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    Goldman predicts the Fed will hike rates four times this year, more than previously expected

    Goldman Sachs expects the Fed to raise rates four times this year, one more than previously forecast.
    The estimate comes amid rising inflation and a tightening jobs market.
    Along with the rate hikes, Goldman sees the Fed shrinking its bond holdings soon.

    Federal Reserve Chairman Jerome Powell testifies during the House Financial Services Committee hearing titled Oversight of the Treasury Department’s and Federal Reserve’s Pandemic Response, in Rayburn Building on Wednesday, December 1, 2021.
    Tom Williams | CQ-Roll Call, Inc. | Getty Images

    Persistently high inflation combined with a labor market near full employment will push the Federal Reserve to raise interest rates more than expected this year, according to the latest forecast from Goldman Sachs.
    The Wall Street firm’s chief economist Jan Hatzius said in a note Sunday that he now figures the Fed to enact four quarter-percentage point rate hikes in 2022, representing an even more aggressive path than the Fed’s indications of a just a month ago. The Fed’s benchmark overnight borrowing rate is currently anchored in a range between 0%-0.25%, most recently around 0.08%.

    “Declining labor market slack has made Fed officials more sensitive to upside inflation risks and less sensitive to downside growth risks,” Hatzius wrote. “We continue to see hikes in March, June, and September, and have now added a hike in December for a total of four in 2022.”
    Goldman had previously forecast three hikes, in line with the level Fed officials had penciled in following their December meeting.
    The firm’s outlook for a more hawkish Fed come just a few days ahead of key inflation readings this week that are expected to show prices rising at their fastest pace in nearly 40 years. If the Dow Jones estimate of 7.1% year-over-year consumer price index growth is correct, that would be the sharpest gain since June 1982. That figure is due out on Wednesday.
    At the same time, Hatzius and other economists do not expect the Fed to be deterred by declining job growth.

    Nonfarm payrolls rose by 199,000 in December, well below the 422,000 estimate and the second month in a row of a report that was well below consensus. However, the unemployment rate fell to 3.9% at a time when employment openings far exceed those looking for work, reflecting a rapidly tightening jobs market.

    Hatzius thinks those converging factors will cause the Fed not only to raise rates a full percentage point, or 100 basis points, this year but also to start shrinking the size of its $8.8 trillion balance sheet. He pointed specifically to a statement last week from San Francisco Fed President Mary Daly, who said she could see the Fed starting to shed some assets after the first or second hike.
    “We are therefore pulling forward our runoff forecast from December to July, with risks tilted to the even earlier side,” Hatzius wrote. “With inflation probably still far above target at that point, we no longer think that the start to runoff will substitute for a quarterly rate hike.”
    Up until a few months ago, the Fed had been buying $120 billion a month in Treasurys and mortgage-backed securities. As of January, those purchases are being sliced in half and are likely to be phased out completely in March.
    The asset purchases helped hold interest rates low and kept financial markets running smoothly, underpinning a nearly 27% gain in the S&P 500 for 2021.
    The Fed most likely will allow a passive runoff of the balance sheet, by allowing some of the proceeds from its maturing bonds to roll off each month while reinvesting the rest. The process has been nicknamed “quantitative tightening,” or the opposite of the quantitative easing used to describe the massive balance sheet expansion of the past two years.
    Goldman’s forecast is in line with market pricing, which sees a nearly 80% chance of the first pandemic-era rate hike coming in March and close to a 50-50 probability of a fourth increase by December, according to the CME’s FedWatch Tool. Traders in the fed funds futures market even see a non-negligible 22.7% probability of a fifth hike this year.
    Still, markets only see the funds rate rising to 2.04% by the end of 2026, below the 2.5% top reached in the last tightening cycle that ended in 2018.
    Markets have reacted to the prospects of a tighter Fed, with government bond yields surging higher. The benchmark 10-year Treasury note most recently yielded around 1.77%, nearly 30 basis points higher than a month ago.

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    Pizza Hut adds Beyond Meat sausage to Canadian menus permanently

    Pizza Hut restaurants in Canada are adding Beyond Meat’s plant-based sausage to their menus permanently, starting Monday.
    It’s the second Pizza Hut market to add a Beyond Meat item to its permanent menu.
    Monday also marks the official launch of KFC Beyond Fried Chicken in the U.S.

