MLS Sets Expansion Fee at $150M, Two Teams To Be Announced 3Q 2017

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On a call today with media representatives, MLS Commissioner Don Garber stated that the expansion fee for the next two teams to be added in the third quarter of 2017 will be $150M. The deadline to be considered for the next round of expansion is January 31 of next year. Two additional teams will be added at a later date, with no firm timetable for that announcement.

It is unclear how the expansion fee, which is $50M less than penciled in by the hopeful SC STL ownership group, will impact the request for public funds in St. Louis City. Proponents had stated they would seek $80M via a 1/2% sales tax. What is clear is that the city and SC STL are moving quickly to attempt to be one of the two teams added late next year.

To be considered by the league, SC STL will be required to submit detailed information about the ownership group, a detailed stadium plan including the site, and private and public support. In addition, MLS is asking for commitments for stadium naming rights and jersey sponsor.

Regarding St. Louis, Garber stated that if the public vote in St. Louis fails, the question as to whether SC STL remains a viable expansion option is up to the ownership team and not the league. This would seem to put the financing question directly onto SC STL. The statement reveals a big divide in how the effort played out to build an NFL stadium in the city in order to keep the Rams. Although ultimately not a deciding factor, it was made clear that without $100Ms in public support, the team would not stay.

As the recent funding request was revealed in an application for Missouri state tax credits, the funding outline for the project is fluid. SC STL had lined in an expansion fee of $200M, stating that this cost would be paid entirely by private funds. As we wrote, it hardly matters where it’s said each part of the funding originates. That language may set up the argument that the request for public funding remains unchanged, while the expansion fee will still be paid with private funds.

In a practical sense, the $50M reduction will have downward pressure on the request for public funds. Fair or not, the perception is that SC STL just saved $50M. Recent expansion fees included Los Angeles FC $110M, Minnesota United FC $100M, New York City FC $100M, Orlando City $70M. Still, the league sought to raise the bar on the total cost a franchise, citing the cost of multi-million dollar practice facilities and other expenses that are relatively new to the league.

Republic FC in Sacremento, which the commissioner said the league speaks to more than any other prospective ownership group, none-the-less will be required to go through the same process as other prospective markets. Sacremento is widely seen as being the likely first choice for league expansion, with St. Louis, Detroit, San Antonio, Cincinnati, Charlotte, and San Diego not far behind. All but two teams will be waiting beyond 2020.

Miami is currently pegged as the 24th team to join the league. The commissioner stated the league continues to work on a deal in that city, but seemed to leave open the possibility that Miami could be replaced if that process cannot reach a conclusion.

Locally, the push is for an April public vote on public funds to support an MLS franchise. As previously noted, a large part of the public financial commitment could be made without a vote of city residents. The state can grant $40M in tax credits. A TIF commission could add millions more without a public vote. St. Louis County, and the six other counties in the St. Louis metropolitan region have no plans to provide support for the expansion effort.

Additional information from media availability with local news:
On a phone call with local reporters following the MLS conference call, representatives of SC STL repeated their confidence that St. Louis will be awarded a franchise. Jim Kavanaugh, SC STL Vice Chairman, made the case that the requested incentive package from the city and state is similar to those requested by other businesses engaged in economic development. Kavanaugh is one of the original Founders of and is currently CEO of World Wide Technology in St Louis. The total amount is related to the amount of economic activity created and not the financial ability of the potential ownership group.

The SC STL pro forma to own and run a team counts on public and private investment. Representatives confirmed that the announced $150M franchise expansion fee will not change the public ask. They also relayed that the $200M number was a placeholder, representing the maximum rumored cost. Apparently the fee has been a moving target in this process, beginning at the same ~$100M as recent teams, but growing as interest increased to nearly 10 cities. If the fee had come in at $200M, it seems the ownership group may have reevaluated its plans.

Asked if voters going to the polls in April will know a “no” vote ends the effort to bring the MLS to St. Louis, Kavanaugh stated it is “highly unlikely” the effort would continue without an affirmative vote. He was not ready to say it would definitively end the project, stating that, however unlikely, in theory other funding not yet considered or known could emerge.

