The 'lunacy' of DePaul's new arena plan
When news first broke about a proposed new arena in Chicago that would house DePaul basketball, with the city contributing around $100 million of the estimated $170 million construction cost, my old finance ears perked up. It's well-established that almost any public financing for a sports venues is a boondoggle, but this project seemed particularly galling.
First, DePaul is a terrible basketball program long removed from its glory days under Ray Meyer. The program definitely needs a different arena setup; the Blue Demons' current home, Allstate Arena, is 15 miles away from campus and on the edge of O'Hare Airport. But it's hard to defend new construction with DePaul as a primary tenant when the program went 7-83 in the old Big East over the past five seasons. Years of awful basketball have made the program an afterthought in a city dominated by pro sports. DePaul was offered 10 years of free rent (plus all ticket revenues) at the United Center, but turned it down.
The much more curious part of this, though, is Chicago is under massive budget pressure. The city recently decided to close 50 public schools in an effort to battle dwindling enrollment. That decision was made because many buildings are at far lower than capacity and is designed to cut costs, as Chicago Public Schools are currently facing a $1 billion (yes, that's with a B) operating deficit for this fiscal year. And that's without considering a teachers' union claim that refurbishing the existing schools will cost almost the same as what the city claims it will save through the closings.
Despite all of this, the city seems eager to push forward with the arena plan as part of a larger redevelopment project around McCormick Place, which is still approximately 50 blocks from DePaul's campus and significantly farther from the school than the United Center. It seems a reach on almost every level, and that's before Crain's Chicago Business started really digging into the plan.
In a story released on Wednesday (free registration required), Crain's wrote that it had gained access to DePaul's actual attendance headcount numbers, and that the Blue Demons drew approximately 2,900 people per game. That's well below the published attendance numbers, which were almost 8,000 per game this past season. Over the past three seasons, DePaul claimed attendance of over 127,000 while the actual headcount in the arena only totaled 41,771, according to TicketMaster scan data.
Crain's notes that the discrepancy comes from tickets sold versus actual people who show up, which isn't an unusual practice in sports, although DePaul beefs up its ticket count by included tickets the school itself "buys" for students, who can attend any games for free as long as they pay a modest semester fee. In short, no one's coming to watch, and that's an issue in terms of projections for the new arena.
City officials have claimed the arena will break even in the first year of operations and then be profitable going forward, but that's assuming that DePaul draws more than 9,000 fans a game. That's an increase of more than 1,000 per game from existing "ticket sales," even if the school continues to foot the bill for a chunk of seats reserved for its students. With a nice new arena and maybe an improving product, that jump isn't impossible, but the projections also rely on money spent by that attendance figure.
The numbers put forward are reliant upon people actually attending the games and spending money, both at the arena and at the external businesses surrounding it. It also call for people from outside the city limits to day-trip in for games and assumes hotel use as well. If very few actual people are coming to the games, there's no way for these projections of additional spend to come good. With the actual attendance figures in place, there's no way DePaul basketball will hold up its share of the projection, meaning the arena will lose money unless it can significantly overshoot projections for other events in the building.
According to this Chicago Sun-Times column, local stadium expert Marc Ganis referred to the plan as "lunacy" and "sheer folly." And Ganis was just getting started there.
"As someone who has worked on projects like these for decades, I can tell you there is absolutely no way for this to make any sense in any way. It is not in the realm of possibility," Ganis said.
I also reached out to a friend of mine who remains in the business. After taking a quick look at the plan, he replied "the assumptions underlying the economic impact study are questionable." He does not live in Chicago and isn't involved in the project in any way.
So what's going on here? Why would a city drowning in budget debt think tossing in $100 million to finance a new arena with a private school as the lead tenant would be a good idea? Why would DePaul, even with the ability to recoup some of its expenditure through a naming-rights deal, want to become a rent-payer in an arena far from campus when the United Center, with its pro amenities, was offered for free? Can DePaul, with its recent basketball track record, correctly rationalize a deal with more risk but more upside, even if the city is helping subsidize that gamble?