JC 006: How to build a major league soccer stadium with David Kaval
David Kaval developed the innovated $20 million partnership with Avaya and reinvented the fan experience in soccer stadiums.
In today’s episode, John speaks with Ohio native David Kaval, the president of both the Oakland Athletics and the San Jose Earthquakes. David led the effort in designing, developing and privately financing Avaya Stadium which opened in 2015 as the home field for the San Jose Earthquakes.
David shares the challenges, successes and what it takes to run a professional sports team franchise with the resources you have. He stresses the importance of having a good, solid team to work and collaborate with.
“…having other people to bounce ideas off, to share the frustrations of setbacks, to work together towards a common goal, that was critical…”
David gives us a glimpse into the new stadium with all its features, décor, and layout as we learn about building a venue creatively and smartly while still adding great value to the fans; how turning an old tank factory into a beautiful 18,000 seat stadium is improving the landscape of San Jose, California.
Favorite book, Grinding It Out by Ray Kroc.
Find out what the San Jose Earthquakes are up to at http://www.sjearthquakes.com/
Pick up a copy of his book that he co-authored called The Summer that Saved Baseball
Thanks again David, for taking the time to share your story with us.
The Real Estate Locker Room Show Podcast
JC 006: How to build a major league stadium with David Kaval
Introduction: Welcome to the Real Estate Locker Room Show with John Carney. Did you know that investing in real estate is a team sport? Join John and his guests as they explore the intersection of the business of real estate and athletic competition. The goal for this show is to grant you direct access to the real estate pros that are closing profitable deals and growing their businesses. On the Real Estate Locker Room Show we are getting in the ring with successful investors, developers, operators, and all of the industry professionals to learn what it takes to achieve ongoing success. Now it’s time to kick off and level up with new ways to grow your real estate business.
John Carney: Welcome back to the Real Estate Locker Room Show, I’m your host John Carney coming at you today from Cleveland, Ohio. We have got a great episode lined up for you today. On the line from California joining me in the locker room is David Kaval and we are going to learn how to build a major league sports stadium today. David is the president of the major league soccer team, the San Jose Earthquakes, and oversees the business and technical side of the franchise and represents the club on the Major League Soccer Board of Governors. Kaval has led the Quakes’ effort to design, develop, and privately finance a new 18,000 seat soccer-specific stadium in San Jose, California. On March 22, 2015 Avaya Stadium opened to a victory over the Chicago- is it the Chicago Fire, David?
David Kaval: Yep the Chicago Fire, we beat them 2-1 on opening night which was fantastic.
John Carney: There you go, man. Well David developed the innovated $20 million partnership with Avaya to purchase the naming rights for the new stadium, and they worked together in partnership to create the first cloud-based enabled stadium in the world with lightning fast Wi-Fi that powers the Avaya stadium app. The stadium boasts the only field level suites in professional sports, a 576 field level patio club, HD LED panels throughout, and two party decks, and one of the Guinness Book World Records at the moment I believe as the largest exterior bar in North America. David’s also an author. Back in 1998 he co-authored the book, ‘The Summer That Saved Baseball,’ which highlighted a tour of all thirty major league baseball stadiums. He is a lecturer in management at the Stanford Graduate School of Business where he teaches classes in sports management. A native of my hometown Cleveland, Ohio, David earned a B.A. with honors in International Relations as well as his M.B.A. in Stanford University. He’s a long-time resident of Menlo Park and lives there with his wife and two daughters. David, thank you for joining us today, welcome to the show.
David Kaval: It’s great to be here, John. I’m really looking forward to spending some time talking about all the exciting stuff we’ve done with the Earthquakes here in San Jose.
John Carney: Yeah and believe it or not there’s a significant real estate development component to that that I want to jump into in a moment. But usually I kick off these interviews with a sports related question to our guests. Who is your favorite athlete of all time?
David Kaval: You know I have to tell you I think it’s Kenny Lofton. He played for the Indians and he actually lived pretty close to us growing up in [Inaudible 00:3:46], and he was just such a great guy both on and off the field. Clutch hitter, hard worker, played multiple sports, and so I think he’s my all-time favorite. He was part of those early Cleveland Indians teams in the early nineties that was so successful and was really in some ways the face of the team.
