NTRODUCTION: BACKGROUND TO THE RESEARCH
In April 1997, an article titled "Team Performance, Attendance, and Risk for Major League Baseball Stadiums,"' was published as part of the Real Estate Issues series on counseling opportunities in the major league sports industry. That presentation noted the growing importance of venue revenues2 to both the owner of the stadium (typically a municipality, county, or public authority) and the owners of the team franchise. The emphasis in the article was on Major League Baseball stadiums, although many venues were dual-sports facilities housing National Football League (NFL) teams as well.
The reported findings demonstrated the importance of gameday ticket revenues to both the stadium owner and the franchise. In recent years, however, gross ticket revenues have represented a declining percentage of total venue revenues. Not surprisingly, on-field performance by Major League Baseball (MLB) teams was a major determinant of attendance, which determines revenues from ticket sales as well as concessions and parking. Moreover, the dollar volume from sales of short-term licenses on luxury boxes/suites and club seats tends to fluctuate directly and nearly proportionately with on-field team success (particularly in the preceding year).
Within the framework of subsequent assignments to value leasehold/possessory interests of major league teams in both MLB and the NFL, we have been required in each instance to estimate market rent. Moreover, we served as consultants in the 1989-1990 property tax appeal of SkyDome in Toronto, as well as its 1995 sale. In both those cases, the identification of market rent payable by the tenant MLB franchise was a major issue.
This manuscript presents the results of analyzing the body of lease and rental data for MLB, NFL and dual-sport stadiums. The indicated market rent model derived from that analysis is also shown.
FEASIBILITY ANALYSIS AND VALUATION OF LESSEE INTERESTS
Table 1 lists the new MLB and NFL stadiums built in the 1990s, major renovations of existing stadiums, and new construction under way or planned as of 1998. Virtually every existing or planned MLB and NFL venue is on that list. At least one feasibility study was conducted for each project, whether completed, in process, or proposed. Feasibility studies are necessary to obtain project financing, much of which takes the form of debt plus "equity" participations represented by the sale of such intangibles as naming rights, exclusive product sales rights, or advertising rights in the new or renovated stadium. Indeed, sale of these intangibles has provided a major proportion of the up-front money that constitutes "equity" in recent major league stadium construction projects.
In any feasibility study, anticipated revenues are necessarily forecast (often optimistically). One of the major elements of revenue, but far from the only source, is the rent to be paid by the tenant franchise for the use of the stadium. Because the lessor is typically a public body, that rent is required to be "market rent," which is defined by the Appraisal Institute as, "the rental income that a property would most probably command on the open market, as indicated by current rentals being paid and asked for comparable space, as of the date of the appraisal."3
Over 30 MLB and NFL leases were studied as part of the research on which this article is based, to identify what (if any) market pattern of rentals exists. Information on other leases came from the publication, Inside the Ownership of Professional Sports Teams: 1999.4 Both NFL and MLB leases specify and distinguish carefully between "rent" paid by the lessee franchise and revenue-sharing by the stadium owner (nearly always a public body) with the lessee franchise owner. These leases are signed well in advance of construction, and provide an important basis for acquiring both equity participations and debt financing. …