    Pizza Hut Canada is adding Beyond Meat’s Italian sausage crumbles to its menu permanently.
    Source: Beyond Meat

    Pizza Hut restaurants in Canada are adding Beyond Meat’s plant-based sausage to their menus permanently, starting Monday.
    Nearly a year ago, the pizza chain’s parent company, Yum Brands, announced an official partnership with Beyond for exclusive meat substitutes for Taco Bell, KFC and Pizza Hut. Monday also marks the official launch of KFC Beyond Fried Chicken in the U.S. Through the partnership, the restaurant giant is hoping to attract customers who are eating less meat but may not want to follow strict vegetarian or vegan diets. At the same time, Beyond aims to find new customers for its products.

    Pizza Hut locations in Edmonton and Toronto tested the Beyond Italian Sausage Crumbles last summer. There are more than 450 Pizza Hut locations in Canada, and it’s the second market to add a Beyond Meat item to menus permanently, following delivery restaurants in the United Kingdom in July. Domestically, Pizza Hut tested plant-based pepperoni in five U.S. cities this summer, but a nationwide launch hasn’t been announced.
    Canadian customers can add the meatless sausage crumbles as a topping to any pizza. A flatbread pizza and an alfredo pasta dish will also incorporate the ingredient. Beyond uses pea protein as its base to mimic the taste and texture of sausage.
    Beyond’s stock has tumbled 42% over the last 12 months, dragging its market value down by $4.34 billion. While the KFC launch has encouraged some investors, Wall Street is still concerned about the company’s long-term growth prospects and the competitive landscape. Weak results last quarter damaged confidence in the company, and analysts are more excited about the potential of Beyond’s partnership with McDonald’s.
    Yum, on the other hand, has seen its stock climb 26% over the same time. The company has a market value roughly nine times that of Beyond.

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    2021 ranks as fifth hottest year on record as global greenhouse gas emissions rise

    The last seven years have been the hottest on record as the world continues to see a rise in climate-changing greenhouse gas emissions, according to a new report.
    Human-caused climate change is widely seen by scientists as contributing to worsening disasters like hurricanes, wildfires and heatwaves.
    Last year was 0.3 degrees Celsius above the average for the period between 1991 and 2020 and between 1.1 and 1.2 degrees Celsius above the average for the preindustrial era.

    A Cal Fire firefighter from the Lassen-Modoc Unit watches as an air tanker makes a fire retardant drop on the Dixie Fire as trees burn on a hillside on August 18, 2021 near Janesville, California.
    Patrick T. Fallon | AFP | Getty Images

    The last seven years have been the hottest on record, with 2021 ranking as the fifth hottest year as the world continues to see a rise in climate-changing greenhouse gas emissions, according to a report released on Monday.
    The annual findings by the Copernicus Climate Change Service, an intergovernmental agency that supports European climate policy, show a continuing upward trend in temperatures as fossil fuel emissions trap more heat in the atmosphere.

    “2021 was yet another year of extreme temperatures with the hottest summer in Europe, heatwaves in the Mediterranean, not to mention the unprecedented high temperatures in North America,” said Carlo Buontempo, director of the Copernicus service. 

    Muddy water flows into Alaknanda river two days after a part of a Himalayan glacier broke off sending a devastating flood downriver in Tapovan area of the northern state of Uttarakhand, India, Tuesday, Feb. 9, 2021.
    Rishabh R. Jain | AP

    Children play on the splash pad at Discovery Green during a heatwave in Houston, Texas, on Thursday, June 17, 2021.
    Callaghan O’Hare | Bloomberg | Getty Images

    Some parts of the world warmed more than others last year. For instance, Europe experienced a summer of extremes with blistering heatwaves in the Mediterranean and floods in central Europe. The 10 hottest years for Europe have all occurred since 2000 and the seven hottest years were all between 2014 and 2020.

    In North America, a severe heatwave in June broke maximum temperature records and resulted in the warmest June on record for the continent, the agency said.
    Extremely dry conditions also exacerbated wildfires throughout July and August, especially in several Canadian provinces and the U.S. West. The Dixie Fire became the second-largest fire in California’s history, burning nearly 1 million acres and resulting in poor air quality for thousands of people across the country.

