The NFL season opens this week, and in a multi-part series, Sportico is examining one of the main components of ever-rising team valuations: the stadium. With the cost of materials rising, stadiums have become more than just places to watch football, as teams seek to earn year-round revenue beyond the 10 games they host each season. This is the second installment of the series.
In late 2019, the Tennessee Titans began exploring a renovation to Nissan Stadium. The team hired a design firm that estimated it would cost $500-$600 million to bring the venue, which opened in 1999, up to the latest standards.
Two years later, amid the disruption of the COVID-19 pandemic, the team hired two construction firms to fully price the project. The results were a bit more dramatic. The renovation would cost about $900 million, they estimated, with another $900 million likely needed in the future to cover the 18 years remaining on the Titans’ lease.
Faced with that new reality, due in part to dramatic inflation of both labor and materials, the Titans switched their focus. Negotiations with the local Metro government of Nashville and Davidson County, which owns the stadium and is contractually responsible for its upkeep, shifted to the possibility of a brand new stadium, one built from the ground up with the most up-to-date technology and hospitality trappings. The two sides eventually reached an agreement on a $2.1 billion project—a price just 15% higher than the full renovation estimates—funded by $840 million from the team, $760 million via revenue bonds and $500 million from the state.
“Once we realized that the renovation costs were not too far off from the cost of a new stadium, and that we’d have to revisit that conversation again before the end of the lease, it became clear that we need to pursue another option,” Titans spokeswoman Kate Guerra said in an interview.
Other NFL teams may soon follow Tennessee’s lead. Stadiums have never offered more revenue opportunities than the modern, suite-laden ones currently being built by billionaire owners, often with major government contributions, and more than half of NFL teams are considering major renovations or full-scale replacements to their current homes.
The projects have also never been more expensive. Experts estimate that inflation alone has boosted the price of big projects by some 35-40% in the past few years. And while that may deter big spending for residential or commercial real estate, it could have the opposite effect in the NFL, nudging teams away from more modest renovations and toward new multibillion-dollar builds.
“The bang for your buck in doing a major renovation often isn’t there,” said William DiBlasi, head of the Inner Circle Sports stadium and arena finance practice, which advised the Nashville government. “You could end up with a project that costs 80% or more of a new building but generates substantially less additional revenue and has a shorter useful life. It’s easy to think, ‘I’ll put in $300 million or even $500 million and have a building that feels brand new,’ but for older buildings, that’s just not the world we’re in.”
Of the 32 NFL teams, 21 play in stadiums that are more than 20 years old. And many of those buildings are municipally owned, with leases that leave the local government (or taxpayers) on the hook for future renovations. In the Titans’ case, that created an incentive for the local government to come to the table on a new building, since it was already responsible for hundreds of millions under the terms of the lease. (Sportico will dive deeper into stadium financing later in this series.)
By most construction standards, two decades isn’t that old—though some concrete in the Titans’ home is crumbling—but NFL owners have different standards. Teams with more modern stadiums have been able to build them specifically with an emphasis on sponsorship opportunities and luxury hospitality, categories that each make up about 25% of the average NFL franchise’s local revenues.
NFL teams only keep 66% of standard ticket revenue (the rest goes into the league-wide revenue sharing pool), but they keep a much larger percentage of sales from premium tickets like club seats and luxury suites. Most older stadiums weren’t built with that in mind, which is why many recent NFL renovations—such as the newly-done $100 million project in Denver or an upcoming $450 million renovation in Baltimore—have premium seats as an area of specific focus.
New venues are also typically built to host other types of events. The new Titans stadium, which will have a dome and more back-of-house infrastructure, is projecting to have about 48 major ticketed events per year, up from 28 last year at Nissan Stadium. The NFL average, according to economist Victor Matheson, is 12.5.
“A lot of these stadiums are being used for more than just 10 [NFL] games,” Browns owner Jimmy Haslam said in an interview. “You’re going to start seeing more of that, not less… I’m not a real estate developer, but I instinctively think that train will continue.”
Outside of planning expenses for design and architecture components, there are three main buckets of cost for major stadium construction: 1) raw materials 2) labor 3) the profit margins for contractors. Both 1 and 2 have increased dramatically since the start of the pandemic. The profit margins are harder to measure, experts say, because contractors and sub-contractors are often willing to work a stadium project at more favorable terms because of the marketing benefits and the public nature of the work.