John Carney: Kenny Lofton, believe it or not, in this show’s young, young history has already come up from another Cleveland-based real estate pro.
David Kaval: I love it, that’s a good sign.
John Carney: We’re going to have to get Kenny Lofton on the show.
David Kaval: 100% it’s got to happen.
John Carney: It’s going to have to happen now. Well great, I mean look for- this show’s about the intersection of sports and the business of real estate, and you’ve got a great story here about obviously one of these jobs where you are right in the mix of owning a professional franchise and running a professional franchise. But you know we all- all sports fans go to their stadium, I don’t know how many times people think about how it’s built, but that’s what you’re here to do, is let us know exactly what does it take to develop a major league sports stadium?
David Kaval: Well I mean I think the key thing, and I learned this going through a six year process to get the stadium designed, developed, financed, and actually built, is you really need great partners and it really starts with the city, at least in our case because they own the land. The location where we built the stadium, it’s about seventy acres of land that was a former tank factory. They built the M2 Bradley fighting vehicle here for the military, the U.S. Army, and this is an area that really needed to be gentrified and cleaned up. And so we worked with the city to identify a site that had good transit, and transportation, and parking options, and understanding how to work directly with a mayor, a city council, the staff with the city was really instrumental in unlocking a lot of the value. So I think that’s one thing that holds for a lot of these cases, that you have to have those political relationships and the relationships with the right government officials, or you can’t even get out of the starting blocks.
John Carney: So can we just wind it back to the concept? I’m unfamiliar with- the rise of major league soccer happened while I was living overseas. So you have your franchise, you don’t have a home ground so to speak, and you decided that you needed one. So you approach-
David Kaval: Yeah so we approached the city and we said, ‘Look we currently rent the facility from Santa Clara University, Buck Shaw Stadium, but that stadium doesn’t have the fan-friendly amenities, premium seats, concessions, video boards, player amenities that could actually create for not only a top tier team, but a top tier experience for fans, and a revenue base that can support the operation of the club.’ So the only way that we could really achieve that was to build a new stadium that we controlled. And this was something that major league soccer teams had been experiencing really from its inception in 1996. The league was born out of the 1994 World Cup which was hosted in the United States, and FIFA which is the international governing body of soccer, said, ‘Hey you guys have to start a domestic league.’ And so they started MLS and all the teams played at big American football stadiums like the Horseshoe in Columbus, or here at Spartan Stadium at San Jose State, or Soldier Field in Chicago, and those experiences frankly were not very good. And so teams were struggling and what started to happen was some of the owners said, ‘Hey if we can identify ways to create stadiums, and actually control them, we can have a viable product that’s successful for many years.’ And so I was tasked with this situation in 2010, I came here, we had our stadium we were renting, and it was not a sustainable business proposition for the team to remain there. We had to find a way to get a new stadium built, and usually when you build a sports stadium there’s kind of one of two ways to do it. You can either one, publicly finance the stadium so basically go to a city or county and say, ‘Hey can you guys float a revenue bond or some sort of financing mechanism, general fund obligation to build the stadium, and then we’ll rent it from you for X period of years.’ In California it’s been exceedingly rare to get cities or municipalities to invest in stadiums in that way to have them built. And so you have to look at the other way to build a stadium which is a privately financed stadium, and the challenge there is that if you’re going to write a big check and build a stadium, is it going to be worth your investment? If you spend $100 million on a stadium, which we did, does it actually get a return on that investment, or is it kind of a sunk cost? And so that’s critical in evaluating whether or not you could finance it, get debt financing, bring other investors into the picture. And so when we were looking at this from a privately financed perspective we said, ‘Hey it’s really a tough hurdle to clear in order to do this in a way that just includes building this stadium with our own capital, and then hoping that the team generates more revenue, and is worth more.’ And so that is why- and this is why it’s so relevant to this conversation, we said, ‘Hey you know what? Maybe there’s a way to work with the city to build an entertainment district around the stadium,’ where we build the stadium, we pay for it, but we also get development rights to build around it, and the profits from some of those development rights can help offset the cost of building the stadium, John.
John Carney: It immediately sounds like a pretty amazing capital stack. And so I suppose breaking it down in simple real estate math, you needed to have an investor, right? And you went out to the market, and talk to me about how you secured Avaya. I hope I’m saying that correctly.