Excerpts from our previous report: Request for Public Money Reaches 60% of Proposed MLS Stadium Cost

Hoped for subsidies for the hoped for Major League Soccer stadium in downtown St. Louis have reached 60% of the $200M project. Oh, there are ways to spin it of course. It’s really just $120M of a $405M project they say. Why? Because MLS appears ready to require a $200M franchise expansion fee.

Further details of the subsidies are found in the City of St. Louis Land Clearance for Redevelopment Authority’s request for $40M state tax credit application. That document reassures us that the estimated $200M expansion fee “will be paid exclusively from private sources.” So no worries. To be clear, we should worry.

What should be understood is that although the NFL turned up its nose at St. Louis and hundreds of millions of dollars in public money, and the city and state decided they didn’t like the NFL after the breakup, it was only the snub that drew real objections, only wounded egos that offered criticism of that failure. There was no great realization that subsidizing stadiums and professional sports hasn’t and doesn’t work as an economic development tool. So here we are again.

The expansion fee is simply the amount MLS thinks it can get someone to pay in order to join the league. In St. Louis, this “someone” is the public. With the same $10M expansion fee paid by Toronto FC to join MLS in 2007, or even the $70M reportedly paid by Orlando City, St. Louis and Missouri taxpayers would be on the hook for $0. The expansion fee is a fee on taxpayers.

The SC STL ownership group says it will pay the $200M fee, as well as $80M of the $200M stadium project. Still, it only works for this assembled group of millionaires and billionaires if the public puts in $120M on top of that. The MLS and SC STL, and our political leadership in the City of St. Louis, are all betting that the public will pay.

What the public should demand, the option the public should be able to put forth, is a less costly stadium, a smaller expansion fee, and more money from the lauded ownership group. Savvy (and justifiably jaded) St. Louisans can already hear the assurances that everything has already been done on this front, that tough negotiations and contentious give-and-take has led us to this do or die moment, that the best possible deal is on the table. It’s not true.

A $150M stadium and $150M expansion fee would mean the state could provide $20M in tax credits and the city $0. Yes, those are arbitrary numbers, but no less so than those being sold by the city and ownership group. A $150M stadium would be impressive. Other teams have done it . MLS would do well to get a $150M fee to add a St. Louis team. After all, we’re told over and over again just how much MLS wants to be here.

The good news is that the commitment to a public vote for at least a portion of the proposed subsidy provides some opportunity to call the bluff. Details of any spring vote are yet to be finalized. The number could change to $40M or $20M. Perhaps in the end, there isn’t a vote.

The city’s argument for giving money to the ownership group deserve to be heard [Read the full tax credit application here]. What stands out in the argument for public money to bring the MLS to St. Louis?

Continue reading: Request for Public Money Reaches 60% of Proposed MLS Stadium Cost

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  • tbatts666

    In “Suburban nation” Andres Duany lays out how to design these massive uses. Like movie theatres in a shopping malls you don’t have customers park right next to it (generally you have to walk past quite a few shops). We need stadium goers to walk through main streets with small businesses to seduce them into spending money in the city. Like how they put the stuff you want at the grocery store at the back of the grocery store. So nix that parking moat!

    I’m not going to pretend that I know anything about the economic theory behind this, it seems like it’s all made up. If the developer comes in with a lazy suburban style design that doesn’t leverage the strengths of the area then I’m gonna assume they are pulling our legs when it comes to economic development.

    Obviously stadiums are incredibly risky investments. Could be a huge liability.