Labor costs are increasing but in largely predictable ways. Big projects like NFL stadiums are typically handled by a union labor force, which operates under multiyear collectively bargained agreements that include set wage increases. Those wages did increase during the pandemic, but experts say that construction labor has tracked with the more general national trend of wage increases that haven’t kept pace with the rate of inflation.
Raw materials have been the most impacted by pandemic-era inflation. Steel and concrete are typically the most important commodities for an NFL stadium project, followed by raw materials like aluminum, glass, copper and wood. Ingredients for concrete are often sourced locally, while steel is typically ordered from national or international producers, who create it from scrap. To reach a build site, steel goes from the producer to a fabricator to an erector, multiple steps that complicate the cost.
Unlike wage increases, steel and iron price jumps have tracked higher than inflation since the start of the pandemic. They’ve also outpaced the general inflation across all commodities, according to data from the U.S. Bureau of Labor Statistics. Costs peaked in November 2021 and have oscillated since, but they remain about 50% higher than in August 2019.
“Steel has been the most volatile,” said Steve Collins, president of global venue development and special projects at Oak View Group, the world’s largest developer of sports and entertainment venues.
Most commodity prices are also influenced by regional considerations, Collins said. During the construction of the University of Texas’ new $338 million basketball arena in Austin, for example, OVG was competing for resources with the construction of Tesla’s new 10 million-square-foot “Gigafactory” headquarters on the capital’s outskirts. That’s a contrast to OVG’s ongoing Las Vegas arena project, which Collins said is happening at a relatively slow time in city’s building schedule, resulting in some lower costs.
Mitigating downside risk of volatile commodities costs is top-of-mind for team owners and the experts they hire to run these projects. The insurance markets, for example, have adjusted to the industry’s inflation, resulting in both higher rates and increased sums insured.
Almost all major sports projects include what’s called a guaranteed maximum price (GMP) contract, which theoretically commits the contractor to a price ceiling. But those aren’t always ironclad, and the timing of that contract can often be critical. For example, they’re sometimes signed to cover both the design and the build, allowing a buyer to lock in prices early by placing a steel order near the beginning of the planning. That could shelter a project from later price hikes, but could also result in much higher added costs if the design or construction plans change after the order is in.
When the Golden State Warriors began planning the $1.6 billion Chase Center nearly a decade ago, the team considered trying to hedge the price of steel at the beginning of the project. Ultimately the group decided that it wasn’t worth it, according to TMG Partners partner Peter Bryan, who at the time was the Warriors’ vice president of construction and development.
One issue, Bryan said, is that while new stadiums and arenas are big projects, they’re nowhere big enough to impact a seller like Nucor (NYSE: NUE) or U.S. Steel (NYSE: X) in a meaningful way.
“A typical arena or stadium is 15 to 30,000 tons of structural steel,” Bryan said in an interview. “Historically, you could buy a lot of that at $1,400 per ton from the mill, so that’s $21 to $42 million. If you look at Nucor’s recent earnings, they had $10.5 billion of steel mill sales in the first half of the year… A one-venue buyer is just such an insignificant buy to a firm like that.”
To be clear, soaring costs won’t drive everyone to new, more expensive projects. The U.S. Military Academy just delayed a planned renovation to its football stadium because current construction costs were 92% higher that initial estimates in 2019. The University of Alabama has also paused a new basketball arena projected, priced at $183 million in February, which athletic director Greg Byrne recently said was now $100 million more expensive.
But in the NFL, where stadiums function as cash registers, the next decade might prove to be different. The Raiders opened Allegiant Stadium in 2020 and led the NFL in ticket revenue the following season. That stadium cost $1.9 billion to build, about the same price that two construction firms (Turner-AECOM Hunt and Barton Malow) estimated it would cost to renovate Nashville's Nissan Stadium through the end of the Titans' lease in 2039.
Instead, the Titans, the state and the local Metro government will spend about 15% more for a new stadium. At least that’s the projected cost right now, months before breaking ground. But while the project may not be insulated from any further inflation, the city and the state are: The Titans are solely responsible for any cost overruns.
With reporting from Eric Jackson and Kurt Badenhausen.
NFL Stadiums—A Sportico Series
Part 1: State of NFL Stadiums: Smaller, Pricier, Busier Venues on the Way
Part 3: NFL Teams Find Practice Makes Perfect Sales and Sponsors Space
Part 4: NFL Stadium Financing Thrives Despite Inflation, Borrowing Costs
Part 5: NFL Premium Seating Boom Responds to Demand From Well-Heeled Fans