David Kaval: Yeah, that’s right. So Avaya, they were critical because they brought $20 million in capital spread out over ten years, $2 million a year, to help finance the stadium. And so they bought the naming rights of the stadium, and so that’s kind of a nontraditional way to get funding to help underwrite the cost of building it. And they not only gave us that money, and put their name on it, and were excited about it, but they invested in some of the infrastructure. Millions of dollars to build a Wi-Fi system, and to build an app for the stadium, and things of that nature that helps the fan experience. And so it’s truly a strategic partnership in every way that helped the stadium be completed, and then enhance the experience in the medium to the long term. And so when you’re looking at these opportunities, finding ways and being creative about connecting the dots to figure out who are potential partners who could add that type of value, understanding what they would get out of it- because if you name a stadium, all the notoriety, all the events we have there; Earthquakes games, women’s national team games, corporate events, it’s always known as Avaya Stadium. Even on the freeway when you drive it says, ‘Avaya Stadium next exit.’ You know? Those types of things are worth a lot to these companies, especially Avaya who’s trying to get the word out on their telecommunications products. And so that ended up being a really important part of the development of the stadium, and one that’s still yielding results to this day.
John Carney: So yeah the partnership is something we always talk about being critical in any level of real estate, and even when you’re in a major league franchise, critical to get the real estate product that you need as David’s explaining. So I want to just really quickly look at the timeline. So from the decision, your team and the Board of Directors made a decision, ‘Hey we need to have a stadium’ to that coin toss at the Chicago Fire opening game. What’s that timeline look like?
David Kaval: So I started in 2010, and it was in the fall of 2010, and our initial idea was to get to a point where we could break ground on the stadium by actually 2012, and we actually did achieve that. And so we had our groundbreaking, and actually we set the Guinness record for the largest participatory groundbreaking, John. So we had over 6,000 people turn dirt for two minutes and set the record, it was all over television and stuff, and that was in October of 2012. And so it took us about two years to get the entitlement work, the permitting from the city, and the financing, things like naming rights, things like debt financing, all these different pieces in line where we felt comfortable that we could actually break ground and move forward with the project at that point. And then it opened as you heard in 2015, so it took about two and a half years to build it, and it took a little longer to build than we thought because the site itself required a little more demolition and construction work because it was a former tank factory. So that was kind of unfortunate but it was something that kind of delayed us a little bit.
John Carney: So I would imagine that you cannot possibly build a stadium of this size without running into a few obstacles.
David Kaval: Yeah you know there were two main obstacles, John, and I’m glad you brought that up because it’s a great point. One was really construction risk which was the land itself, when we dug into the ground there were vaults and sub-vaults where they had old tank parts, and old munitions. Luckily none of the stuff was explosive even though I got a call one day from my superintendent and he goes, ‘You’ve got to get over here, we’ve got a major issue.’ I’m like, ‘What is it?’ He goes, ‘We’ve got UXOs.’ I said, ‘Al what’s a UXO?’ He goes, ‘Look it up.’ And so I go on Wikipedia, and I’m driving my car, like doing all this stuff at the same time which you’re not supposed to do, and it said, ‘UXOs: Unexploded Ordnance.’ I was like, ‘Uh oh.’ So we get over there and it in fact was old shell casings. Now luckily they weren’t explosive, he didn’t know, but like that’s the type of thing that you can face, especially when you get kind of older underdeveloped land, industrial land, and so you have to be kind of cognisant of that when you build and have contingencies in place because it cost us an extra $400,000 or $500,000 to clean all that up, and time. So that was one area of risk. The other area of risk that we faced on the timeline was the community. It took a lot longer to get the permitting because we had a neighborhood group that was concerned about the noise of the stadium. Now don’t get me wrong here, this location does generate noise, but we are next to an airport, a train track, a freeway, so we didn’t really envision that people would complain about that, but they did. And that happens a lot of times in development, is that you get local opposition, and so we needed to develop a plan which we did with our fans, to pack the city council chambers so when the neighborhood group was like, ‘Hey we don’t want you to build the stadium,’ we could show 600 people in the council chambers who said, ‘Hey soccer is important to San Jose and the Silicon Valley community. We need to have the stadium, it’s a great community asset. This group is privately financing the entire thing, and we want to do everything that we can to support it.’ And we were able to get the council to vote unanimously to certify the project. But that was another delay. And so those things together is why it took from late 2010 all the way to 2015 before we opened the stadium. And so during that period while every moment it seemed like things were going fast, on a bigger picture maybe it seemed to be moving kind of slow, but that’s just what these projects require in order for them to really get off the ground, and also to be built in a successful way, John.
