USL’s Papadakis: Creating an investable sports league with real estate development

With five announced major stadium/real-estate development deals in the works, United Soccer League is emerging as a major player in a hot field: sports-centric investing and development. We talk with Justin Papadakis, USL’s Chief Operating Officer & Chief Real Estate Officer, about the work USL has done to increase the investability of their leagues.

To say that USL is in the midst of unprecedented growth may be an understatement, even in this era of hyperbole and hard sells. Despite the loss of eight USL Championship and USL League One teams to Division III MLS Next Pro in 2022 and potentially more in 2023, Division II USL Championship stands at a strong 28 sides for 2022 with two expansion teams in the works, while Division III’s USL League One will sport 11 squads in 2023 with two expansion teams in the works. The women’s side has not been forgotten. Add in the 43 Division III USL W League teams launching play in 2022 and the debut of the Division II USL Super League in 2023, and USL becomes a major presence in the sports-business world, and the business with the greatest commitment to the women’s game as well as the men’s game. Expanding the league offices and bringing in young front-office talent like Betsy Haugh and Cory Bernstine on the operations and marketing sides—both are refugees from Minor League Baseball who were regarded as rising stars in the sport—has certainly been instrumental in advancing league fortunes.

Central to this expansion is a planned commitment to real-estate development attached to new stadiums. It is not an emphasis you would expect in Division II and Division III soccer, and perhaps one that would have been impossible five years ago. But with five new major downtown stadium projects in the works—Rhode IslandDes MoinesLexingtonGreenville and Spokane, with a new plan from Albuquerque in the works and a proposed Fort Wayne soccer development on tap—USL is making the leap from merely being a sports league to emerging as a major player in the sports-business world. 

We chatted with Papadakis about this emphasis on real-estate development, the continued expansion of USL and what the future of the league entails.

This interview has been edited for length and clarity.

SSD: Let’s begin with what’s happened recently. You’ve had a bunch of new stadiums at the market for approvals lately, haven’t you?

Papadakis: This is going to be the largest expansion year on a professional level in U.S. soccer history, which is just so exciting, where we have high-level professional soccer coming to markets around the United States in first-class venues with great ownership and management teams, which will result in a dramatic increase in the amount of quality professional playing jobs in the United States. All around, if you’re a soccer fan, 2022 is going to go down as a major milestone year for professional soccer in the United States.

SSD: These projects, it seems to me, follow the trend, and I hope you can elaborate on this, of sports facilities anchoring development, as opposed to the “we’re going to build it and hope they come” model. There are some solid investments behind all these plans.

Papadakis: That’s exactly right. A key thesis of the USL has been to have downtown stadium-anchored developments. That is for a couple of reasons. One, we think about the entire fan journey. With soccer fans, you don’t have a tailgating culture in soccer in the United States unlike football, for example. Fans and supporters want to go have dinner, have a couple of beers if you’re over 21, go to the game, and then usually, for those over 21, going back out after the game. To create that holistic fan experience, we want to make sure that our stadiums have all of that in one place.

Additionally, to maximize that and make it accessible for everyone, having it in a location that is proximate to public transportation, Uber-able, a word that we use (yes, it’s not a real word), but Uber-able for a lot of people. Then finally, the piece that’s so important to us is that being downtown makes it significantly more likely that there’s the economic benefit to help many small businesses, whether it be bars, restaurants, hotels, around the stadium, so that the community really gets the benefit. All the dollars aren’t spent in the stadium.

Having those three aspects is why we’re so focused on it. Also, again, as a side bonus to all of that, it enables us to build a larger and better-quality stadium because there’s more tax increment from the project to support the bonds used to pay for the stadium.

SSD: Speaking of economic benefits: Are any of the projects taking advantage of Opportunity Zones?

Papadakis: Yes. The Opportunity Zone construct lends itself very well to sports and stadium-anchored developments. That is because you have a traditional asset class of real estate, [allowing] a lot of individuals with capital gains they can roll into. Then you have the nontraditional asset class, but that has performed very well and not correlated to the overall market with professional team ownership.

