Developer: Proposed Indy Eleven stadium won’t need more state support

The owner of the Indy Eleven soccer team said he is confident his plans for a new stadium downtown won’t hinge on asking for more state tax dollars than he has already been promised. That’s despite cost increases the project has seen since the Legislature agreed three years ago to help fund it.

The 20,000-seat stadium is one component of Ersal Ozdemir’s $1 billion Eleven Park mixed-use development planned for the Diamond Chain manufacturing site along the White River. And while the stadium is expected to be the costliest element of the development—it has a price tag now estimated at $200 million to $250 million—it’s also the only part so far that has been pledged public funding, with up to $9.5 million from the state each year going toward debt service.

The state made that commitment in April 2019 as part of sweeping legislation that subsidized construction or expansion of various public facilities—not only Eleven Park, but also the Indiana Convention Center and Gainbridge Fieldhouse (then known as Bankers Life Fieldhouse).

The law allows the city of Indianapolis to create a professional sports development area, a taxing district that would funnel state admissions, sales, innkeepers and income taxes generated within Eleven Park district to make payments on bonds issued to pay for the stadium. But back in 2019, the stadium was projected to cost $150 million—about two-thirds of what its price tag might be by the time construction begins.

Still, an IBJ analysis found that if the project’s all-in cost—including fees, overhead and actual construction—comes in around $242 million (at an interest rate of 3% or less), Indy Eleven would be able to maximize the amount it receives from the state without having to shell out more of its own money to cover overruns.

That’s because the cost after accounting for debt service and interest payments for the project would be around $379 million, with annual debt service payments around $11.9 million (including about $9.5 million from the state) over a 32-year period.

That assumes Ozdemir’s larger Eleven Park development generates enough tax revenue. The law caps what the state will put toward the stadium’s costs annually, but there’s no minimum promised to the bonds. That means Indy Eleven, its investors or the city would have to make up any difference.

City officials say they remain in negotiations with Ozdemir and his development firm, Keystone Group, about the project.

Ozdemir, for his part, told IBJ he doesn’t anticipate a need to ask the state for more money.

“Both the city and the state have been tremendous partners in enabling the creation of a new [professional sports development area] for Eleven Park, and we remain confident in the structure of this historic public-private partnership,” Ozdemir said in an emailed response to questions from IBJ regarding the project’s funding.

“We look forward to working with both the city and the state to bring this project to fruition,” he added in emailed answers to questions. “But there are no current conversations regarding additional action from the Indiana General Assembly.”

Still, Ozdemir said that given the early stages of design of the stadium and private development at Eleven Park, “it is simply too early to speculate on specific aspects of the project’s financial structure.”

A pricey proposition

Ozdemir said earlier this summer that his goal—assuming Keystone wins city and state approval for its plans—is to start construction of Eleven Park early next year.

Ozdemir said the stadium would be completed by spring 2025, in time for that year’s home opener. He said he intends to build a 20,000-seat stadium, a bit bigger than the 18,500-seat stadium he first presented to lawmakers when he sought public funding in 2015. But inflation and quirks about the Diamond Chain site have driven up the costs to what Ozdemir now estimates will be $200 million to $250 million.

And he acknowledged that price tag could go higher, given rising interest rates and continued cost increases in the construction industry, for both supplies and labor. Interest rates on municipal bonds are generally lower than what consumers pay on home mortgages, but experts say bond rates are also influenced by the Federal Reserve’s guidance, though not directly connected.

Each of the past two quarters, the Fed has increased interest rates by 75 basis points.

“Municipal rates will move with that, based on the nature of how interest rates work, and the trickle-down effect of borrowing money from other parties,” said Chris Reckley, director of acquisitions for Indianapolis developer Buckingham Cos., who also confirmed the findings of IBJ’s stadium cost analysis.

Costs for construction materials—such as lumber, concrete and steel—are some 40% higher than they were at the time of Indy Eleven’s original cost projections. And workforce shortages mean construction workers are getting paid more and often working overtime, further raising the cost of projects.

To cover rising costs, Ozdemir will likely be forced to put up more of his own money for the project, find additional investors or turn to the city for additional incentives to close the funding gap. It’s likely he’ll use a combination of options.

It’s also possible the city could commit to pay for some of the infrastructure for Eleven Park, as it has with other major developments, including the Elanco Animal Health headquarters being constructed at the former GM stamping plant, just west of the Eleven Park site.

“We’ve been in discussions about a mixed-use stadium village with the Indy Eleven dating back to 2019,” city spokesperson Mark Bode said in a statement to IBJ. “We are looking forward to more specifics around plans at the Diamond Chain site, but it’s too early to offer comment on the city’s participation.”

A little more leverage

Although Ozdemir told IBJ he doesn’t anticipate seeking additional state revenue, observers say he might get more cash if he asked for it.