John Carney: Yeah it’s always- I would imagine it’s always a challenge with a lot of moving pieces like that, and then it’s just a consistent effort that got it to go- come together.
David Kaval: Yeah and the other thing around those points as well, is that we just had a very good like construction team. So we had Devcon Construction who built the stadium, and Gary Filizetti who’s the owner, and they were a great partner through a lot of those crises. The city was a great partner when we had the neighborhood group, we had our fan base, we had a great legal team that worked on all these provisions. All these different people together- just even my front office staff who were selling tickets and taking deposits. Everyone has to pull together and be capable of putting something of this scale together, and even in these hard times when you have setback, they can’t give up, you just have to kind of dig deeper and try to find a path forward, and we were lucky to do that.
John Carney: Yeah the team, critical in just about every aspect of business, and especially in the development business. Was this- this was basically your first big development, right? I mean you-
David Kaval: Oh yeah of this scale 100%. I had done renovations to stadiums when I ran a baseball league, but in the single millions. And maybe $9 million most. This was a $100 million project so the scale was vastly different.
John Carney: Would you say that the stress was relative to the scale, or not? I mean maybe not.
David Kaval: I think it was. I mean I look back now and I was managing the whole development process while at the same time running the team, and so the challenge was I was just doing so much, I was pulled so thin. I think in hindsight the only reason it worked is that we had a great team, that I had a lot of great people working with me. I had Keith Wolff who is a member of our board of directors, part of our ownership group, who had a lot of experience doing hotel development, also mostly renovations. It was also his biggest project he’d ever done. But you know having other people to bounce ideas off, to share the frustrations of setbacks, to work together towards a common goal, that was critical and it was something that if I didn’t have I probably wouldn’t have kept my sanity, John, because some of the stuff you deal with is so challenging and can be so detrimental to what you’re trying to accomplish. So that kept the anxiety and up at bay that we were able to get through the process. And I think now because we have this beautiful 18,000 seat stadium, and it’s been sold out every game that we’ve had, and last night we just hosted the women’s national team against Romania, they won 8-1. It’s just so rewarding to see what we’ve built and what it means for our community, and to know that all this was required to get there, it was really worth it.
John Carney: What was the- it sounds great, and I mean I’m dying to see it, and I’m sure one day I will just because I’m reading about it right now, I mean and loving the fact that I know you, and that this is such a task getting something from inception built on a scale like this, that I definitely have to make a trip out there with the kids once they’re old enough to appreciate a major league soccer game. But like in the creative process, which I’ll put on my developer hat right now, I mean one of the reasons that I believe, one of the reasons I like real estate development is because you’re improving something, right? I think the neighbors will look at you and say you’re just a greedy developer maybe, but generally developers that I know with integrity are trying to improve something whether you’re bringing new technology, or modern concept to an old area, but you’re trying to revitalize an area, and that’s what David and the San Jose Earthquakes did with Avaya Stadium. So that unlocks this whole creative process, and the creative people are the architects. I mean how much fun was that for you and your team?
