The unprecedented growth of stadium and arena development in domestic North America is prompting industry players to expand into smaller markets, and inspiring some to set their sights on potentially lucrative opportunities abroad. Observers note that while most North American major league teams in professional football, basketball, baseball, and hockey are playing in new buildings, there are still deals to be done.

The debate centres on whether the wisest strategy is to continue to tackle deals for major league facilities in North America, go after minor league and collegiate venue opportunities in the region, or jump into the international market for the sector. Market observers across the board do agree on one thing however, that stadium and arena development in last year may have been the best ever.

?We've had the largest stadium and arena development decade in US history by far,? says Rick Horrow, a sports industry consultant and founder of Miami based, Horrow Sports Ventures. ?There were 28 sports facilities that opened in 1998 at a cost of $1.7 billion and 35 opened in 1999 at a cost of $3.5 billion.?

The statistics made seemingly generous predictions made by the Washington DC-based, Brookings Institution, in 1997, that $7 billion would be spent on new facilities for sports teams by 2006, was too small an estimate.

?I think the trend will continue through the early stages of the new millennium with a substantial emphasis on international growth as well as the collegiate market,? says Horrow.

Neil Begley, an analyst at Moody's Investors Service in New York, was only mildly less bullish.

?We've seen a lot of activity in the last 18 months and we certainly expect a continuation in the trend of renovation and new facilities coming on line for all major league sports,? says Begley.

Despite some vocal public opposition to taxpayer support for new stadiums and arenas which resulted in a greater amount of private sector contribution and an increase in public/private partnerships ? Horrow says the move away from public financing is exaggerated.

?Today, there is less public money. The average NFL facility costs $260 million today and of that approximately $185 million or 75% is public, so while there has been a pro rata reduction, there still is a substantial amount of public financing for all of the facilities,? says Horrow. ?Twenty-three public referenda in the 1990s added $4.4 billion of public financing, and in 2000 alone, we're expecting 20 new facilities to open at a public cost of $1.9 billion, so clearly there is public participation.?

The drive to replace old facilities and/or build new ones stems from ever-rising player salaries and the ability of new state-

of-the-art stadia with numerous concessions and contracts to make money.

?So many of these sports are becoming venue driven. If you don't have a proper venue you can't survive,? explains Salvatore Galatioto, managing director and head of sports advisory at SG.

?My kids are all over me when I talk about Yankee Stadium being torn down, but they want the Yankees to win the World Series every year. Well guess what? New York Yankees professional baseball team owner George Steinbrenner needs to be able to generate more revenue if they want to keep the stars signed on,? says Galatioto.

Developers say increased private sector investment forces them to design venues that maximize revenue potential through mixed-use sports and entertainment facilities, luxury suits, club seats, novelty concessions, restaurants, retail shopping, linkages to convention centres, hotels, and even housing. The developers say both the private and public financed pressure takes the form of creating buildings that ignite broader economic development.

?They're just seen as a spur, an anchor, or an economic catalyst to a community,? comments Robert White, vice-president of business development, at HOK Sport (a subsidiary of Hellmuth, Obata + Kassabaum), St. Louis architects.

?You're looking for multiple use, more people in the building, as much as possible; because when the building's dark, nobody's making any money,? says White.

Begley says the opportunity to build stadia that can generate greater revenue through contractual concessionary arrangements are also likely to be attractive to sports franchises outside North America who are playing in old venues.

At Chase Bank in New York, Robert Tilliss, managing director and group head of Chase Global Sports Advisory and Finance Group, agrees: ?We're looking a lot overseas,? remarks Tilliss, who explains that capital market and other business development in Europe is one of the bank's key initiatives this year.

?There's still plenty of development and teams here, but if you look at the various growth levels, particularly in M&A, Europe is white hot right now. You got a flavour for that with the billion-dollar bid for Manchester United,? he says.

Tilliss, predicts this year there will be major stadium and arena financing in the UK, Germany, Italy, Spain, and Portugal, with smaller projects likely in Amsterdam and Scandinavia. He asserts that Euro-denominated countries are best positioned for access to the most liquidity and derive the most value from some of the complex financing structures currently available.

Major development financing for Wembley Stadium in London, expected later this year, is viewed by Tilliss and other market participants as an important indicator of the sector's growth prospects outside North America. As a national stadium, Wembley shares many of the characteristics of other large venues in Europe slated for development.

Although it is unclear what financing structure will emerge for Wembley and other facilities, a dazzling array of funding options are being proposed including: municipal/public funding; traditional project financing; commercial bank lending; asset backed securitization; acquisition financing; enterprise financing; synthetic leasing; and/or combinations thereof.

John Gillespie, managing director of the sports financing group at Bear Stearns in Boston, asserts asset-backed securitization is the most attractive way to finance.

?I think the securitization market that we've developed with the Pepsi Center in Denver and the Staples Arena in Los Angeles will lend itself well to soccer stadiums in cases where they have luxury boxes, naming rights, premium seating, and sponsorships,? says Gillespie.