    Cars sit abandoned on the flooded Major Deegan Expressway following a night of extremely heavy rain from the remnants of Hurricane Ida on September 2, 2021 in the Bronx borough of New York City.
    Spencer Platt | Getty Images

    “These events are a stark reminder of the need to change our ways, take decisive and effective steps toward a sustainable society and work towards reducing net carbon emissions,” Buontempo said.
    Last year was 0.3 degrees Celsius above the average for the period between 1991 and 2020 and between 1.1 and 1.2 degrees Celsius above the average for the preindustrial period between 1850 and 1900, according to the agency.
    Keeping global temperatures from surpassing 1.5 degrees Celsius – the level set by the 2015 Paris Agreement that scientists say will avert the worst effects of climate change – would require the world to nearly halve greenhouse gas emissions within the next decade and reach net-zero emissions by 2050, according to the Intergovernmental Panel on Climate Change.
    The world is on track to experience a temperature rise of 2.4 degrees Celsius by the century’s end, according to a scientific data tracker.

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    Experts cast doubts over reported 'deltacron' variant, say likely due to lab contamination

    Global experts are casting doubts over reports of a new possible Covid strain appearing to combine both the delta and omicron variants and dubbed “deltacron.”
    Reports of a possible new variant, found in Cyprus, appeared at the weekend.
    Experts have said it’s more likely to be the result of a lab processing error.

    Covid lab technicians in India on Friday Jan. 7, 2022.
    Bloomberg | Bloomberg | Getty Images

    Global health experts are casting doubts over reports of a new possible Covid-19 mutation that appeared to be a combination of both the delta and omicron variants, dubbed as “deltacron,” saying it’s more likely that the “strain” is the result of a lab processing error.
    At the weekend it was reported that a researcher in Cyprus had discovered the potential new variant. Bloomberg News reported Saturday that Leondios Kostrikis, professor of biological sciences at the University of Cyprus, had called the strain “deltacron,” because of its omicron-like genetic signatures within the delta genomes.

    Kostrikis and his team said they had found 25 cases of the mutation, with the report adding that at the time it was too early to tell whether there were more cases of the apparent new strain or what impact it could have. Bloomberg reported that the findings had been sent to Gisaid, an international database that tracks changes in the virus, on Jan. 7.

    Deltacron ‘not real’

    Some experts have since cast doubt over the findings, with one World Health Organization official tweeting on Sunday that “deltacron,” which was trending on the social media platform at the weekend, is “not real” and “is likely due to sequencing artifact,” a variation introduced by a non-biological process.
    WHO Covid expert Dr. Krutika Kuppalli said on Twitter that, in this case, there was likely to have been a “lab contamination of Omicron fragments in a Delta specimen.”
    In another tweet, she noted wryly: “Let’s not merge of names of infectious diseases and leave it to celebrity couples”
    Other scientists have agreed that the findings could be the result of a lab error, with virologist Dr. Tom Peacock from Imperial College London also tweeting that “the Cypriot ‘Deltacron’ sequences reported by several large media outlets look to be quite clearly contamination.”

    In another tweet, he noted that “quite a few of us have had a look at the sequences and come to the same conclusion it doesn’t look like a real recombinant,” referring to a possible rearrangement of genetic material.
    Fatima Tokhmafshan, a geneticist at the Research Institute of the McGill University Health Centre agreed, tweeting that “this is NOT a recombinant” but “rather lab contamination b/c [because] looking at recent GISAID submission from Cyprus the clustering & mutational profile indicate NO mutation consensus.”
    Another high-profile scientist, Dr. Boghuma Kabisen Titanji, an infectious diseases expert at Emory University in Atlanta, advised a cautionary approach, tweeting on Sunday that “On the #deltacron story, just because I have been asked about it many times in the last 24h, please interpret with caution. The information currently available is pointing to contamination of a sample as opposed to true recombination of #delta and #omicron variants.”
    However, she also noted that a possible mixing of the genetic material belonging to the delta and omicron variants is a possibility as both strains continue to circulate, and is a concerning proposition.
    “Recombination can occur in coronaviruses. The enzyme that replicates their genome has a tendency to slip-off the RNA strand it is copying and then rejoining where it left off. With #delta and #omicron both in circulation, dual infection with both variants increases this concern,” she tweeted.
    For his part, the scientist who announced he had discovered “deltacron” has defended his findings, telling Bloomberg on Sunday that the findings are not the result of a “technical error.”
    In an emailed statement, Kostrikis said that the cases he has identified “indicate an evolutionary pressure to an ancestral strain to acquire these mutations and not a result of a single recombination event.”
    He also reportedly said the findings come after the samples were processed in multiple sequencing procedures in more than one country and that at least one sequence from Israel deposited in a global database exhibits genetic characteristics of “deltacron.” CNBC has contacted Kostrikis for further comment and is yet to receive a reply.
    Cyprus’ Health Minister Michael Hadjipantela said on Saturday that the ministry was aware of reports of “deltacron” and that it was not something to worry about at the moment, according to a local media report.
    More on the disputed variant is due to be presented this week, he said, adding that he was proud of the country’s scientists for their findings.

