Stadiums Are Bad for Startup Districts
I am currently attending the Inside/Outside Conference in Lincoln, Nebraska. The conference centers around corporate innovation and has had some outstanding presentations. However, I am writing this post about something said by one of the panelists. Chuck Norris of Nelnet, a friend, said that I would disagree about the impact of Pinnacle Bank Arena (“PBA”) on the development of the Haymarket in Lincoln.
He’s right. I think that PBA has been bad for the startup ecosystem in Lincoln – because it has taken a noteworthy, super positive attribute – density – and made it harder – by artificially driving up rents (i.e. it was not driven up by startup success but by an outside factor) in a part of town that had many startups. It has led to more parking and more chains – with a smaller percentage of weird, quirky local businesses in the area. Overall, there are probably more – but the feel and vibe is less authentic. Startups hate expensive and less authentic. It’s against brand and most startup culture.
But deeper than that, this reminded me of the consistent issues plaguing communities when it comes to the development of stadiums and arenas. I have actively worked to help stadiums get built, and I have actively studied and researched this topic.
My personal opinion is that generally, stadium deals are not good for communities broadly because of the tax implications of subsidizing rich owners of sports franchises – but in particular, they can destroy burgeoning neighborhoods. That is not the case with PBA as the new arena was built primarily for the University of Nebraska – which is not a billionaire owner and is part of a public institution. So, mostly, I am okay with the actual stadium as a thing. I don’t love it – but it’s fine.
For an example of what I mean on the major league stadium side which is replicated in numerous cities across numerous sports, here is an article about FC Cincinnati’s quest for a new stadium.
My central point regarding the effects of stadiums on startups - is that stadiums do not create neighborhoods, nor do they create “economic development”. Here are some things that I think are positives about stadiums:
When properly located, they can accelerate development. This means that an area that is redeveloping may go from a twenty-year development cycle – to a ten year development cycle. For example, urban arenas in Oklahoma City have accelerated development in the Brickyard of OKC whereas the KC Chiefs/Royals complex in eastern KC has not.
They can create interesting restaurant and evening districts. Usually, the effect of these districts is to shift spending by locals from one part of town to another part of town.
They increase land values and rents – which is good for land owners and building owners in the vicinity.
They create civic pride. This is not a throw-away thought – but it is also really hard to measure the value of civic pride as specifically increased or decreased in a stadium.
Here are things that I think are negatives:
In many instances, the burgeoning neighborhood is growing around assets like “cheap rent”. This specific issue is present in the Haymarket. When outsiders come to Lincoln and talk about the start-up scene they reference the density and proximity created within the relatively small geography of the Haymarket. This is starting to change – companies are moving not far, but far enough. By building an arena there, the rent prices are on their way to doubling what they were prior to the arena. That means that start-ups are moving out. As they move out, they continue to make economic decisions that lead to inexpensive rent. Those decisions do not lead to the “planned” innovation districts of Nebraska Technology Park, Nebraska Innovation Campus, etc. – because empty, expensive buildings have high rents. Instead, they lead to funky neighborhoods with good vibe and cheap rents. I have been asked multiple times where that will be in Lincoln. Simple answer, I do not know. In Omaha, I would guess Benson – not downtown. This happens regularly and around the world.
In the twenty-first century when a new arena is built, the builders worry about where the spectators will park. Lincoln benefits from Memorial Stadium (the Huskers football stadium) not having enough parking. The walkways from Memorial Stadium to parking (in neighborhoods) get traffic for beer, food, and other “tourism” dollars. These places are owned by locals and operated small businesses (not chains or franchises). The areas of high rent right around arenas and stadiums are owned by larger national corporations or franchises. Thus, the arena (wherever – not just in Lincoln) helps destroy the culture and social fabric that people already love about their town. The Haymarket becomes a less “cool” place because of the oddities there. In today’s world, the oddities are what makes a place different. Every community has a Buffalo Rings and Wings or Jimmie John’s. Unique local features are why places like Fenway and Wrigley are renown – because by staying in the same place for longer than chains have existed – they keep local businesses strong. When you re-create the arena somewhere else, local businesses cannot afford to follow as it takes a long time to replace those dollars – in order to survive to the annuity that is foot traffic over the fifty year life of an arena or stadium.