Doug Noonan, a professor of economics at IUPUI’s O’Neill School of Public and Environmental Affairs, said Ozdemir and the state are likely to renegotiate some terms of their original deal—which would require changes in the 2019 law—as the project evolves and the cost changes.

He said once the project gains some steam, it’s more likely the state would compromise.

“Would anyone have the ability to walk away and actually have leverage in that negotiation? Would the state or local side really be willing to stick to the original budget, or will they give in and end up giving more? Just because we have whatever is written now doesn’t mean it can’t change in the next [legislative] cycle,” he said.

Former state Sen. Luke Kenley, who chaired the Appropriations Committee for decades, presided over several stadium-funding debates at the Legislature and pushed Ozdemir to commit more of his own money to the project. The law to fund the project passed after Kenley retired in 2017.

Kenley told IBJ that Ozdemir has far more leverage now than he did in 2019—and significantly more than when he first asked the Legislature in 2015 for funding. He said that’s mostly because Ozdemir now has a site for the project, which he purchased last year, and has committed to putting more into the commercial portion of the project.

Ozdemir’s Keystone Group has also announced and completed a number of high-profile projects in the years since he first came to the Legislature, including The Olivia and Sophia Square, both retail projects in Carmel, and the redevelopment of the office tower at 220 N. Meridian St. into high-end apartments. The firm this year also won city approval to build The Alexander at the Crossing, a $168 million project near Keystone at the Crossing that would feature luxury apartments, extensive retail, office space, town houses and a hotel.

Kenley said it’s likely the Legislature’s budget leaders didn’t think when they approved the 2019 law that Ozdemir would be able to bring the stadium to fruition.

“I think they felt fairly safe, and they made him an offer, but thought it wasn’t really going to happen,” he said “He’s showing more strength, through his persistence and the success he’s had in his private business. So, he’s got a little stronger of a case there.”

Study discrepancies

Key to the project’s funding—no matter the final cost—is the tax revenue generated by residents, shoppers and fans within Eleven Park to help pay off the bonds for the stadium.

Research conducted in late 2018 by LWG CPAs and Advisors and paid for by Ozdemir projected that Eleven Park could generate $11 million to $18 million a year in state taxes that would be available for stadium bond payments. Ozdemir presented those numbers to lawmakers in arguing for the 2019 law.

But a 2019 fiscal analysis by the state’s Legislative Services Agency projected that the district would generate only $1.8 million to $2.5 million annually toward bond payments. That’s far less than the $9.5 million cap legislators eventually put in the law.

The project’s supporters point out that the state analysis included an 18,500-seat stadium, rather than a 20,000-seat stadium, and that it did not consider tax revenue that would be generated by people actually living in the district. The state analysis included taxes generated only at the stadium and at a team training facility, Indy Eleven offices and a 200-room hotel.

The full scope of the Eleven Park project as currently proposed includes several hundred apartments, more than 100,000 square feet of office space, retail spaces, two parking garages and multiple public green spaces.

When the Legislative Services Agency released its analysis, Tim Phelps, then a spokesman for Eleven Park, said the study “presents a highly incomplete view” of the development that “does not include the full project scope.”

Ozdemir told IBJ he has requested updated projections from LWG CPAs and Advisors that will take into account not only the increased stadium costs but also changes in the scope of the project.

Several experts contacted by IBJ said Eleven Park should generate enough revenue under the state law to keep the project feasible.

“I think, given the scale of the investment and all the activity that will be catalyzed by the project, there’s going to be sufficient revenues and sufficient fiscal activity to allow the financing to come together,” said Jacob Everett, a site selection and incentives consultant at Indianapolis-based McGuire Sponsel. “It’s not 100% clear exactly … how they’re going to do all that, and they may still be working through it, but I think there’s enough there to make it happen.”

But others are less confident that Ozdemir and Keystone can pull off the project without additional state investment.

“It’s very clear both that interest rates are going up and that we’ve seen significant increases in construction and development costs,” said Heywood Sanders, a University of Texas at San Antonio economics professor whose expertise is in public facilities like stadiums and convention centers.

“It’s easy for them to say they’re not going to go back to the state,” Sanders said. “But if things turn out to be more costly, what’s to stop the team from going back to the state Legislature or going back to Indianapolis and saying, ‘This is a really important project. We need more money to make it happen.’? It’s a deal with no penalties for overpromising and underperforming.”

Stadium spending

Sanders has been critical of many of the deals Indianapolis has struck for its public venues over the years, including Lucas Oil Stadium, for which the state contributed $630 million. Those bonds are paid with revenue collected from an existing sports development zone.

He said public subsidies for stadiums are generally a bad deal for taxpayers.

