CONSTRUCTION IN THE SPORTS INDUSTRY – WHERE ARE WE HEADED?
CONSTRUCTION IN THE SPORTS INDUSTRY – WHERE ARE WE HEADED?
WT supported the renovation of Oracle/AT&T Park, San Francisco
Home of the San Francisco Giants, this LEED Platinum Certified park is one of the MLB's best stadiums.
In 2008 this park was selected as the 2008 Sports Facility of the Year by Sports Business Journal and Sports Business Daily.
Construction in the Sports Industry - Where Are We Headed?
WT explores the future of the construction sports industry for the North American market
The construction industry is poised for expansion. Despite the fluctuation of steel prices, the construction industry has an opportunity to grow its influence by further tapping into college level sports and the newly born social phenomenon of Esports. In this article, we investigate how the construction industry has been impacted by newly imposed steel tariffs. We then dive into the continual development of college sports culture and their emphasis on mixed use facilities and conclude by exploring the possibilities Esports and their accompanying infrastructure demands can have on economic growth.
By Nick Conte
Sports have fostered a longstanding, rich heritage based in North American culture and tradition. Development and innovation have shaped the North American market into the world super power it is today. What happens when these two precedents collide?
PART I – STEEL
The past several years has proved exceptionally difficult in tracking the U.S.’s tariffs on imported steel and aluminum. With tariffs ranging from 10-25%, it is important to analyze the impact they have had on the construction industry. While additionally bearing in mind the increase in tariffs were implemented as an effort to strengthen the U.S.’s domestic steel economy and consequentially minimize dependence on foreign producers of aluminum and steel. The United States is not only the largest importer of steel in the North American market, but in the world (Archinect, 2018).
Leading up to the tariffs imposition in 2018, industry leaders predicted significant cost increases for ‘critical inputs’, (Equipment FA, 2019). We have reached the one-year benchmark, allowing us to evaluate these predictions. Predictions overall proved to be accurate regarding an increase in materials. Below are statistics taken from the Associated General Contractors Association who tracked the Bureau of Labor Statistics Producer Price Indices. All data was taken from Equipment Finance Advisors (2019). According to their reports from November 2017 to November 2018:
Fabricated structural metal costs grew 12 percent.
Metal bar joists and rebar rose 12.6 percent.
Structural metal for nonindustrial buildings climbed 13.1 percent.
Fabricated structural metal for bridges increased 5.5 percent.
Aluminum mill shapes climbed 5.9 percent.
The overall increase in cost for steel has proved to complicate projects heavily reliant on the material, such as sports stadiums and/or arenas. Steel reinforces structural concrete and provides essential structural framing. As illustrated the most significant impact was on structural steel (Archinect, 2018 and Equipment FA, 2019). The cost of structural steel can be broken into four parts:
Raw material costs;
Erection on site.
Steel’s inflated price has had a ripple effect on each stage life; however, the two stages subject to the most inflation are raw material costs and fabrication. Delivery and Erection on site are not directly affected as they are more heavily reliant upon diesel and labor rates rather than the direct cost of steel.
The increased cost on raw steel will has an evident impact on the overall cost of a project. It is estimated the increased tariffs and price will result in roughly 1-5% increase of the project’s overall cost (Archinect, 2018 and Equipment FA, 2019). A 5% overall project increase can result in a substantial surge in project cost ranging from hundreds of thousands to millions of dollars.
The North American market is additionally facing tariffs on lumber, aluminum along with a range of other construction related products from China which assist in swelling overall project cost.
Changes in the construction industry have been exacerbated by the tense geopolitical environment and subsequent trade wars which cast an ominous fog over the long-term impact of tariffs on steel, and other imported and exported products. This inclement climate can drive contractors, sub-contractors and developers to inflate their bid prices to cover the risk of oscillations. We can expect prices will continue to incrementally increase as the North American market shows no serious signs of heeding as market demand remains robust. However, should the market take a downturn, the impacts of these tariffs may be more dramatic.