Most professional team ownership, and definitely the case with the USL, is that from an investment perspective most individuals are looking at it as an asset play rather than a fixed income investment strategy. The Opportunity Zone construct lends itself well to that, where you can roll your cap gains into the project and you have an underlying asset that is significantly outperforming the general market from a cap appreciation standpoint. The construct works well and we’re doing it on several markets, most recently and from a size perspective, the largest being in Rhode Island.

SSD: That’s a major project, to be sure. I noticed your jobs title, too. Explain to me the change in your responsibilities with the addition of real estate into your title and your daily job performance because I’m guessing when you got into this X number of years ago, you didn’t foresee real estate development being a core part of your mission.

Papadakis: I’d say yes and no. I’ll take you back a little bit in time. When I was graduating from college back in 2008, I went with my dad, who’s our CEO, out to the L.A. Live project. He said, “This, the sports-anchored developments are going to be the future,” and so really encouraged me to after school go work in the real estate development business so that I could have a background in that.

That’s what I did. I worked for six and a half years with what was called DDR, now it’s called SITE Centers, a publicly traded REIT (real estate investment trust). I had a really had a strong background in real estate development, and then that takes us from the time—actually, when I graduated is when my family and our partner, Rob Hoskins, bought the league. They had to change the direction of the league and make it so like we’re today, we are an investable league. We were able to accomplish that while I was working. Then when I came over to work with the league full-time, I didn’t know quite how much it would be, but it turned out one of our largest opportunities for growth are the real estate projects.

The strategy changed a little bit where not only were we focused on stadium-anchored developments, but that the league itself would, in many cases, take the lead on structuring those real-estate projects for our expansion teams and then bringing in ownership groups after the stadium deal was structured. That’s been a big change, and because of the growth that we had and because we’re to build 30 stadiums over four, five years, a big part of my job now and for the past couple of years has been putting together these stadium-anchored deals around the country.

I think that takes us to today where undeniably we are the largest in terms of number of projects, we’re going to be the largest stadium developer of any league in the world. The real-estate part of my title just reflects the fact that I travel three weeks a month and being in the market, putting real-estate deals together. I think it overall makes our USL economics better because our owners are not only investing, as I said, in the professional sports as a class but in many situations, also, have the traditional real-estate economics supporting their investment as well.

SSD: Will the league be retaining any interest in these projects once they come to fruition?

Papadakis: That’s a great question. The approach that we’ve taken is the asset-light model because we want those positive economics from the development, with benefits going to our owners. USL’s business is running and operating leagues and our mission is to create really high-performing teams. We can do our job if we can create that structure for an ownership group, and the result is more and better-performing clubs. The reason for that is pretty obvious. Land is fluid. It is here, it’s available today for some reason, and it’s gone tomorrow.

Because we have so much of a focus in downtowns, assembling 15 to 30 acres, it’s rare that we are able to assemble 30 contiguous acres. The fact that we go in and try to find that, and once we find it, we will then tie it up, option it out. We have a lot of confidence in our business that once we put that together, we can put a really exciting investment opportunity for a potential ownership group, because, without a stadium, there is no team.

Having that pathway to a stadium in place, it enables us, one, to have a team in that market, and two, makes sure that we can take years off the process by going through the entitlements and the zoning and all the pieces that are necessary to actually build a stadium even once a site has been acquired.

SSD: How is the market generally right now? Obviously, you started doing this a few years ago, but you’re now doing it in the age of Omicron, and while you see good signs in the economy, I don’t think anyone considers it fully recovered.

Papadakis: I’ll break my answer up from a real-estate perspective. I actually think over the COVID era we’re actually able to advance discussions faster. I think it’s because our city, county and state partners really saw the benefit that a stadium and a professional sports team can bring to their market, and the economic impact in jobs, and investment that we can bring to their market. That has actually gone quite well—I would say actually picked up pace over COVID.

In parallel to that, I think every year USL and soccer, I’d say as a sport in the United States, also keeps growing and solidifying itself, which actually has solidified now as an investable sport from an investor standpoint. Professional sports have been investable. Now, I think soccer has firmly been investable. I think a lot of what we hear from a lot of investors is that from a forward-looking perspective that soccer, and particularly the USL because we’re starting off a lower base, of course, has a higher potential return compared to other sports.