David Kaval: Oh it was great. You know we worked with HOK who designed a grouping of tons of stadiums including like Jacobs Field or Progressive Field in Cleveland, and Brad Schrock was our main designer. Some of the things that I think were the most fun was we challenged a lot of the existing norms on soccer stadium development. The majority of soccer stadiums that had been built in the United States before Avaya Stadium were just kind of the lower bowl of an American football stadium. So they were kind of like a little boring, like low rake of the seats, far away from the action, pretty standard kind of thing. And we said, ‘Wait a second, no. We want to flip this on its head. We want to look at the stadiums in Europe, and we want to think about the ways they’d been built, the different grounds in England, and the Bundesliga in Germany, and we wanted to build a very intimate but elegant stadium that had a very steep rake of the seats, and had a roof, and had the bar space, the largest exterior bar in North America. And actually I think the one big master stroke was to take all the premium inventory; the suites, the club areas, and we put that at the field level instead of way up in the rafters. And so that creates this amazing like front door experience, kind of like court side seats in the NBA. And the process of working with our designer back and forth to challenge the status quo, to try new things, and even some of these things- like for instance putting the thing at the lower level, the premium seats, that probably saved us $25 million because we only needed one concourse, John, instead of two. And so it was thinking more creatively and smart about how to build a venue, and how to do it in a way that was still beneficial to the fans. The fans aren’t getting any less, they get maybe something more, but it costs less and I think that type of give and take with our designers was something that was super fun. And then the other piece was kind of like the materials. You know one thing we were really cognisant of was like the feel of the building. You know we have a lot of wood in the building, it’s reclaimed red wood from Moffett Hangar which is a famous building here in the Bay Area. The wood is over 2,000 years old, it’s on the press box, it’s on the suites, it’s on the bar, the concession stands, and it really softens the kind of steel feeling of the stadium. And that was something that we were really proud of. Or even like I remember picking the Portuguese terrazzo stone, and we have $800,000 of this stuff in the stadium, and making sure it fit, and that and all the other pieces of that, and finish of the building was something that we were really proud of, and it was something- that creative piece. We had a field here, an old tank factory, and now we have a beautiful stadium that people can congregate at. It’s really tremendous. Like you said, that’s one reason that people get the bug to develop something, because you build it, and it’s going to be there, it’s going to last even longer than us so it’s pretty cool.
John Carney: Yeah I mean that’s a fantastic legacy for the development team. Alright, cool. We are going to get into- we’ll wrap this up with what I like to call the two minute drill. Let’s take it back to what sports did you play growing up as a kid, and what lessons did you learn through athletics that you apply in your everyday life? Especially running a major league franchise and developing stadiums.
David Kaval: You know I played basketball, football, and baseball growing up. Basketball was definitely my best sport because I was pretty tall, and I think the number one thing I learned was just the value of everyone’s role on the team. Because I wasn’t the best basketball player, but I was pretty good at shooting the three pointer out of the corner. And maybe I wasn’t the most athletic defender but I could kind of take that position, and I knew my role, and I knew how to be successful in it. And I think when you build a team of people in business or in real estate development, the same thing, knowing what your role is, and as the entrepreneur or developer, making sure you pick the people who have the right types of roles and skillsets so you can meld that together into a team that works, is something that I think is really- it’s almost essential for your success. I think when you have people who are trying to do too much, or do stuff that they don’t know about, it would be like me trying to dunk the ball in basketball, and that didn’t really go over very well. So I think that’s probably the biggest lesson that I learned and it was something that I saw when I was on some of the different teams at university school when we won different games or had successful seasons. And so that’s something that stuck for me for many years.
John Carney: Yeah and that’s really sound advice. I mean I suppose in business and in real estate is knowing what your skillset is and then getting good at building that skillset. You’ll never be good at everything, so focus on your positive attributes, and find the other awesome team players to surround yourself and you will achieve more. David, is there any favorite book on business or sports that you draw lessons from? One of those books- I make notes in books which some people don’t like, but I’ve got a small stack on my desk behind me, or on the shelf behind me that are references just in case I need to look something up. Is there one in particular that you have on your desk that you look at time and again?
David Kaval: You know the book- my favorite business book is a book called ‘Grinding It Out,’ and it’s the story of Ray Kroc who was not the founder of McDonald’s but really was the visionary CEO and owner that built McDonald’s into a real company. And the most amazing part about the story is just how much resilience and perseverance he had because he didn’t really go into that role until he was 55 years old. So to think he had a whole life, he raised a family, until he got to the point where he became this entrepreneur and created this whole McDonald’s empire that we see kind of on every street corner. And so it’s called ‘Grinding It Out,’ it’s a great read, it’s very inspiring, and certainly as an entrepreneur and developer, it’s the type of story that gets you through the harder times. Because you know that you just have to keep pushing wherever you can to get the kind of brace you need to be successful.
John Carney: So following up on that, and I am collecting an amazing book list too by hosting this show, and I’m going to have to find time to read all these gems. But knowing that, that you have to just show up every day, like is there one number one come from behind victory in this stadium development that really sticks out? You talked about a few obstacles earlier, but is there one come from behind victory that really resonates and is a lesson from that?