What does this mean for stadium development?
It is too soon to make a final determination on the long-term impacts of the tariffs. There is no doubt steel, aluminum and lumber are vital components to the construction industry. We can expect steel cost assumptions to be scrutinized as we continue to monitor market conditions. As a best practice, WT highly recommend all assumed steel, aluminum and lumber costs be revisited and project contingencies be adjusted appropriately.
As the prices of steel continues to grow in the North American market – the sports industry continues to evolve. Let’s face it – competition, most commonly expressed through sports, is embedded in our DNA. Construction, expansion and development seem congruently deeply embedded in us. The construction of the Roman Colosseum proved to be an emblematic marriage between these two. The Colosseum has proven to be a timeless part of the city’s social fabric. Sports stadium continue to be symbolic of the seamless combination between competition and construction.
The great sports facilities have traditionally been tailored towards the professionals however, the industry has noted a shift within sports populous, which supports they may soon be surpassed by college sports.
PART II – COLLEGE SPORTS
Over 100 million people tuned into March Madness this year (NCAA, 2019) proving how influential American College and University level sports have become. Four of the top five largest sporting facilities in the world are in the US – and all of them are slated for college sports with the capacity for over 100,000 hungry spectators (The Daily Telegraph, 2019). The American College football industry grossed over $1.7 billion in 2016 and initial estimates forecast the college sports industry as a whole to be worth $13 billion (Bloomberg, 2017). Some of the largest stadiums in the industry have completed north of $400 million renovations in the last ten years (CNN, 2018). It’s fair to say – college sports in the United States is big business and it doesn’t appear to be slowing down anytime soon.
The college sports industry is continually evolving as a result of the inherently competitive nature of the industry. To be a national competitor – schools are sparing no expense to support their teams. Modern era stadiums, fields and arenas must now be complemented by state-of-the-art practice facilities, professional-quality locker and trainer rooms, players’ lounges and as many luxury amenities feasible to attract the best and brightest talent possible.
To facilitate a return on their investment, institutions are shifting their emphasis to mixed-use development versus traditional, single function facilities. The success of creating entertainment districts through mixed-use development is already well established in the professional sphere, but it is quickly emerging in at the college level. Congruently with the projected arrival of mixed-use development, universities are focusing on creating centralized and diverse performance enhancing facilities. These multi-use performance facilities have the capacity to not only entice prospective student-athletes but cater to their diverse needs and training regiments – while simultaneously anchoring retail, hospitality and restaurants.
The epitome of this may be Clemson University’s extravagant $55 million ‘home away from campus’ for their men’s football team (Chicago Tribune, 2019). The facility boasts a mini golf course, barber shop, laser tag, bowling lanes, a movie theater and many more lavish components.
Clemson University is a prime example of there has been a shift within the industry and how college sports are leaning towards mixed use infrastructure development, and the sports construction industry as a whole is focusing on more effectively augmenting user experience to create more memorable experiences that appeal to a wider audience. This is achieved through improved ticket purchasing, facilitating travel to and from the stadium, fan engagement during the game and creating a more wholesome, appealing and diverse game-day experience.
PART III – NEW EVOLUTIONS
Emmitt Smith’s words resonate with the athletes in all of us. Cultures at a global level have utilized sports and competitive events as an avenue for cultural expression. Most every nation has its favorite sports pastime. For many countries it’s soccer or football. For others it’s cricket or rugby or hockey. Universally, a nation’s culture and respective communities maintain a sports and competition history.
On a macro level, sports have proven to be a vehicle for uniting nations who rally behind their team. On a micro level, sports can bring together communities, friends, families and even complete strangers.
Sports have historically continued to evolve. We are beginning to see a shift in sports populous. America’s favorite pastime, baseball, was previously popularized with the commercialization of the radio. Interest in football came to prominence with the proliferation of television. Basketball has seen an uptick in engagement with the rise of social media. However, the infrastructure to accommodate all of these sports is already well established. But what about new sports? The shifts in potentially new environments for sports to be consumed, point to expansion within the North American market and technology may be the contributing factor once again.