Again, that is because that within the NFL teams now being worth one to five billion, getting a three, four, five, six times return is harder because of the law of large numbers. For soccer, in particular USL, because we are early in our growth cycle, a lot of investors feel that USL has a higher return potential, and that’s principally because within the major revenue streams like media, player transfers, et cetera, our first major deals are coming in the next two to three years, whereas the NFL, NBA and NHL have already achieved their significant media deals.

New Des Moines stadium/development project.

SSD: I find it fascinating that you’re seeing success in these deals. Our Arena Digest site ran a story the other day about the Golden State Warriors looking at a development for their G League team. I don’t think five years ago you could have seen a G League-led housing development in downtown Santa Cruz as being investable, but apparently, people do. The WNBA raised $75 million, speaking of investability. I think you operate at a higher level than those two leagues, obviously.

Papadakis: Let me just add one more thing that I think is really important. One of our key principles that we try to speak about a lot is resonating with investors. You can tell it’s resonating by the sheer number of active projects we have because these projects are not just the equivalent of L.A. Live in Los Angeles, anchored by NBA. We just had a large announcement in Des Moines, a $585-million project. In Des Moines, in Rhode Island, and so many others. These are not just in the top 30 markets. The economic impact from these projects can go from 31 to 100 U.S. markets just as well and we think even more impactful than those in markets 1 through 30. The other point that’s so important is when we talk about stadium development. The NFL will do one stadium every 10, 15 years, right? The NBA, same thing. We’re going to do 30-plus projects over the next couple of years. Again, their projects are larger and more complex in certain ways, but we are having this impact at a lower dollar amount. In aggregate dollars we’re into the multi-billions. That’s a major impact, and again, happening in cities all across the country, not just the top 30 cities.

SSD: Exactly, but there’s a lot of money to be made outside of those top 30 markets. You’re still talking pretty complex deals overall, which I find interesting because usually, sports investors don’t have that sort of patience. How many years has Pawtucket been in the works? Five, four?

Papadakis: Yes. Something like that. To your point, too, of the patience for a deal, one thing that we’ve seen and what we now have four years of progress on is creating meaningful relationships with our city, county, state and non-government entities like the sports commissions and so many other groups within our markets so that when we ultimately decide to bring an investor in., Spokane is a good example of this. The stadium deal is approved, it’s under construction. In the case of Spokane, we already have 25 percent of the capacity of the stadium sold in season tickets, and we’re two years out from playing.

When we take Spokane to market, it’s a turnkey project for an ownership group, which again eliminates a lot of the upfront complexities. The not-fun part about owning a sports team is zoning hearings. The fun part is competing on the field, trying to win championships. For us, doing that groundwork, so to speak, for years ahead of time enables us to really bring in better ownership groups. Most importantly, we have better outcomes because we’ve put years of work into those communities. You’ll start to see the results of that really manifest itself in 2022 because now we’ve had that four years of groundwork. You’ll start to see those announcements come in a significant way in ’22.

Rederning of new Spokane stadium.

SSD: Speaking of Spokane, one thing I found interesting is during the public debate over it, the inclusion of a women’s team had some weight with those making decisions. Are you finding that elsewhere or is Spokane kind of an outlier? I mean, you’ve done major work in the women’s game, obviously, and I would imagine it’s a selling point as you go along.

Papadakis: It is for sure, and one thing I’ll say off the top is women’s sports, in general, I think have been held back because they’ve been one of the unlevel playing fields. They haven’t had the same venues to showcase their talents. You take the NFL and you take away the Cowboys Stadium, you take away the pomp and circumstance, that it’s a different sport when you take that away.

We’re having great dialogue with our city, county, state partners because historically a lot of investments, whether it be in Minor League Baseball stadiums, arenas, or NFL venues, almost all the public dollars into those are men-only sports. That is a distinction with the USL, and in a lot of markets, the women’s team has more excitement than the men’s team.

I think once we feel really excited and proud to be able to showcase women’s sports at a high level in a first-class venue with first-class fan experience, I think you’ll just see a continued meteoric rise in women’s sports because, again, they still have other obstacles in pay and other things which, again, USL is trying to be the first league to really address that equal pay issue, but part of that also, it’s not just the compensation, it’s having the same venue to showcase their skills. Those are two parts of what I think is going to be a dramatic change because of the stadiums we’re building in USL over the next several years.

SSD: Obviously you’re working on future deals. Out of what you’re talking about right now for future stadium deals, how many do you think realistically will happen? Communities talk about stuff all the time, but never follow through.

