A new ballgame: Sports teams find real value in real estate – Pittsburgh Post-Gazette

When Civic Arena, the Penguins’ home for 43 seasons, was razed in 2012, the building linked with much of the franchise’s history was reduced to a pile of rubble. By demolishing part of its past, though, the team created a way to better its future.

As part of a 2007 deal to build Consol Energy Center and keep the franchise in Pittsburgh, the Penguins acquired development rights to the site of their old facility, something which they later turned into a planned development project that will cost $440 million to construct.

With the team’s current owners exploring the possibility of selling some or all of their controlling interest, the 28-acre plot of land across Centre Avenue from Consol represents both a potential boost to the Penguins’ overall value and a sign of how some teams have changed the way they do business. Though it’s not quite a common practice, professional sports franchises such as the Penguins are seeing the value in owning development rights to the land near their venues and are increasingly taking part in arrangements to have mixed-use developments right by their stadiums, ballparks and arenas.

The Civic Arena development is far from the only mixed-use project that will spring up across the country in the coming years. The Atlanta Braves have promised a $400 million cluster of businesses that will be adjacent to their new ballpark in Cobb County. The opening of the Sacramento Kings’ new arena will come with a 16-story hotel and condo tower across the street. The Golden State Warriors’ proposed arena in San Francisco includes 100,000 square feet of retail space and 580,000 square feet of office and lab space.

Teams with development rights can make money from them in several ways. They can earn revenue by leasing or selling the land to developers. If they own the land, they also can use it as an equity contribution in partnering with a developer on a project.

On the North Shore, the Pirates and the Steelers have partnered directly with Continental Real Estate Cos., in developments and in other cases have leased land to the Columbus firm. The teams hired Continental to develop the land between the stadiums for them.

There’s little doubt such rights can be valuable for sports teams. It comes down to a basic tenet of real estate — location, location, location.

“Generally, these sports facilities are in the best location or they’re creating a new best location,” said Gregg Broujos, managing director and founding principal of Colliers International in Pittsburgh. “It’s extremely valuable having those development rights because most of the time it’s going to be an area where a developer is going to want to get into anyway.”

Mr. Broujos added that holding development rights to land near its venue can increase a team’s value.

“When done right and when held within the corporate structure of the team, that additional income and assets can make the selling price and value of the team much higher,” Mr. Broujos said.

Marc Ganis, president of Sportscorp Ltd., a Chicago-based industry consultant that advised the county on the Heinz Field and PNC Park deals, said that development rights for sports teams are still more the exception than the norm.

“It’s not something that is typically the case but it does happen in projects that are generally in smaller markets where there needs to be additional economic opportunities available to the team and where there are some unique circumstances,” he said.

Development rights deals haven’t become more prevalent for a variety of reasons, he said. In some cases, land just isn’t available to offer to teams. In others, government and taxpayers have invested in the sports teams by subsidizing the stadium or arena construction itself rather than offering development rights. And in some instances, teams don’t feel as if they have the expertise to tackle such ventures.

There are risks involved, as well.

While losses are possible, the more likely outcome is that the land just doesn’t get developed, Mr. Ganis said. That happened with Three Rivers Stadium, which was expected to generate development after it opened but never did.

That lack of development was one of the primary reasons the city gave the Steelers and the Pirates the responsibility for developing the land between Heinz Field and PNC Park, with potential penalties attached for inaction.

At the former arena site, the Penguins are responsible for buying the land needed for development but have the right to transfer it to others. Like the Steelers and Pirates, the Penguins face possible penalties if they do not develop the land. Under their agreement with the city-Allegheny County Sports & Exhibition Authority, they are required to develop at least 2.15 acres a year or may have to forfeit the land.

The development rights stay with the team in a sale unless the SEA board agrees to separate them.

But now those rights are a luxury not a burden, and they often give franchises something that is perhaps even more important than money — control. By owning those rights, franchises get to determine which businesses inhabit the space closest to their facility, making land around a venue worth far more to the team than it is anyone else.

One reason the Penguins were interested in seeing the arena demolished and holding the development rights to the site was to prevent competition from emerging that would take business away from Consol Energy Center.

“This is what super rich people do,” said Alex Rosaen, director of public policy and economic analysis for the Anderson Economic Group of East Lansing, Mich. “Once they have everything else they want they can also use their money to reduce their risk and gain more control over their assets.”

Owning development rights has also become an alternative way for owners to get an enticing deal in an era when taxpayers are reluctant to foot the entire bill for a new stadium.

“Smart money says that if we’re going to ask for public money and if we promised to enhance the tax base in one way or another by being the cornerstone of this development area, give us a deal here,” said John Clark, a sport management professor at Robert Morris. “‘Let us come in and help build this area up. It’s going to be good for the city’s tax coffers and it will be good for us.’

“It’s the model most owners like to follow now.”

Craig Meyer: cmeyer@post-gazette.com and Twitter @CraigMeyerPG; Mark Belko: mbelko@post-gazette.com or 412-263-1262.