Esports and Fantasy sports seem to be gaining more and more traction within the North American sports industry. The Chinese, Japanese and Korean markets have a preexisting and well-established demand for Esports. Esports are a form of competition using video games or virtual reality games as their platforms rather than fields or courts. Most commonly, these forms of competition involve organized multiplayer games or individual adventure-based games and can take on numerous formats. Esports maintain the structural level found in traditional sports –professional, amateur and recreational. Individual competitions, team wars or tournament settings are also commonplace.
Esports building momentum is a new phenomenon, as they were primarily played on an amateur level until the 2010s. However, the recent interest and growth in Esports has proven to be massive. In 2015 – there was a total of 230 million viewers of international Esports competitions. In 2016- the total amount of viewers increased to 292 million. In 2019 audiences are predicted to reach 427 million total viewers, nearly double what it was four years ago (ESPN, 2016). Major sports channel ESPN now hosts an Overwatch League, a nationally televised league of athletes duking it out for the top spot as a result of the increase in interest.
Esports are not only attracting viewers, but they are backed by big monied interests. In 2017, the Overwatch international competition drew over five million viewers and had a combined tournament purse of $24.6 million – including $10.8 million for the grand prize (BDC, 2018).
Esports have proven to be incredibly lucrative in its first ten years of existence. International competitions merit internationally recognized arenas, and while a handful of venues like Esports arena in Santa Ana and the Blizzard Arena in Los Angeles exist – these venues are an indication of Esports arena potential, with unlimited bandwidth for advancement.
Determining what amenities, the typical Esports fan is looking for at events poses potential difficulties – traditional sport venues have had decades to collect information on what fans want and expect when attending a game. There are immediate differences between experiences too; with traditional sports, fans pay more to be closer to the field, players and coaches. In Esports, some of the closest spectators may have the worst view as the action is streamed on mega screens thereby changing the conventional way of viewing sporting events.
Merchandising can also prove to be challenging– sports teams’ logos can be found on an array of manufactured goods such as cups, jerseys, pants, key chains, bottle openers, candles – you name it. Esports doesn’t adhere to the same model of sponsorship to design, fabricate, distribute and sell their merchandise. There has been a documented shift within Esports as more money is injected to this process.
Esports also faces another unique challenge – Esports can be played from any location, including from the comfort of your own home. Worth consideration is examining why Esports fans would pay hard earned cash to view live, what you could stream, many times for free, at home? The solution might be something we have already touched on – improvement in user experience. Mixed use development provides an immediate solution. These facilities have the potential to be uniquely designed. Venues can evolve to support social spaces where fans can migrate to different zones, experiment with new games or technology, interact with like-minded fans or even meet some of their favorite players. By creating facilities where players and spectators can celebrate a digital gladiatorial-like event, the construction industry can capitalize an already on-going social phenomenon.
With ongoing development focused on stadia, it begs the question – what about Esports training facilities? Will colleges across the country invest $400+ million on a new venue or an arena redevelopment to accommodate these types of events? Or $55 million for a gamer lounge? Simply put, yes.
These types of facilities are already popping up around the world. In Los Angeles, the Alienware Training Facility broke ground in 2017 – sporting a 9,000 square foot training ground that boasts the most advanced technology for their athletes with the capacity to integrate the newest technology as it advances. The Sandbox Esports facility, run by Catalyst Sports and Media, is housed in a 96,000 square foot sports facility. A $400 million arena may not exist yet, but someday soon it will. The construction industry has a new landscape to navigate. The demand for Esport specific infrastructure is on the rise and the construction industry needs to step up to the plate to meet the demand to navigate the changing landscape.