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    Stock futures fall after S&P 500 posts 4-day losing streak

    Traders work on the floor of the New York Stock Exchange (NYSE) on January 07, 2022 in New York City.
    Spencer Platt | Getty Images

    Stock futures were lower in overnight trading Sunday after a rocky start to 2022 for equity markets as interest rates rise.
    Futures on the Dow Jones Industrial Average shed about 85 points, or 0.2%. S&P 500 futures dipped 0.2% and Nasdaq 100 futures lost 0.1%.

    The three major stock averages all fell in the first week of the year. The S&P 500 slid 0.4% on Friday for its first four-day losing streak since September. The Nasdaq Composite dropped 0.9%, also posting four straight losing days. The Dow Jones Industrial Average lost 4.81 points.
    Stocks, particularly high-growth names, have struggled as interest rates tick higher. The 10-year Treasury yield topped 1.8% on Friday, on a run after closing 2021 at the 1.51% level.
    “As we kick-started 2022 this week, trading attention fell on a definitive rotation into value and pro-cyclical stocks and out of growth as investors digested a sharply higher rate environment,” Goldman Sachs’ Chris Hussey said in a Friday note.
    The rising rates come as the Federal Reserve signaled it could dial back its easy monetary policy more aggressively than some expected. Minutes from the Fed’s December meeting released Wednesday showed the central bank is planning to shrink its balance sheet in addition to hiking rates.
    Investors are awaiting key inflation reports in the week ahead. The consumer price index is set for release Wednesday and the producer price index is slated for Thursday.

    Federal Chair Jerome Powell is scheduled to testify Tuesday at his nomination hearing before a Senate panel, while the hearing on Fed Governor Lael Brainard’s nomination to the post of vice chair is set for Thursday.
    Delta Air Lines reports earnings Thursday and financial heavyweights JPMorgan Chase, Citigroup and Wells Fargo release quarterly results Friday.

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    The $28trn global reach of Asian finance

