Municipal bonds are increasingly used to finance stadium projects, offering investors a unique opportunity with potential for higher yields. Despite common misconceptions, these bonds are often backed by secure revenue streams and are typically investment grade. This article explores the benefits and risks of investing in stadium bonds, highlighting the Nuveen All-American Municipal Bond Fund as an example.
Americans are gearing up for Sunday's Super Bowl, but they may not be aware that they can also invest in bonds that help make stadiums and the areas that surround them a reality. Municipal bonds have become a significant part of building new stadium projects because these undertakings are seen as an important part of the local economy, explained Dan Close, head of municipals at Nuveen . The bonds themselves help pay for essential infrastructure such as roads and public transportation.
The assets are favored by high-income investors since the interest is exempt from federal taxes, as well as state tax if the investor resides in the state in which the bond is issued. However, this corner of the muni bond market is often misunderstood by investors, Close said. 'A lot of investors, when they think about stadium financing for a professional sports team, they think that the way that they get repaid in the muni bond market is backed by revenues generated from the operation — that your sports team locally needs to be good, or at least be drawing fans in order for your repayment to be secured,' he said. However, that's not the case. The bonds tend to be backed by revenue sources that are very secure, he added. These can include general tax revenues, tax revenue generated at the stadium and levies that are specifically approved for the project. Further, in nearly every case, the bonds are investment grade, Close said. 'It creates a unique investment opportunity in that the perception is that they are riskier than they are,' he said. 'As a result, you could go in and perhaps pick up some extra yield by buying these sorts of structures.' A small part of the muni market Nuveen has several stadium bonds in its muni bond portfolios. For instance, its New York Municipal Bond Fund (NTNYX) holds Yankee Stadium revenue bonds, as well as issues for Yankee Stadium parking. The latter is also held in the Nuveen All-American Municipal Bond Fund (FAARX) . The fund has a 30-day U.S. Securities and Exchange Commission yield of 4.11% and expense ratio of 0.56%. FAARX 1Y mountain Nuveen All-American Municipal Bond Fund The fund also holds Louisiana bonds backed by the stadium and exposition district hotel occupancy tax. The Nuveen Georgia Municipal Bond Fund (FGARX) holds bonds that are tied to the Atlanta hotel and motel tax. All holdings are as of Dec. 31. While stadium projects are a small part of the muni bond market, they can make headlines. The projects are high profile and can attract criticism. Last fall, Erie County, New York, sold so-called Bills Bonds to help finance a new stadium, and encouraged fans to get in on the action. The county ultimately raised about $111 million, with $3.2 million coming from retail investors. Most of the bonds pay coupons of around 5%. In this case, Nuveen found about 30 extra basis points for buying the Erie County new issue bonds due to that difference between perception and reality, Close said. Public funding amounts to about 40% of stadium projects, he said. The Nissan Stadium for the Tennessee Titans is the largest taxpayer funding of a stadium in U.S. history, Nuveen's research found. The stadium's anticipated $2.1 billion cost will be funded by $500 million in state general obligation bonds and $760 million in special tax and nonrevenue bonds issued by Nashville and Davidson County, Close noted. Here are some of the professional sports franchises considering new locations and subsidies to help fund them, according to Nuveen. When deciding whether to invest in stadium bonds, investors should do their homework. 'As investors look at the deal, it's more important to look at what is your ultimate source of repayment and not necessarily what the use of proceeds are going towards,' Close explained
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