The cost of building materials continues to increase worldwide. Some analysts estimate that costs may have risen by as much as 9% over the last year. Materials driving this rise in costs include steel, iron, steel mill products, and softwood lumber. Expect materials costs to continue rising into 2019, due to a decrease in supply and an increase in demand. (Initiafy, 2018)
Excluding capital investment, labor and imports, total input costs for overall construction increased 4.9 percent in the November 2017 to November 2018 period. No construction industry sector was excluded from input cost increases. Nonresidential construction costs rose 4.9 percent. Industrial structures climbed 4.2 percent. Residential construction costs increased 4.8 percent, and highway and street construction input costs grew the most at 6.2 percent. (Equipment FA, 2019)
Crowds of 100,000-plus have become commonplace in college football thanks to extraordinary renovations and multimillion-dollar projects. (NCAA, 2018)
NFL Hall of Fame Running Back Emmitt Smith, remarked:
For me, winning isn’t something that happens suddenly on the field when the whistle blows and the crowds roar. Winning is something that builds physically and mentally every day that you train and every night that you dream.
According to the 2017 Global Esports Market Report, Esports revenue is expected to reach $696 million in 2017, a 41% rise over the 2016 figures. By 2020, that number will nearly double, to $1.3 billion, says the report’s author, Esports market research firm Newzoo. (BDC, 2018)
The construction industry is strong and still growing in spite of the imposition of steel tariffs and other economic deterrents. As previously mentioned, the construction industry is volatile, and costs are subject to fluctuation. However, construction and sports have withstood the test of time. Collegiate sports organizations continue to spend as Basketball and Football grow, meriting renovations and new lavish amenities. Mixed- use facilities are paramount to ensure the continued survival of sports stadiums. It’s estimated that over the last 20 years, more than $12 billion of sports construction and renovation development has been anchored to mixed use facilities. With the advancement of technology, and the rise of Esports, mixed use facilities strive to augment user experience. The construction industry will soon be pivoting towards accommodating Esports.
WT Partnership is one of the fastest growing advisory firms in North America. WT was founded in Australia back in 1949, WT is known as the oldest start-up in the industry and has been a force in North America since 2015. Ranked in the Top Two Global P3/PPP Technical Advisory Firms by Inframation in 2017/18 and WT currently manages $6.5 billion dollars of active mega projects across North America.
Archinect. (2018). The Steel Tariff and Construction Cost: Putting It Into Context. [online] Available at: https://archinect.com/news/article/150058852/the-steel-tariff-and-construction-cost-putting-it-into-context [Accessed 24 Apr. 2019].
BDC “Building Design + Construction”. (2019). Gamers paradise: The rise of eSports arenas. [online] Available at: https://www.bdcnetwork.com/gamers-paradise-rise-Esports-arenas [Accessed 29 Apr. 2019].
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ESPN (2016). 427 million people will be watching esports by 2019, reports Newzoo. [online] ESPN.com. Available at: http://www.espn.com/Esports/story/_/id/15508214/427-million-people-watching-Esports-2019-reports-newzoo [Accessed 27 Apr. 2019].
Initiafy. (2019). US Construction Industry Overview | 2018-2019 | Contractor Management | Initiafy. [online] Available at: https://www.initiafy.com/blog/us-construction-industry/ [Accessed 29 Apr. 2019].
NCAA. (2019). March Madness: The 2019 NCAA tournament scores across all platforms | NCAA.com. [online] Available at: https://www.ncaa.com/news/basketball-men/article/2019-04-09/march-madness-2019-ncaa-tournament-scores-across-all [Accessed 29 Apr. 2019].
NCAA. (2019). The 25 biggest college football stadiums in the country | NCAA.com. [online] Available at: https://www.ncaa.com/news/football/article/2018-07-30/25-biggest-college-football-stadiums-country [Accessed 29 Apr. 2019].
Patterson, T. and CNN (2019). Eye-popping college football stadium pricetags. [online] CNN. Available at: https://www.cnn.com/2018/09/28/us/expensive-college-football-stadiums/index.html [Accessed 29 Apr. 2019].
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