Unless you’ve been fully disconnected from all media for the last two weeks, you know that the Kansas City Chiefs are moving from their current location in Kansas City, Mo., to the Kansas side of the state line. For the team, this involves building a new stadium, team headquarters and practice facility. For the fans, the primary components are the stadium and the ancillary development surrounding it.
In Part I, we explored the mechanics of this project. In this post, we’re going to delve into the total cost. Remember that everything except for the numbers directly from the term sheet is an estimate intended for ballpark purposes only.
Cost Components
The following are the components of this overall project that Kansas is obligated to partially fund, along with specific numbers for their baseline commitment.
Stadium
Kansas is agreeing to fund 60% of a $3 billion stadium. Their baseline commitment here is $1.8 billion in principal.
RMMO Fund
This fund is for capital maintenance, repairs and operations, and will be funded each year at escalating levels starting at $17 million. The components of the funding are a) Kansas’ “Sports Fund,” and b) rent that the Chiefs will pay to Kansas.
In reverse order, the Chiefs’ rent* is $7 million the first year and increases yearly afterward. The Sports Fund contains revenue from tax on sports wagering in Kansas and was specifically created to steal recruit attract one of Missouri’s pro sports teams to Kansas. The best public estimates that I’ve found indicate it currently contains about $25 million, and Kansas is depositing roughly $8-9 million per year.
*It shouldn’t be lost on you that this “rent” is just money that the Chiefs are putting into a fund that they can then use for, among other things, operations. In other words, it’s money that they would pay to run the stadium anyway. It’s not going to Kansas in any meaningful sense.
Interestingly, the term sheet states that the yearly RMMO funding from the Sports Fund will be 10% of the Sports Fund’s balance. At current levels, that’s about $2.5 million.
This is one area of the term sheet where the numbers don’t add up. I didn’t major in math, but $7 million plus $2.5 million doesn’t equal $17 million. Whatever the source, Kansas is on the hook for about $10 million each year to fund the RMMO account.
Qualified Ancillary Development
This is a fancy phrase for building stuff other than the stadium. The Chiefs are “obligated” to spend $1 billion on Q.A.D. It will include the team headquarters and practice facility, likely in Olathe, which can account for $300 million* of the $1 billion.
*Note that team HQ and the practice facility generate no meaningful contribution to sales tax revenue.
The rest of it is probably restaurants and bars and hotels and other development around the stadium. At least $325 million worth of the development must generate sales tax revenue*, and at least $162.5 million of the development must be in Wyandotte County. It can also include paved or structured parking.
*Again, it should not be lost on you that “sales tax” bonds are being issued to fund development and only about a third of it is required to “generate sales tax.”
Oh, and it also doesn’t require them to do all of this until the end of 2038.
So why is this a cost item for Kansas? Because the Chiefs aren’t really obligated to spend $1 billion on it. For the first $500 million that the Chiefs spend on Q.A.D., Kansas will cover 60% of those costs. For the second $500 million, Kansas covers 65%. And if the Chiefs decide to spend another $500 million, then Kansas will cover 70% of those costs. They will do this by issuing, you guessed it, more STAR bonds.
For what the Chiefs are required to spend, the real price tag is at least $625 million for Kansas. It could be as much as $975 million if the Chiefs decide to build more.
Summary
Kansas is required to raise or otherwise fund at least $2.725 billion in this project. The vast majority ($2.425 billion) of this total will be funded via STAR bonds. The other $300 million is the estimated $10 million per year in RMMO funding. Presumably that’s coming from the Sports Fund, but if there’s not enough money there, then ¯\_(ツ)_/¯
But wait, there’s more!
That’s just the principal. The total actually repaid to the investors will also include interest on the STAR bonds. We won’t know what the interest rate on the bonds will be until they are issued, if even then. Other writers have estimated it anywhere from 4.2% to 6%. The STAR bonds for the Prairiefire district in Overland Park, Kan., were issued with 7.5% interest rates.