Papadakis: It’s a good question, and because they’re complex deals, and some of it is outside of our control. Things do happen. However, I do think over the next three or four years, our goal is by 2026 when the World Cup comes, to have at least 30 new stadiums built.

I think we can hit that. We’re definitely on pace for that and I think they’ll be largely open and operating by 2026, which means 2022, that’s why, as I referenced, this would be such a transformational year for soccer because those deals have been worked on for four years, and now in 2022, the deals are all starting to come together. That’s where I think—we’re on target for that and feel extremely confident with the number of deals that we have and where they are in the process that those deals will get done.

SSD: Out of the 30, how many are new markets versus existing markets that need a stadium upgrade? Like Albuquerque, where voters rejected a new stadium, but I expect you’re gonna make another run at that.

Papadakis: Yes, you’ll have a couple of those. I’d say 85 percent-plus will be new teams, and we have a couple of markets like Albuquerque that we’ll be rotating into new stadiums, similarly with Greenville which we had a lot of announcements the past couple of weeks. You’ll have some of those which are, again, equally as important to our expansion teams because those are making the same economic impact and growing the game in the same way. Those are, for my real estate team, an equal focus of transitioning from first-generation USL stadiums into new generation USL stadiums, so you’ll see a lot of progress on that front as well.

SSD: When you talk to municipal people, what are the examples you use for existing or what approved stadium plans?

Papadakis: Well, we have a lot. You can look at Louisville. For ones that have just recently been built, Louisville’s a great example of just how transformative a stadium can be. If you look at their economic impact report that they used to underwrite that stadium, the metrics that they’re achieving now versus what was underwritten are through the roof in terms of the number of attendees, et cetera, average attendance, and other economic factors that underwrote that stadium.

Now, if you look on a go-forward basis, we just had Colorado Springs. To your question a second ago about moving from generation one to generation two stadiums, Colorado Springs opened last year in an absolutely beautiful state-of-the-art venue, and the results from team economics and city economics are massive. The development there is $250 million-plus just in what the team’s doing around it in multifamily, then if you look at the broader area, they’re about to do a multi-billion-dollar redevelopment of a former power plant right behind the stadium, largely because now this area is really a place to be.

If you look at Rhode Island and some of the new projects we have coming down in Greenville, Lexington, and again, some significant ones that are soon to be announced, the case studies there, and we’ve crossed a very important threshold that only a couple of other leagues have done. That’s to be an investable league from a municipal standpoint, right? The NFL, NBA, NHL, MLS have done it. Minor League Baseball has achieved that status.

SSD: Maybe regressed a little bit though, quite honestly.

Papadakis: Regressed because, in my view, they took a little bit different approach than we did where—and this isn’t the case everywhere, but in a lot of places, they went where they got the most money, not where the best real estate deal was, from a location standpoint, and then Minor League Baseball has some larger macro issues which are problematic, an aging demographic, other macro problems with Major League Baseball as a parent. USL is now clearly investable from a municipal standpoint, and a lot of cities which, of course, we agree with, soccer is something that their constituents are really asking for, and again, will be on a go-forward basis for us largely men’s and women’s.

The byproduct of that is we go from having 25 dates in the stadium to 50 dates just for soccer, and then you have concerts and other events. That’s where the stadium can be underwritten better because, again, you have ticket tax and other incremental taxes that can support the bonds. Moreover, it’s a better use for the community because it’s the community living room, and we want events there on as many days of the year as possible.

That’s exciting, and now post-COVID, getting back to what we were just talking about earlier, I think the primary beneficiaries of the post-COVID labor migration will be to markets 31 through 100 because, now with remote working, they can work from anywhere. You can just have a better quality of life, raise your family in these cities, in a lot of ways, have a better quality of life than in the top 30 cities.

Those are younger people, millennials, that are coming in, and soccer is one of their top choices of sports. Gender equity is a demand of theirs as well. Putting all those factors together is why I think that USL becoming investable from a municipal standpoint is a major accomplishment—with every stadium you get more and more investable, which makes the next ones easier and easier.

Top photo of Pro Iowa owner Kyle Krause and Justin Papadakis by Clay Benjamin, courtesy United Soccer League.

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