    THE COUNTRIES of East and South-East Asia are renowned, even envied, for reshaping global supply chains. Less well appreciated is the extent to which they have redrawn the map of global capital flows. After a buying spree over the past decade or so, the region’s ten biggest economies now hold nearly $28trn in foreign financial assets, more than three times the amount in 2005 and equivalent to a fifth of global assets held by foreigners. Once-staid institutions that are little-known in the West—from obscure Japanese banks and Taiwanese insurers to South Korean pension funds—now wield heft in markets for assets ranging from collateralised-loan obligations (CLOs) in America to high-speed rail lines in Britain.East Asia has long been recognised as a contributor to the global “savings glut”, a concept popularised by Ben Bernanke, then a governor at the Federal Reserve, in 2005. The scale of Asia’s foreign holdings has only grown since, as the region has become richer and older. The Economist has looked at figures for the gross foreign financial assets for ten East and South-East Asian economies. We define these as total gross foreign assets excluding foreign direct investment by multinationals; our measure captures investment portfolios and bank lending, among other things. The combined foreign financial assets of our ten countries rose from around $8trn in 2005 to nearly $28trn in 2020, increasing the region’s share in global foreign-held financial assets by five percentage points (see chart 1).The composition of Asia’s savings hoard has also changed, strikingly so in some places. When Mr Bernanke conducted his analysis foreign-exchange reserves held by governments and central banks in our set of ten economies accounted for about half of a country’s foreign financial assets, on average. These had been stockpiled after the Asian financial crisis of 1997-98 as a bulwark against future currency collapse, and were held in safe, liquid assets. The average share of reserves has now fallen to nearer a third. Meanwhile, two-thirds of the stockpile now reflects an explosion in portfolio and other financial flows, as institutional investors in the region have hunted for yield (see chart 2).The shift is drawing the attention of financial watchdogs. In December the Bank for International Settlements (BIS), a club of central banks, concluded that Asian institutional investors had contributed to dollar funding stress in March 2020, as covid-19 first began to spread and markets panicked. Yet much about these financial interlinkages, and the risks associated with them, is still poorly understood.Our sample of countries can be split into three camps. The wealthiest handful—Hong Kong, Japan and Singapore—hold significant foreign-exchange reserves, but their hoards of other financial assets are between five and eight times larger. Their holdings are now mature, and slower-growing by regional standards.A bigger shift has taken place in South Korea and Taiwan. In 2005 almost half of Taiwan’s foreign financial assets, and two-thirds of Korea’s, took the form of reserves. Although reserve holdings have since more than doubled for both countries, portfolio and other assets have expanded at a far more rapid clip. Korea and Taiwan now own $1.5trn and $2.1trn in foreign financial assets, respectively, less than a third of which is held in reserves. In Malaysia, too, non-reserve financial assets now outweigh reserves two-to-one. By contrast, for a third set of countries, which includes China, Indonesia, the Philippines and Thailand, reserves still retain a large share.The growth in foreign financial holdings has gone hand-in-hand with the transformation of conservative institutional investors into big players in distant corners of financial markets. A prime example is Norinchukin Bank, an agricultural co-operative based in Japan. It holds some ¥4.8trn ($42bn) in CLOs, securities made up of a portfolio of loans, most of which are denominated in dollars. Before it slowed purchases in 2019, it was widely considered the largest buyer of CLOs in America.Taiwan’s insurers, such as Cathay Life Insurance and Fubon Life Insurance, have become influential institutions in a number of international markets. Their total assets have nearly tripled over the past decade. And more of them are now held overseas. By the end of 2020 almost 60% of their assets were comprised of foreign investments, up from 30% in 2010.Such institutional investment is now so widespread that Formosa bonds, foreign-currency bonds issued in Taiwan by a range of global firms and governments, have exploded since the securities were designated as domestic rather than foreign debt, allowing insurers to skirt regulatory limits on foreign-security ownership. By the end of 2021 the outstanding value of dollar Formosa bonds alone was $195bn, compared with $84bn six years earlier.South Korea’s National Pension Service has also sought more overseas exposure, announcing a flurry of global ventures. Foreign assets made up 37% of the pension fund last year, nearly double the share in 2013, and the firm aims to increase that to 50% by 2024. The strategy is to chase returns not only abroad but also in less-liquid asset classes, before the fund’s benefit payouts start to increase in the early 2040s and its revenue surplus turns to a deficit.Malaysia’s Employees Provident Fund (EPF), which manages mandatory pension investments for the country’s private-sector employees, provides another illustration of Asian institutions’ foreign reach. Last year it launched what it called the world’s largest sharia private-equity fund, with BlackRock, HarbourVest Partners and Partners Group each managing a third of the allotted $600m. The EPF’s foreign assets have also climbed from 29% of the total in mid-2017 to 37% in mid-2021. The result of all this activity is that Asian institutional investors have become enormous swing buyers in certain markets. “They’re disproportionately large in Australia,” says Martin Whetton of Commonwealth Bank of Australia. The country, he says, is the third-largest location of assets for Japanese life insurers, and tends to make up about 10-15% of their portfolios. Mr Whetton points out that purchases of Australian dollar assets in North Asia are large enough to shift the country’s cross-currency basis (the premium traders pay to temporarily exchange currencies).Some institutions have made promises of guaranteed payouts to clients and, as interest rates have sunk to rock-bottom levels, have had little option but to hunt for yield in less highly rated or more illiquid asset classes. Industry insiders note that insurers in the region have moved increasingly into emerging-market debt and higher-yielding Asian bonds. Private, illiquid assets have also become more popular. Asian investors have long been drawn to private equity and property, says Anish Butani of bfinance, an investment consultancy. Now “we’re really seeing a surge of activity in infrastructure and private debt”.To observers such as the BIS and the IMF, all this signifies greater financial risks than when more holdings took the form of safe, highly liquid reserve assets. Cross-border financial flows can be volatile and flighty, transmitting stress from one part of the world to another, and posing risks both to the buyers and the markets in which they participate. Although many institutions must pay clients in their domestic currencies, few appear to hedge their entire foreign-currency exposure. Private assets are harder to sell quickly at reliable prices, potentially posing liquidity problems should investors need to pull out. Precise, coherent figures on the composition, riskiness and liquidity of holdings are still hard to get hold of, making it difficult to gauge the overall picture.But understanding what’s going on could become more important, if China follows the path of East Asian economies. Its reserves of more than $3trn dwarf its other financial holdings. A shifting composition of foreign assets is not a matter of destiny, and would require some loosening of China’s capital controls. But even a marginal move towards more portfolio investment could produce huge flows of capital. “Chinese insurers have a lot of interest in investing overseas,” says Rick Wei of JPMorgan Asset Management. “They want to diversify their holdings, increase returns and match their liabilities with longer-term assets.” Even after more than a decade of rampant growth in Asia’s private foreign assets, more may be yet to come. For more expert analysis of the biggest stories in economics, business and markets, sign up to Money Talks, our weekly newsletter. More