In late April, Bear Stearns led an asset-backed securitization financing for the Staples Center in Los Angeles ? home to the Los Angeles Lakers and Clippers, pro basketball teams, and the LA Kings, National Hockey League franchise. The $315 million transaction is the second time asset backed securitization has been used for a sports facility. The first asset securitization was led by Bear Stearns last year in a $130 million transaction for the Pepsi Center in Denver ? home to basketball's Denver Nuggets and hockey's Colorado Avalanche.

Proponents of asset-backed securitization, claim it is a less expensive alternative to traditional bank loans or high-yield bonds, offering lower interest rates to sponsors, and avoiding the hassle of quarterly reporting and budgetary approvals, among other requirements.

In addition to new financing, Gillespie forecasts asset-backed securitization will spark refinancing stadium and arena deals. The MCI Arena in Washington, DC, is one such facility that may refinance under an asset-backed securitization structure.

?In order to achieve some of the changes and covenants and longer amortization and lock into fixed rates, my sense of what's coming down the pike is a few refinancing of transactions that were done with bank loans,? says Gillespie.

Not all financiers are looking at the same crystal ball, however, and some investment bankers caution against asset-backed securitization as a funding panacea.

?There's a real question as to the degree to which the market's going to accept securitization for single tenant facilities or for teams that don't have an operating history of teams like the Lakers, Kings, Clippers, or the Nuggets and the Avalanche,? warns Aaron Barman, managing director and head of the sports finance group at Prudential Securities in New York.

?There's only been those two deals done and a lot of the proponents of asset securitization were saying it's the wave of the future but it hasn't materialized,? adds Barman. ?To say it makes sense for every deal is wrong.?

The largest stadium finance deal of the year ? the $405 million Denver Broncos Football Stadium was project financed in a public/private collaboration. Led by Sumitomo Bank for Stadium Management LLC, the financing included $240 million from a sales tax revenue bond, $150 million of debt in two tranches, and $15 million put down by the Broncos as borrowing equity.

James Weinstein, managing director of project finance at Sumitomo Bank in New York, structured a project financing with refinancing in mind.

?In order to make sure the Broncos did a refinancing we made the first? $135 million tranche seven-year debt that is likely to be repaid in the first five years. The second, 15-year tranche is completely held by Sumitomo and is $15 million. The reason for that is that by having a 15-year tranche and by having us stay in for a long period it enables the Broncos to have long amortization, in theory, on the loan, which then enables them to have less debt service in the early years, and increase their cash flow,? explains Weinstein.

?At the same time, we think there are covenants to motivate the Broncos to refinance in the first five years, they still get very good cash flow and they're also getting as much leverage as possible in the first five years. This was their major objectives and we came up with a two tranche structure which worked out pretty well.?

Weinstein counters the notion that strong growth opportunities exist outside the stadium and arena financing.

?If you look at any major country around the world, except for the US, at most they have two major sports that people pay a lot of money to see, whereas in North America there are five if you include auto racing,? says Weinstein, who adds that because European sponsors literally own their teams, they are expected to carry more debt load than team owners in the US where costs of a venue are more evenly split between club seats, luxury suites, ticket sales, sponsorships, naming rights, and other sources.

Within North America market observers point to several major league finance and development opportunities in the pipeline, including: New York Yankees (baseball), New York Islanders (hockey), and New York Jets (football), New Jersey Devils (hockey), Charlotte Hornets (basketball), Orlando (Florida) Marlins (baseball), Phoenix Coyote (baseball), San Antonio Spurs (basketball), Montreal Expos (baseball), Philadelphia Phillies (baseball), Boston Red Socks (baseball), Houston (football), and Greenbay Packers (football).

At the minor league and collegiate level, industry watchdogs say even more opportunities exist.

?If there are two major league arenas with project costs of $400 million, I'm certain, just flat certain, that there are five times as many college and minor league buildings that will open or finance this year with greater dollar volume than that,? says Steve Stern, a sports development consultant in Milwaukee.

Stern, a former investment banker and member of the Denver Baseball Commission formed a sports development consulting business six months ago with Carl Scheer, former deputy commissioner of the National Basketball Association and 30-year veteran of professional sports marketing and team management. The two are primarily targeting minor league and collegiate sports facilities with seating capacities of 7,000 to 15,000.

According to Stern, who recently advised sponsors for development of stadiums in Greenville, North Carolina, and Manchester, New Hampshire, stadia development at the major league level is commensurate with the minor league level in terms of financing techniques and the ability to generate revenue streams.

Stern predicts financing for facilities in Louisiana, Mississippi, Ohio, and Connecticut, among other states.

In New York City, Mayor Rudolf Giuliani's administration announced plans in early February to finance a $70 million minor league stadium in Staten Island for the Staten Island Yankees. Ironically, the new facility for the minor league team is expected to be 100% public financed.