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Football

Orlando City SC's Not So Magical Kingdom

Orlando City's new soccer stadium deal looks too good to be true. That's because it is.

by Elliott Turner
14 March 2016, 1:12pm

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This past summer, an odd thing happened: a pro sports owner experienced a change of heart and promised to pay for the construction of a stadium for his team. It seemed too good to be true.

But let's start from the beginning. Way back in 2014, MLS side Orlando City SC agreed to move into a new downtown stadium. The city of Orlando was going to build a modest stadium for about $85 million, and then lease it to the team. The city issued $20 million in bonds for the construction costs, Orange County also promised $20 million, nearby Seminole County pitched in $2 million, and the club agreed to pay the rest and rent the stadium from the city.

In the meantime, the team would keep playing at the Citrus Bowl. But then something funny happened: attendance was so good at the Citrus Bowl that Orlando City SC's owners reconsidered their situation. They would actually need a bigger stadium—one that would cost more than $100 million. The team asked the state of Florida to cover the additional costs.

READ MORE: Is Monterrey FC's New Stadium Really the 'Environmental Crime of the Decade?'

The contours of the deal would remain the same. The lease was for 25 years and $675,000 in annual rent. Records requests by VICE Sports revealed three more key details. First, the team signed a separate "Non-Relocation Agreement" whereby they would have to pay a $20 million fine if they moved within 15 years, and at least $9 million if they moved before 2041. Second, the city would operate the stadium via the Orlando Venues agency: they'd be in charge of maintenance, but also use the stadium for other revenue-generating activities like concerts. Third, in addition to rent, there was a "break even provision" whereby if the city's stadium operating expenses ever exceeded operating revenues for any year, the club would have to pay the shortfall within thirty days even if it was disputed.

But the state money never arrived. The owners got sick of waiting, and an $85 million stadium was still insufficient. So on May 29, 2015, Flávio Augusto da Silva, one of the owners and operator of Orlando City SC, promised to pay back the taxpayers for money they'd already spent on the stadium, and construct a new downtown stadium himself. VICE Sports contributor Neil deMause, a brilliantly cynical commentator on all things stadium finance, expressed shock and awe at the new deal. Publicly, the club stated they would pay the city $18 million for the land and pay for "construction costs."

Many wondered: is this too good to be true? Sadly, the answer is yes. Extensive public record requests sent to Orlando and numerous MLS teams show just how the taxpayers are still on the losing end. Instead of renting a sports temple paid for by taxpayers, they allegedly agreed to buy the land, build the stadium, and even pay back the city. The truth is that the team found a new way to milk taxpayers.

This is the face of a man who expects to be playing in a soccer-specific stadium. Photo: Jonathan Dyer-USA TODAY Sports.

The new and still unexecuted stadium agreement I got in response to a records request shows that the club will now operate the stadium, not Orlando Venues. As such, the club will now get all revenues from events, including concerts. The deal still includes a Non-Relocation Clause, but only for a period of ten years. There is no $15 million financial penalty if the team skips town early.

The club will eat maintenance costs, but construction is far from finished. The city is still responsible for all necessary improvements to utilities, including a sewer system. MLS's own website reported on this daunting engineering task and noted that the sewers for the stadium will require an "amazing 750,000 pounds of concrete [to] form the foundations when fully complete." On February 22, the city produced a budget worksheet showing that they had spent an estimated $6.5 million preparing the site and there was still about $9.3 million left in needed utility work.

So, you say, the lease is shorter and the team no longer pays a penalty if they move. They do own the land and stadium, though, so that should deter a relocation. Perhaps. Of course, that hasn't prevented NFL, NHL, or NBA teams from relocating. Let's not forget that that the team's founding owner Phil Rawlins moved the team to Orlando from Austin after the dollars and cents ceased to add up there. Neither Flavio Da Silva nor Phil Rawlins are from Orlando—these are not local guys—and the team could change hands at any time. A new owner may be less benevolent. Most importantly, short-term deals often allow owners to renegotiate even more sweetheart terms from cities at a later date.

Even if officials are not afraid of the big picture possibilities, the tiniest details of the new deal will leave a sour taste in the mouth of Orlando-area taxpayers.