David Kaval: I think the number one was when we delayed the launch of the stadium. It was originally going to be 2014 to 2015, and it was hard to keep the staff together- the team together, because people were so discouraged. And so I had this meeting where people basically- I told them, I said, ‘Nobody signed up for this, so if you don’t want to be a part of this, feel free to walk out the door.’ And two or three people left right then. But everyone else was bought into what we were doing, and no one could bitch and moan later that said, ‘Hey I didn’t want to be a part of this thing.’ And so I think it taught me one, that you have to be honest with the people who work for you. And I think if there’s any mistake I made there, it was that I was too aggressive with the dates at the beginning, and I wasn’t honest enough with myself, or the community, or staff about when it really could be built, or our ownership group. And I think I’ve learned from that, and you just have to be more open and be willing to hopefully have expectations that are in line with what you can achieve. But if you do get in a situation like that, be truthful, deal with it, face the music and try to move forward, and that’s what we were able to do. Because if I would have lost the team, John, then I wouldn’t have been able to sell the stadium out, or get it built, it may have been a disaster. So that was a huge moment for me.
John Carney: Right, I imagine. Well thank you for sharing that story, and that’s really a leadership story where you’ve got to make tough calls, and they’re not always popular but you got the job done at the end of the day. So the last question before we wrap this up is a lot of people- whether you’re a professional athlete, or you’re an entrepreneur, or working at the pointy end of any business, I find that a lot of people need to get into a flow state or a zone, and they train themselves for success with daily rituals or habits. Do you have a daily habit or ritual that you use to train for success, David?
David Kaval: You know I think one thing I like to do is when I drive into work in the morning, and I have about a 25 minute commute, I like to just not be on the phone, I like to listen to some music, and I just like to think. And you know I think it’s important to put time in the day to think about how to solve the problems you’re facing. Because you get so overloaded, there’s someone in your office all day, you’re on another call, it’s like you don’t have any time to kind of process everything that’s happening. And I think that clarity of thought can actually be a force multiplier in your ability to actually make decisions, build a team, have success. And so that’s been something that I’ve done for most of my career, and it’s something that I’ve realized over time has really served me well.
John Carney: That’s good advice for our listeners, and with that I’d like to thank you for joining me today on The Locker Room, David. Where can our audience find you to carry on the conversation, or learn more about the San Jose Earthquakes and Avaya Stadium?
David Kaval: Well they can go to www.SJEarthquakes.com which is our website, and I’m also very active on Twitter at @QuakesPrez so folks should feel free to reach out to me, and I’m on LinkedIn as well, and I love talking to folks. Actually I host office hours once a week where anyone can call in or come and meet me in person and discuss any issue from the soccer team to my class at Stanford to the Indians, or whatever they want to talk about. So it’s a nice opportunity to kind of change gears and get a fresh perspective from people, and I encourage folks to reach out through any of those mechanisms.
John Carney: Fantastic. So if you have any questions for David, hit him up on Twitter, and of course we’ll post those links in the show notes. So there you have it folks. I truly hope that you picked up some actionable advice today from Mr. David Kaval. Make sure to check out the Post Game Report on iTunes, and while you’re there, if you like what this show is all about, please hit the subscribe button so that other folks can easily find the Real Estate Locker Room Show.
If you like what we’re all about, give us a nice review as well. That helps people who are likeminded real estate investors come across us when they search ‘real estate’ on iTunes. And make sure to visit www.JohnCarneyOnline.com for all of the links and additional content associated with today’s show, and we will remember to stay focused, have fun, and stay in the game. I am your host, John Carney, and until next week, work hard, play hard, and profit hard. Thanks again for taking the time to share your story, David, and what a great story it is. So go Quakes.
David Kaval: Go Quakes.
John Carney: Alright buddy, thank you.
David Kaval: Take care.
[End of Audio [00:32:39]
Listen to all the episodes of The Real Estate Locker Room Show and sign up for my FREE monthly newsletter at http://www.johncarneyonlie.com
© John Carney 2017
Want to become Wealthy by Investing in Real Estate?
Subscribe to receive the Game Plan newsletter, blogs and more