Pay to play: Could deferred MLS bid make soccer investors reconsider their ‘no public money’ promise?

Jilted until next year, Sacramento has to shore up funding vulnerabilities if it wants pro a team

A rendering of the planned soccer stadium in the railyards, which is now estimated to cost $250 million.

A rendering of the planned soccer stadium in the railyards, which is now estimated to cost $250 million.

Photo courtesy of sacramento republic FC

This is an extended version of a story that appears in the December 28, 2017, issue.

Sacramento’s push for a major league soccer team is in “extra time,” lead investor Kevin Nagle wrote days before Christmas, after Nashville secured one of two spots Sacramento was hoping to land. Now, uncertainty over the Capitol’s big-net bid is reviving a controversial question in the 916:

Will the public be asked to help pay for something its leaders want?

Following a cross-coast pitch in which Sacramento Mayor Darrell Steinberg rocked the scarves of home team Republic FC, and former Mayor Kevin Johnson surfaced to attempt a late-game assist, Major League Soccer announced it was awarding one of two coveted slots to the Tennessee city, leaving Cincinatti, Detroit and Sacramento waiting until next year.

Despite assurances of a privately bankrolled operation, in Sacramento the primary roadblock is money.

Construction on a $250 million soccer stadium in the downtown railyards has halted, Nagle said, because of uncertainty over the MLS bid. On top of that, MLS is requiring a $150 million expansion fee from any city deemed worthy of joining its ranks.

The $400 million price tag might have caused sticker shock for investors straddling the fence, especially with soccer, which some economists aren’t entirely bullish about.

At a December 21 press conference outside Sacramento City Hall, Nagle revealed that two top investors had dropped out of the city’s MLS bid pitch—San Francisco 49ers CEO Jed York and former Hewlett Packard Enterprise CEO Meg Whitman, who teased her fellow investors by pulling out not once but twice.

Nagle struck a resilient tone during the press conference. “We have billionaire opportunities we’re looking at right now,” he said, laying out plans to drum up major and minor investors and community support.

Sacramento may be enchanted by soccer, but taxpayers are still split on the city’s decision a few years ago to spend $255 million worth of public money on another pro-sports arena—the Golden 1 Center.

Soccer was supposed to be different. This time, only the investors were going to pay up. The fans were only being asked to open their hearts, not their wallets. But with Sacramento’s pro-soccer goal looking less inevitable, is that still the case?

Visiting soul food restaurant Tori’s Place in Del Paso Heights, Steinberg didn’t rule out the possibility of some sort of public financing help. “This will be privately financed. The things we can help with include fees, infrastructure—things like that. We never like to shut doors on anything, but the work is to find some major private equity investors,” Steinberg told SN&R.

Local historian William Burg countered that “fee and tax breaks are public subsidies.”

For investors considering Sacramento’s proposal, one question is whether a pro-soccer team provides a good return on their investments. One of the big measuring sticks is television viewership. In the United States, soccer trails hockey in fifth place.

Roger Noll is a Stanford University professor who specializes in sports economics. In an email, Noll told SN&R that MLS’ rapid expansion is risky, especially if there are any public funding breaks from cities like Sacramento.

“This is a huge gamble, similar to the NHL’s decision to expand into the sunbelt,” Noll said of the National Hockey League. “The goal was to secure a national TV market. But the cost was financially troubled franchises in areas where few are interested in hockey.”

Noll says that could happen with soccer, too. “In MLS, several franchises would be in trouble financially without the expansion revenue. But in the long run, this cannot continue forever,” he wrote. “MLS needs a national footprint to become a true major league sport, but I fear it is becoming too large in that the TV money will be insufficient to sustain that many teams.”

Dan Rascher, director of the University of San Francisco’s sports management program, co-wrote a 2003 study about whether Sacramento could support a pro-soccer stadium in the 240-acre railyards site north of the grid. (The study said yes.) Rascher argued that while team revenue might not justify a $150 million expansion fee, regularly high attendance makes soccer a worthy investment.

“Teams are generating revenues that I wouldn’t say justify expansion fees,” Rascher said. “But given the attendance supporting it, it will be a matter of TV viewership catching up.”

Republic FC did set attendance records in its first two seasons in the United Soccer League (which is one tier below MLS), finishing second in the league this year, according to the Sacramento Bee.

The mayor, for one, is bullish. “This is more than tourism. We have a passionate fan base here. We want to be an MLS city. We’re rallying the community and businesses to support that,” Steinberg said. “We want more things, not less.”

Other cities have fought and lost teams over public sports funding, including San Diego and Oakland, which just lost football teams. An MLS team is relocating from Columbus, Ohio, to Austin, Texas, after a battle over public dollars.

At the press conference, Steinberg said Sacramento’s soccer ownership group has several months to sort out its financing predicament, which includes a stadium that costs $70 million more than estimated and will likely only host soccer matches. MLS said it wanted to name its two expansion cities before the end of the year, but will now announce its final team in 2018.

Professor Neil deMause, author of Field of Schemes, a book on stadium financing, went as far as calling the MLS’ rapid expansion from 10 pro teams in 2004 to 25 this year a possible “ponzi scheme” in a Deadspin article. His argument was that MLS was keen on awarding more franchises to lure billionaire owners who have to pay millions in new licensing fees, which help the league shore up short-term revenue falls.

“Can MLS continue to expand indefinitely, or is it a bubble destined to burst?” deMause posed in the article.

Will DeBoard, assistant commissioner of the CIF Sac-Joaquin Section high school athletics league, is an MLS fan. But that doesn’t mean he thinks going pro always works out. “No matter how good teams are, people go in the beginning,” DeBoard said of attendance. “Any time you start a new franchise, it’s a gamble.”

DeBoard might make it slightly less of a gamble. The former sports writer says he’d drive all the way from Modesto to watch the games if Sacramento wins a pro-soccer franchise next year, something MLS leaders are counting on.