And for teams in the USL Championship league, where the Indy Eleven play, big subsidies are unusual. Then again, few of those stadiums are as large as the one Ozdemir is proposing. In fact, the Indy Eleven stadium would be the largest soccer-specific facility—by a wide margin—for a league member.

The largest stadium now is Lynn Family Stadium, which seats just more than 15,000 people and is home to Indy Eleven’s USL foe Louisville City FC and National Women’s Soccer League team Racing Louisville FC. The $65 million facility received $30 million from the city and state for site acquisition and infrastructure improvements.

Birmingham Legion FC plays at a $175 million stadium opened last year in the Alabama city’s downtown corridor. That 47,100-seat stadium was built entirely with public dollars, but its primary tenants are the University of Alabama-Birmingham’s football team and the recently revived United States Football League, a springtime counterpart to the NFL.

Andrew Zimbalist, a professor in the department of economics at Massachusetts’ Smith College, has followed sports business for more than four decades. He’s not confident the project proposed by Indy Eleven will ever reach its full potential and expressed concern that taxpayers will be left footing the bill.

He said new stadium districts pull activity from other parts of the city, shifting taxes being paid in one area to another. He said they don’t generally add money to the economy overall.

“It’s highly problematic,” Zimbalist said. “When you create these special tax districts, and you say you’re going to use the tax revenue from that to finance the … bonds, what happens invariably is that the activity that takes place within this district is coming at the expense of activity that would otherwise take place elsewhere in Indianapolis.”

He said that, just because Indianapolis has a history of subsidizing sports stadiums, doesn’t mean it should do so for the Indy Eleven stadium—particularly not when the team isn’t playing for big crowds or in the top division of the professional ranks.

Through the first 11 home games of this season at IUPUI’s Michael A. Carroll Stadium, the team’s current home, Indy Eleven is averaging 7,450 fans per game. It averaged just under 12,000 in its final season at Lucas Oil Stadium before the pandemic.

Still, Buckingham’s Reckley said it’s sensible for Indy Eleven to seek a bigger stadium because the Eleven Park district will be a draw in itself. He also said the proposed venue’s size will allow for more events to be held there.

“Looking at it on a larger scale, [the size] opens up a lot more opportunities for them as a revenue driver, versus just looking at the soccer team on its own,” he said. “There’s probably some middle ground there that Indianapolis may have some appetite for—especially if you’ve actually got kind of a campus setup. It’s something of a ‘Build it and they will come’ mentality.”

MLS rebirth?

For years, Ozdemir has pursued the possibility of Indy Eleven’s becoming an expansion franchise of Major League Soccer, the sport’s top division in the United States. But on multiple occasions, the league has rejected his overtures, in part because the team has lacked support for its own venue, but also because of its proximity to other teams in the Midwest.

Ozdemir has insisted that talks of joining Major League Soccer are now on the back burner. But some experts say his stadium proposal says otherwise. The stadium would be as large as some of the smaller stadiums in the MLS and significantly larger than most stadiums in the minor leagues.

David Ridpath, a professor of sports business at Ohio University, said the stadium’s size could help Indy Eleven make the case to join the MLS.

“Look at Cincinnati as a template: They were the biggest, baddest team in the USL and had some success, built up a good fan base—it was a no-brainer for the MLS to take them,” he said. “If Indianapolis does that, they certainly would be pretty attractive on that list.”

Still, he acknowledged, “MLS wants to be careful with expanding too much. But if you’re in the USL, you want to try to be as good as you can, then maybe you can leverage that success into an MLS franchise.”

FC Cincinnati itself last year opened TQL Stadium, a $250 million, 26,000-seat facility in the western part of that city’s downtown. The project received $53 million in direct subsidies from the city and state, though television news channel WCPO reported the actual public tally, including abatements, is likely closer to $213 million over the next 20 years.

Other MLS stadiums have received public subsidies in recent years, including the Columbus Crew’s new facility in that Ohio city’s downtown. About half the $314 million was covered by city bonds.

Nashville, Tennessee’s 30,000-seat stadium, which opened earlier this year, didn’t receive any public funding. And it’s still unclear how much St. Louis taxpayers will pay for their city’s proposed soccer stadium.

The soccer stadium project that might be closest to what Ozdemir is proposing to do is in Florida, where Inter Miami CF is part of a $1.3 billion mixed-use project called Freedom Park. That project, set to open in 2025, will include a 25,000-seat stadium; about 58 acres of public parks; and 1 million square feet of retail, hotel, office and other commercial spaces.

None of that project is expected to receive direct public funding, although the city is providing the land through a 99-year lease.

“Don’t do what many other cities have done and say, ‘Build it and they will come,’” Smith College’s Zimbalist said. “Get a commitment from MLS—there’s no reason why Indianapolis shouldn’t be able to host an MLS team and get a commitment for that. Then, negotiate a deal that’s acceptable.”•