not. If there is a default, you'll have lenders and the league step into to

[00:25:27] to cure and. Cure any issues that was the clip there. So a litigator. OK, well, that's a question for a little. OK, but. But it's a legitimate question, what if we start piling all this money into the

[00:25:41] projects? Oh, don't worry, we're going to be watching it every step along the way. Right. But one of the other concerns they kept hammering away on last night. Was the rushed timeline. They're going to be voting to approve this on June 24th.

[00:25:55] Because they're fixing to go on their summer break. City Council doesn't work basically from July through August. So. They got to get it done by June 24. OK. Well, you just presented this stuff like a week or so ago. Now we're rushing through.

[00:26:16] And you guys may feel comfortable with all of this and TSE may feel comfortable with all of this, but some of the council members, at least four that I counted, they're not comfortable with this timeline. They do feel like this is being rushed.

[00:26:30] She asked how much of the tourism taxes are coming from local residents as well. City staff said we'll come back with that figure. They didn't have it. But we know there is local money being used because when you and I go out to eat

[00:26:43] in Charlotte, we're paying that quote tourism tax, the prepared food and beverage tax. She asked whether the Panthers could depreciate the asset. Abrams said that only the portion they pay, not the city's portion. And then Councilman Michael Graham or Malcolm Graham rather, tried to address

[00:27:00] some of the concerns about the Panthers ownership. We clearly understand what has happened around us, but we clearly are protecting the interests of the city every step of the way, every document and every conversation. Yes.

[00:27:15] I also remind the council that there's a while the ownership remains the same, there's a new leadership team in place that has not been there through some of the past episodes. So that's a big difference, right? Obviously, because they're paying attention.

[00:27:29] They're doing it right, just like they did with the Hornets deal. That's why they got slapped with one hundred seventy million dollars in upfitting costs for CapEx, right? No. Oh, yeah, OK. I've had the opportunity for the last year, I guess, to meet monthly with

[00:27:45] Christy Coleman, their president, just recently as last Friday, talking with them specifically about the project and their commitment to Charlotte and commitment to seeing it through. Oh, good. They were in the building today for about an hour and a half talking about another issue.

[00:28:03] And it's a good thing there's no volatility in the upper management at TSC. Like, good thing that never happens either. Like the deals you're cutting right now with the current people, they may not be there next week. That's not going to happen. Right.

[00:28:15] That the council will take up next Monday. Carolyn Wright has been in constant communication about things that we need to get right. So I'm not I'll let them talk about their commitment on Wednesday. I just share with you that the trust with verified models in place is that

[00:28:37] been in place for a while now. I think there's a commitment on the part of the team to be good citizens and to start with a finish and to be good partners with the city of Charlotte. Okay, good enough for me.

[00:28:54] Let me go over to the phones and get Stan on. Hello, Stan. Welcome to the show. I got about a minute, Stan. All right. All right. Here's where this goes. This tourism taxes aren't going to bring in the revenues they're saying, because

[00:29:06] if I'm bringing a convention here, I'm being a tourist here and I realize I can do that cheaper somewhere else. That's where I'm going to go. Five years from now, they're going to go. The revenue models weren't there.

[00:29:16] We don't have the money now we're going to have to take it out of the general budget. Sorry. Anytime they trust, but verify we lose and that this process. I mean, it's possible because they're talking about taking on debt for the 600.

[00:29:27] They're talking about borrowing against the revenue stream, I think so that very well could happen. Stan, I appreciate the call. That is a concern. It's 650 million dollars. Um, and the teams would be essentially quote unquote, you know, tethered to Charlotte for 15 years.

[00:29:45] You keep hearing the term, the term being 20 years, but that's not really the case. It's 15. But then they could leave in that last five year window and the Panthers could, and I guess the soccer team could as well. They could both up and leave.

[00:30:00] Um, but then they would have to pay back any difference in the cost or whatever. But by that point, that's that the, the, the dollar is worth less because of inflation. So it may not be prohibitively expensive for them to do so.

[00:30:17] It's also, you know, David Tepper is a billionaire, so none of this is real cost prohibitive. All right. That'll do it for this episode. Thank you so much for listening. I could not do the show without your support and the support of the businesses

[00:30:28] that advertise on the podcast. So if you'd like, please support them too and tell them you heard it here. You can also become a patron at my Patreon page or go to theptcalendarshow.com. Again, thank you so much for listening and don't break anything while I'm gone.