First, the math doesn't add up. The club offered the the city of Orlando $18 million dollars, according to the Orlando Sentinel. That's a decent chunk of change. Here's the problem: the recent budget worksheet, which I obtained on February 22 showed that Orlando spent $8.6 million to get the land, plus paid another $2 million on January 25, 2016 to the Community Redevelopment Agency for a one acre lot that formed part of the necessary stadium site. Also, the city has spent $6.5 million on utilities and site preparation costs, but is still on the hook for that additional $9.3 million in utilities. All that adds up to $26.4 million. $18 million is less than $26.4 million.

Things get even worse when you look at the method of payment. Recall that Orlando issued about $20 million in bonds for the stadium site as part of a large redevelopment project. Well Orlando City SC is not paying that $18 million for the land in one quick payment so the city can pay off that debt. There's no bank stepping in to handle that mortgage: just the taxpayers. In the still unexecuted contract for sale I obtained from a public records request, Orlando City SC will pay a mere $35, yes, thirty-five dollars, as a down payment and then $4.1 million at closing. The remaining money will be paid out as a mortgage, with bi-annual principal payments of $200,000, every six months starting two years after the deal is done.

So the city got shortchanged in terms of the money for land and work they've done, but at least the club will pay property taxes. That's a plus, right? Wrong. It's actually a major problem: fixed rent is often preferable to property taxes. In the original deal, the club paid $675,000 per year in fixed rent. While we can't predict future property tax rates and revenues, the current rate for city property taxes is $6.65 per $1,000 of value. Thus, for property tax revenue from the stadium to equal that $675,000 in rent, the stadium would need an appraised value of $102 million dollars.

That's unlikely. The New York Red Bull's lovely stadium is appraised at a modest $30 million. Dick's Sporting Goods Park in Colorado has an actual value of $6.6 million and assessed value of $2 million. The 25,000 seat Orlando City stadium will likely not be appraised at a value anywhere near $100 million. As a result, the team likely will pay significantly less in property taxes each year than that $675,000 in fixed rent. If the stadium is assessed at $10 million, the team will pay just $67,000 per year in city property taxes.

These fans are like "what's debt service?" Photo: Jonathan Dyer-USA TODAY Sports.

The annual payment figures matter because of a thing called "debt service." Basically, the city has to make regular payment and principal payments on that $20 million in bonds to keep borrowing costs low. As a baseline, I used public information requests to get details on the MLS stadium in Colorado. There, Commerce City issued about $64 million in bonds and their annual debt service—the payment of principal plus interest—is about $4 million dollars per year.

Commerce City earns less in rent per year from the Rapids than they pay in debt service on the stadium bonds, so, to plug that gap, the city uses money from the general fund. Here's the problem: money taken from the general fund then can't go to vital services like hiring cops and firefighters, and paving roads. By comparison, Orlando's debt service for the $20 million could easily come to $1 million per year—more than they get from the future property taxes and the biannual principal payments combined.

And that's not all. Orlando will likely get hosed by section 5(C) of the new contract: the "Additional Remediation Required/Environmental Credit," which states that the buyer is responsible for remaining construction costs—but "The Purchase Price shall be reduced by the estimated cost of such Additional Remediation." Basically, Orlando City SC can subtract many of the remaining costs of construction from that original $18 million they agreed to pay the city. This reduction will be a minimum $2.5 million, but could even equal the purchase price. Thus, Orlando City will be paying a maximum $15.5 million (not $18 million) to the city over 15 years—and could even, theoretically, pay nothing.

The thinking goes that a shiny new sports megastructure will spur a renaissance in blighted areas of the city. Sadly, in practice this seldom pans out. For example, in Bridgeview, Illinois, a single gas station opened near the new Chicago Fire stadium. The promised redevelopment in Harrison, New Jersey near Red Bull Arena has not met expectations either. More specifically, in Orlando, the Amway Center, home of the Magic opened in 2010, but the Parramore neighborhood, which is where the new stadium will also be, is still one of America's most dangerous according to the FBI.

The passionate Orlando City SC fans will soon have a soccer-specific temple to watch and worship their team. But they should also disregard the overly positive soundbites about the new deal: taxpayers are squarely holding the buck. And soon, they may come to regret it.