Arenas are expensive but also not super important or useful to life experiences. The University of Kansas plays at Allen Fieldhouse – which is kind of a dump (not said pejoratively). So is Fenway. The quality of your stadium has very little to do with the long-term love for your university, for your team, or experience of the sports culture. Graduates of KU remember Allen Fieldhouse as a grand old building with history and one of the peak experiences of their college career – not because of the toilets – but because of the culture created by the PEOPLE in the building. A counter argument is that new acts and bands will come and play in Lincoln. This helps recruitment and increases tourism. This is not untrue – but is ephemeral and fleeting. In five years, will it still solve for this problem? Why did Garth Brooks play Lincoln in the 1990s but not Omaha? Why did U2 play Omaha and not Lincoln in the mid-2000s? The venue. But, what was the economic impact of those events – some, but not much. For the most part – only singular events (like the US Swim Trials or NCAA Regionals – create traveler tourism) In the case of art, music, or other touring events – people will drive to the closest location or not go. Did Omaha’s or Lincoln’s talent drive between the two towns – the fifty or sixty minutes – to see the acts. Yes. Did you miss some dollars? Probably. But this is such a small amount of money over time that it is irrelevant to a fifty-year decision where your last twenty years are reversed. In the scheme of a fifty or one-hundred-year investment, these are idle rounding errors not the creation of an actual recruitment strategy. If instead, Lincoln had devoted $200 million to making the city the best biking city in the world, THE WORLD, would that have been money better spent? If instead Lincoln had devoted $200 million to recruiting one area’s worth of experts to the University to be the best in the world, THE WORLD, would that have had longer term economic impacts. I would posit – yes - on both counts. But buildings are sexy and monuments that people can see – those other things decentralize credit and experience. They are community builders not temples to a local god.
Finally, rich men make the decision to build arenas – not the populace. Like most community decisions, it is treated as binary (if we don’t get this, then nothing) and inflammatory (the city is simply going to become a “cold Omaha”, the team is going to leave, we are never going to get another chance). For example, Omaha has desired a major league sports team for the last thirty years – ever since the KC/Omaha Kings left for Sacramento. I have heard this conversation many, many times. Instead of building a sustainable strategy for recruiting a franchise and retaining it. The whole thought is that Walter Scott or Warren Buffett or another rich man should simply buy a team and make us all happier. What if instead, we invested time and money to a strategy of building a Green Bay Packer fund for long-term sports investment and strategy…Today. There is no promise of success in the future – but building community spirit around our mythical franchise could start today. This would start community building around sports without the asset. It would be powerful. How would we do it. We could (and by the way, any similarly situated community could do this) set aside personal dollars with a fifty-year strategy of having professional sports in Omaha or Lincoln (by the way). Personally, I would see this as investing in a public trust company (as Green Bay has) to ultimately own and operate an MLS, NBA, NFL, or NHL team. [I intentionally did not include MLB because I think the number of dates is simply too hard to manage for a small economy like Omaha/Lincoln]. I ran some numbers to get some scale around this – thinking of it as a fifty-year problem, not a one year solution. Here’s my math – if 2500 people agreed to save $100/month – into a public fund at a 6% annualized return. The community would have $913 million (enough to afford a small market franchise at today’s prices in all of the leagues above – probably enough to upgrade the stadium necessary to house them – making some liberal estimations on stadium quality and costs) to spend on a new professional franchise. The law of time and money is on our side – and yet, we are impatient and want an OKC Thunder – like miracle. We want a billionaire to find a team, buy it, and bring it to our communities. We want a stadium to solve our problems rather than us solving our problems.
This is the arena problem. We treat it as a long-term solution to a challenge rather than what it is – an investment in a building. In this state, we subsidize many building decisions to our detriment. We cannot distinguish between the truly transformative and more of the same. The people and things in the building are the key. Transformational people are super rare – the true unicorns. These need all of the investment we can muster.
But building community assets are opportunity to build the community not just through the outcome – but through the process. For example, let’s invest together to build a pool of money to have a professional team that we – collectively – actually own. It requires us to ask questions such as - What do we want “to be” in our community? Does building “this building” bring us closer to that perfect community we imagine? The answer in many cases is probably not.
To solve community problems, we need to involve the community and seek long-term solutions – not short-term ones. Long-term problems – such as economic development – are solved by long-term thinking and investment, not by looking for panaceas over four-year election cycles (or even shorter times).
To be clear, I do not think that Pinnacle Bank Arena is bad – or I should say, I do not think that many non-professional sports arenas built with public money is “bad” on its face. I think that it creates many negative (and positive) affects that could be avoided by pre-planning and strategizing about the actual goal. Not in finding a solution to a fake or piece of the problem. In the case of Omaha, this problem is that Omaha wants to be a pro sports town but is too small – so it has relied on other events to project bigness on itself. Other people, other communities do not care. They are looking in their own mirrors – not at you.
In the case of PBA, I would very clearly state that I continue to think it will have a negative effect on the locality and density of start-ups in the Haymarket. Parking costs have gone up. Rents have gone up. Startups have left. This leads to disconnection and dis-communication. To overcome these things, I would focus on ensuring that connectivity and transparency amongst the community remain high through very intentional ambassador programs – going to startups rather than making them come to you and investing in awareness of cool neighborhoods where start-ups can gel. Maybe Havelock. Maybe south of downtown and near the country club. I am not sure where the new cool places will be - but the more planning and pressure to conform – the more destructive the city will be regarding their expected outcomes and ecosystem. Communities are built by decentralized decision makers making decisions that align through their own self-interest, not planning them. Let the ecosystem grow organically and provide it nourishment wherever it is.
That nourishment is not building a stadium right smack in the middle of it.
 One clear example is when it is fiscally irresponsible based on unrealistic cash flows and tax rolls – see the Ralston Arena in Nebraska for an example of this.