Sports, Entertainment Real Estate Districts Can Generate Hundreds of Millions for Clubs

Sports, Entertainment Real Estate Districts Can Generate Hundreds of Millions for Clubs

Some well-respected industry insiders believe big four team valuations have become ‘massively inflated’. They cite ongoing disruption within the media ecosystem and the recent influx of institutional capital into sport to support their argument.

Others remain undeterred (see: Lakers sale at $10bn valuation). 

A portion of those still bullish see a finite asset that has historically gone up in value. A percentage believes the supply-demand imbalance amongst broadcasters, streamers, and tier-one leagues will keep tier-one rights fees climbing. 

And then there is the group who recognizes teams are in the midst of transitioning from media entities into media and infrastructure businesses, and that the ancillary real estate development opportunity tied to stadiums and arenas is the next frontier of sports alpha. These adjacent districts can generate meaningful revenues shielded from the leagues’ rev-sharing agreements.

While the club’s upside in a given project depends on how much capital ownership invests and its ongoing profit participation in the development, “generally, a team could generate hundreds of millions of dollars in new revenue over its lifetime [from one],” Jonathan Fascitelli (chairman and CEO, Seregh) said.

Sports and entertainment real estate is inherently different than more ‘traditional’ types of commercial properties.

For starters, “these [anchor] venues are the ultimate imbedded demand driver,” Fascitelli said. “People want to live, eat, and drink around these buildings—which drives tenant demand and higher rents. And if they’re going to live and hang out there, then they want to work nearby too. So, it creates an entire ecosystem that thrives.”

The core product sold at stadiums and arenas —the games— are not going to be disrupted by the impending AI revolution, either. In fact, interactive IRL experiences that bring communities together are likely to become even more valuable in a world where so much is done alone/remotely and/or on a screen.

To be clear, we’re not talking about building a fan zone or a few restaurants outside of the venue. Opportunities now exist to build entire cities around sporting facilities.

“An arena can have anywhere from 17,000-20,000 seats and be activated between 100-200 nights [a year]; 130 to 150 is ideal,” Fascitelli said. “With good attendance, that begets foot traffic of four to six million people. That's a lot of people that can activate a lot of retail.”

The sheer volume of events it can host makes an enclosed arena ideal to build around. But the mixed-use development opportunity exists in locales with open-air stadiums too; developers/investors in those cities just need to be more thoughtful about the other types of programming the district will host.

“I would pair an open-air stadium with a smaller music venue, a youth sports complex, or other heavy experiential retail,” Fascitelli said. “You want to create other [regular] draws to the area.”

Sports teams building a mixed-use district around their facility should be activating its ground floor (see: mall at Singapore’s National Stadium). Having stores or restaurants there gives residents and visitors a reason to come even when the event calendar is dark.

It’s worth noting that the second floor of the multi-purpose venue in Kallang serves as a track/fitness center during the day.

So, how big does a stadium-adjacent project need to be to generate nine-figure returns?

“The bigger the surrounding development is, the more impact that it and the venue can have on the community from both a tax and economic generation perspective,” Fascitelli said

$3bn-$10bn is said to be the sweet spot. 

Returns will come in the form of success fees, the cash flow generated by the project, and perhaps from an eventual sale of district assets. A club's upside in the project will depend on how much capital it invests, its profit participation, and how the development is planned.

Sure, “you must line the retail the right way, make sure that the space is walkable and feels open, and get these other demand drivers in there to compliment the venue,” Fascitelli said. “But at the end of the day, it should be 70%-80% residential and the rest retail-entertainment; [and] yes, some office too.”

While many real estate investors are hesitant to build office space due to increases in remote work and the emergence of AI (i.e. fear companies will be smaller in future), sports and entertainment projects require the traffic commercial enterprises bring in during the day. 

“You want people coming to work in your neighborhood because you want them to go to lunch and use the restaurants and retail,” Fascitelli said. “You can’t have those retail businesses dependent upon nights and game days alone, they'll never survive.”

Bundling sponsorship with tenancy is one potential way to fill office space (see: Fiserv + Milwaukee Bucks). Cutting the square footage into smaller footprints may also be part of the solution.

Young professionals and empty-nesters who want to be close to ‘the action’ are most likely to be attracted to the prospect of taking up residency in a stadium-adjacent district.

“But if you're building big enough and including youth sports complexes and/or similar amenities, you can attract families too,” Fascitelli said.

The bulk of mixed-use stadium projects built to date have been constructed in phases. But that is beginning to change as the size and scale of sports and entertainment real estate developments continue to grow (see: SoFi Stadium, Ball Arena). 

“If you want these districts to thrive and be successful, you need critical mass,” Fascitelli said. And to achieve that, “you have to take a big bet and build the broader district in line with the venue.”

As the vision for these projects get larger, so do the organization’s up-front capital needs. 

“How much of a concentrated investment is a club owner going to make around their venue when they already own the stadium and the team? Even with significant wealth, an owner doesn’t want to be on the hook for writing another $1bn-$3bn equity check. At some point, portfolio theory applies,” Fascitelli said. 

That’s where Seregh comes in. The company serves as both a capital provider and bespoke developer partnering with clubs, leagues, and local governments to structure and execute large-scale districts around sports & entertainment venues.

Backed by Harris Blitzer Sports & Entertainment, Delaware North, and CAA, Seregh intends to deploy $100bn across 30 stadium projects globally within the next decade.

$100bn represents roughly 1/10^th of the trillion-dollar global investment opportunity that exists in sports and entertainment real estate.

Here, “in the U.S., the opportunity is driven by the need for revitalization of urban cores and the desire to take advantage of all these venues that need to be revamped,” Fascitelli said. “There's about 70 [that need work] between now and 2040.”

Those venues aren’t just in major markets. Rights owners in secondary and tertiary cities and college towns are pursuing these types of projects —and the incremental revenues that come with them— too.

Ownership groups abroad are, by contrast, motivated to meet their fans’ changing habits.

“Social media has made individual media consumption the same everywhere. People now consume sport the same whether they’re in the U.S. or Asia,” Fascitelli said. “The difference is here we have venue and distribution infrastructure, there they don’t. So, now they need to build these districts because the consumer there is looking for more out of their gameday experience.”

And then there are the sovereign wealth funds in the Middle East that want to drive tourism through sport and need to build infrastructure. 

Regardless of the motivation, the trend of mixed-use development around stadiums and arenas is picking up and it seems likely the next generation of districts will be larger than the last (assuming costs come down).

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