  • Pingback: MLS Sets Expansion Fee at $150M, Two Teams TBA 3Q 2017 - ConstructForSTL()

  • Jakeb

    Being frozen in this weekend, I took the time to read the Tax Credit Application and have a little bit better understanding of how this project is proposed to work and what the ownership group gets for their $80M investment.
    “The public funding components for the Project will be publicly owned, but the cost overruns will be covered privately and the vast majority of maintenance will be privately funded.” The ownership group will sign a 30 years lease to *operate* (not just use) the new facility and will be responsible to maintain the facility with private funds (generated from operations including all concessions, etc.). Not clear on parking but seems reasonable to assume that any parking that is included in the construction project will go to the operator/lessee. The assumptions for other uses of the facility seems pretty modest.
    The funding to build the stadium seems pretty straight forward with $80M generated by a sales tax (subject to voter approval) and $40M in tax credits. The remainder (~$80M), including any cost overruns will fall to the ownership group. I did not see any mention of the diversion of other tax dollars (sales, amusement, earnings taxes, etc) to the ownership group. Did I miss this? In an earlier article I posted (here: http://disq.us/p/1e37nid) that I was phone polled on the stadium funding tax and was told the sales tax would be on “out of state goods purchased primarily by businesses”. i.e. painless. 🙂

    The devil is always in the details so we’ll see. The operating lease will be the key to understanding this deal. We should have more details soon if this is going to appear on the April ballot.

  • jhoff1257

    Yes for MetroLink no for the stadium.

  • Jakeb

    I feel like expansion fee has become a distraction to what we taxpayers should be focused on.
    The City is being asked to build and own a new soccer stadium. I want to know the details of how that’s going to be paid for. The expansion fee is nothing more than the owners cost to buy the team and is no different than if they were buying an existing team. That’s there problem and a red herring in the stadium discussion.
    If STL SC is going to put $80M into a stadium they don’t own, I assume they will want minimal rent in return? I would. So what will they pay to use and maintain the new facility?
    A sales tax is going to pump another $80M in and the rest thru tax credits, TIFs etc.?
    So how will operating costs be covered?
    BTW, when does our local sales tax become a liability. There is going to be another sales tax on the ballot to hire more police, etc. We’ve become addicted to sales tax funding as opposed to increasing the property tax — which is where police and fire funding should be coming from. But I digress,…..
    How many events can *reasonably* be expected to take place at the stadium besides the 20 yearly soccer games? I would expect those trying to sell this deal to taxpayers will exaggerate this number so I want to know how other cities (with similar climates) use their facility? The degree to which this stadium can be used for alternative events has a very big impact on funding and costs.

    It would be very helpful to look at the experiences of other cities on their new soccer stadiums.

    • Alex Ihnen

      Just to note, we’ve become addicted to using sales tax because that’s what polls well, and what voters have supported. There are plenty of options, but we should only blame politicians so much for aiming for what votes will support.

    • STLrainbow

      Looks like a few dates are added and if this could be turned into something like a Riverport with a regular concert series that could be interesting, but frequent usage appears atypical and something we can’t count on, especially with so many competing venues.

      And I don’t see how we’d come close to breaking even if we forked over $4M in sales/use tax a year and handed out generous tax breaks in addition. As the city would own the stadium, obviously no property taxes would be collected but there’s still an opportunity for the city to get in return things like amusement taxes, parking and concessions receipts and taxes, earnings/payroll taxes and rent and naming rights. If these things are negotiated wisely in a well-crafted agreement then there’s a chance we’d come out decently, But past history seems to show we don’t know how to do that here.

      • Jakeb

        This gets to why we really need the details. Does ‘the plan’ include providing the team with $4M or any sales/use tax revenue? I wasn’t aware of this.
        As a voter my position is pretty simply. I want this to happen and I want this stadium but the money has to work. With the city building and owning the facility, I can think no rational for any subsides flowing to the team be it in sales taxes, abatements, naming rights, revenues generated by City owned parking, etc.

  • JB

    I did appreciate how the MLS commissioner – despite the “referendum” comment – kind of shrugged his shoulders when responding to whether or not the expansion would hinge on the vote. If I interpreted it correctly as reported elsewhere, Garber pretty much put it on the MLS2STL group. Basically the equivalent of “if they want to pay for the stadium out of their own pocket, they certainly can”

    To me, this whole thing is going to come down to calling the ownership group’s bluff. You need $80-$100 million from the city or you lose the opportunity? Tough break. I guess we’ll all just have to live without soccer.

