The economics of new stadium and arena projects are expected to be shakier this year due to rising costs of construction, materials, energy and financing. Analysis from the credit rating service, DBRS Morningstar, predicts development proponents will be asked to contribute more equity and will encounter higher debt servicing costs than has been the case for comparable projects in the past.

Cost upswings are cutting into the revenue stream of existing sports and live entertainment venues, also altering the cash flow assumptions for prospective new projects. Recent operating cost increases are pegged in the range of 30 per cent due to inflation and wage pressure tied to labour demand.

“Stadiums have been successful in passing on higher costs through higher concession and merchandise prices, which mitigated some of the pressure. However, as these trends will likely continue, we expect credit metrics for stadiums and arenas to be weaker in 2023,” recent commentary from DBRS Morningstar’s sports finance group states.

In the current environment, cash flow increases are not expect to keep pace with higher debt costs. “The debt service coverage ratios for many stadium projects could be challenged unless project sponsors contribute a much higher proportion of equity,” the commentary concludes.