To calculate the total repayment obligations, I’ll use 4.5%. That’s probably optimistic, but we’re going for a ballpark here, not precision. It’s also not clear whether the repayment term is 20 or 30 years. Governor Laura Kelly mentioned 20 years in an interview, and the STAR bond statutes generally provide a 20-year term. The term sheet’s conditions precedent* pledge sales tax for the lesser of 30 years or the repayment period of the applicable STAR bond. Circular enough for ya?
*In plain English, conditions precedent are “the things that need to happen before everyone is legally obligated to do this stuff.”
I’m going to use 30 years because a) it seems things are leaning that way, and b) it’s more favorable, at least initially, to Kansas and the Locals. They would presumably prefer a 20-year maturity period so they see some sales tax benefit from this before the Chiefs are legally allowed to leverage Missouri for another new stadium, but who knows.
I’m going to assume that the principal is repaid in equal yearly installments of 1/30th the principal, plus 4.5% interest on the remaining balance. I cannot stress enough that I realize the actual repayment will be different and messier than this. We’re just aiming for a reasonably fair ballpark total cost here.
Over 30 years at 4.5% interest, the total price tag for the entire project is more than $4.1 billion.
And that’s not all!
The rest of the cost to Kansas isn’t money that it has to raise and then pay back, with interest. But the Chiefs not only keep all revenue from operating the stadium, but also almost certainly will pay zero property taxes on the stadium, team headquarters, or practice facility. Between the stadium ($3 billion) and team HQ and practice facility ($300 million), that’s approximately $35-40 million per year in additional tax revenue forfeited. Or a little more than another billion dollars over the initial 30-year stadium lease agreement.
So how do they pay for all of this?
First, let’s focus only on the $1.8 billion in bonds for the stadium. The bonds for the Q.A.D. will probably be issued later and over several years. So it’s not really fair to calculate a Year 1 debt service estimate on bonds that potentially won’t be issued until later. Just know that this number is optimistically low.
If we use my same scenario above for just the $1.8 billion in stadium bonds* at a 4.5% interest rate, then the debt service in the first year is $141 million ($60 million in principal plus 4.5% interest on $1.8 billion). So the State and the Locals* have to find $141 million in new sales tax revenue between now and then. How much is that?
*Equal yearly payments of principal ($60 million) and interest on principal at 4.5%.
Time for some more math. Using 2024 sales tax information from the State of Kansas, we know the following:
· State Sales Tax Collections from Wyandotte County: $184 million (total sales of $2.83 billion)
· State Sales Tax Collections from Johnson County: $377.52 million* (total sales of $5.81 billion)
· Total Estimated State Sales Tax Collected in Bond District: $561.52 million
*The bond district in Johnson County encompasses about 44% of the county’s total population. For estimate purposes, I assumed that sales and taxes collected correspond to population and reduced the numbers by 56% (total sales tax collected was $858 million, for total sales of $13.2 billion).
The Locals also levy their own sales taxes, of course. Here’s an overview of the estimated sales tax collections for those entities based on 2024 numbers, again assuming that tax collections mirror population.
· Wyandotte County (1.0% sales tax): $28.30 million
· Johnson County (1.475% sales tax): $85.67 million
· Kansas City, Kan. (1.63% sales tax): $46.13 million
· Shawnee, Kan. (1.63% sales tax): $23.67 million
· Lenexa, Kan. (1.38% sales tax): $17.15 million
· Olathe, Kan. (1.5% sales tax): $46.70 million)
· Locals Total Estimated Sales Tax Collected in Bond District: $247.62 million
With these numbers, we have a total of $809.14 million in sales tax collections between the State and the Locals. The State accounts for 69.4% of that total, the Locals 30.6%. Between them, they have to come up with an additional $141 million in sales tax revenue to meet their debt service obligations in my scenario.
That requires an additional $1.51 billion in sales.
Recall that total estimated sales in the bond district for 2024 were $8.64 billion. This means that taxable sales need to increase by 17% just to meet debt service obligations.
All of this is a little abstract, or at least as abstract as numbers on a computer screen can be. It’s easy to think “well, yeah, that’s a lot, but a stadium full of 65,000 people and a bunch of new bars and restaurants and hotels will bring in a lot of money. It probably works out!”
In Part III, we’ll dig into what is actually required for it to work out and provide some closing thoughts.