    Something tells me they’ll ultimately pony up with their own funds.

  • Goat314

    1. The arrogance of MLS to STL is disgusting.
    2. MLS is not even a major sport yet, soccer is still years away from having mass appeal in the U.S.
    3. Peacock and gang seem to feel entitled to public money.
    4. All above reasons are enough for a “NO” vote in my opinion.

  • John

    I want Major League Soccer in St. Louis as much as anyone else, but the “shell game” funding scenarios and ask for significant public funding makes my blood boil.

    If the “savvy” financiers/investors can’t make it work without the big-money “hit” to taxpayers, then it may be worth tabling this until a better funding plan comes forward. WHY THE RUSH?

    It’s all exciting until you have to pay for it. We’ve got bigger problems and higher priorities to solve in St. Louis with our tax dollars. The investors need to put their money where their mouths are. Also, MLS should cut St. Louis a deal on the expansion fee (still sounds higher than other cities, even with the “reduction.)

    • Jakeb

      It sounds like the expansion fee is market driven by demand. MLS is a for-profit operation and they aren’t cutting anyone a below market deal when they have other cities lined up to buy a new team.

  • Justin Striebel

    SC STL was happy to let the $200m be factored in to the “total project cost” when it meant that they could claim the public funding represented less than 1/3 of the cost. I imagine they’ll continue to factor in the new amount of $150m for a similar reason, even though it won’t make for quite as good of a sound bite.

    But in doing so, they’re responsible for people being upset that the public ask hasn’t been reduced alongside their own cost reduction. (It probably was never a cost reduction in fact, but rather an inflated total for the explicit purpose of fudging appearances.)

    Whatever the case, I’m more than happy to separate the expansion fee from the stadium cost. It should have been all along anyways.

    And when you do so, you get $125m of public funding towards a $195m stadium project. That’s over 64%, and it’s completely outrageous.

    • johnny1421

      Completely agree. The franchise fee should have never been used. SC STL decided they would include both and even their spokesperson mentioned their “$280 million private investment” Well it’s $230 million now yet they’re still asking for the same from the public. They dug their own grave with it

  • johnny1421

    “hey also relayed that the $200M number was a placeholder, representing the maximum rumored cost.”

    So they were willing to pay for the $200 maximum rumored cost but now that’s it $150 million they still want taxpayers to pay the same $120 million? They should just have a puppy as their PR spokesperson because it would do a better job then SC STL is currently doing lol

    • Alex Ihnen

      From the conversation, it wasn’t clear that at $200M, SC STL would have moved forward. It’s easy to guess they would have, but the ownership group didn’t say that was the case.

      • johnny1421

        Dec 9. Jim Woodcock ” it’s important to remember the private investment right now…is around $280 million…that represents about 67 to 70 percent of the entire investment.”

        • Alex Ihnen

          Yes, and so the new line will be that private investment is $230M and 57% of entire investment?

          • johnny1421

            Yea just hurts their image and most likely the ballot vote when they were saying they would contribute $280M but now it’s $230M but expecting the same portion from the public portion

  • Stephen Rutherford

    In regards to the jersey sponsorship I hope they don’t make the mistake they made this last season by putting a beer company on their warmup jerseys. there are enough places to advertise alcohol without putting it on the jerseys. last year they last a few underage kids tryout with the main team so you basically had kids advertising alcohol for St. Louis FC. Not good!

  • Tony Flores

    Many knew that the 80mil that was assumed, was on the very high end. The 200mm expansion fee was just a rumour it was anyways gonna be significantly less. I hope Jim K will readjust ava show that they will not need as much as assumed

    • johnny1421

      They’ve already stated that it doesn’t change the public amount on a call with local media. I’m voting no at this point. Snake oil salesman

      • matt

        Yeah expressly stating you will still ask for $80 after your costs just dropped by $50M is just obnoxious. I’m still voting no as of now and I’m a huge soccer fan.

        • STLrainbow

          terribly disappointing news. not sure how much different these greedy guys really are from the NFL monsters.