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    Cyprus reportedly discovers a Covid variant that combines omicron and delta

    A researcher in Cyprus has discovered a strain of the coronavirus that combines the delta and omicron variant, Bloomberg News reported Saturday.
    Leondios Kostrikis, professor of biological sciences at the University of Cyprus, called the strain “deltacron.”
    It’s still too early to tell whether there are more cases of the strain or what impacts it could have.

    Staff at CSL are working in the lab on November 08, 2020 in Melbourne, Australia, where they will begin manufacturing AstraZeneca-Oxford University COVID-19 vaccine.
    Darrian Traynor | Getty Images

    A researcher in Cyprus has discovered a strain of the coronavirus that combines the delta and omicron variant, Bloomberg News reported on Saturday.
    Leondios Kostrikis, professor of biological sciences at the University of Cyprus, called the strain “deltacron,” because of its omicron-like genetic signatures within the delta genomes, Bloomberg said.

    So far, Kostrikis and his team have found 25 cases of the virus, according to the report. It’s still too early to tell whether there are more cases of the strain or what impacts it could have.
    “We will see in the future if this strain is more pathological or more contagious or if it will prevail” against the two dominant strains, delta and omicron, Kostrikis said in an interview with Sigma TV Friday. He believes omicron will also overtake deltacron, he added.
    The researchers sent their findings this week to GISAID, an international database that tracks viruses, according to Bloomberg.
    The deltacron variant comes as omicron continues its rapid spread across the globe, causing a surge in Covid-19 cases. The U.S. is reporting a seven-day average of more than 600,000 new cases daily, according to a CNBC analysis Friday of data from Johns Hopkins University. That’s a 72% increase from the previous week and a pandemic record.
    Read the full Bloomberg News story here.

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    Sports teams are investing $10 billion in stadiums by 2030 — here's how they'll be different

    Teams are are seeking venue upgrades and could invest more than $10 billion for development by 2030.
    These new and revised stadiums could be smaller than current ones, but are likely to include high-tech enhancements like grab-and-go technology for concessions, as well as more different kinds of seating experiences.
    “We’re competing against the 80-inch television in your living room,” said New York Islanders owner Jon Ledecky, who in November 2021 opened the $1 billion UBS Arena.

    Fans for the Tennessee Titans and the Los Angeles Rams before an NFL football game at SoFi Stadium, Sunday, Nov. 7, 2021, in Inglewood, Calif.
    Marcio Jose Sanchez | AP

    The Buffalo Bills are seeking a new $1.3 billion National Football League stadium. The Chicago Bears are spending $197 million to acquire land that could eventually be their new home.
    FedEx Field is falling apart, and Washington Football Team is lobbying for a new stadium in Virginia. A few Major League Baseball teams, including the Kansas City Royals, Oakland Athletics, and Tampa Bay Rays, want new parks.

    In the National Basketball Association, the Los Angeles Clippers have already started to build their $1.2 billion arena. The Philadelphia 76ers are angling, the Dallas Mavericks could be lurking. And then there’s the National Hockey League with the Phoenix Coyotes.  
    Teams are are seeking venue upgrades and could invest more than $10 billion for development by 2030. The bigger U.S. sports leagues have already secured national media revenue, so now teams want to increase revenue in other areas. New and revamped arenas are one way they can.
    Sports clubs can attract lucrative naming rights and sponsorship deals with new buildings. There’s also a potential real estate play, with franchises including the Atlanta Braves and Milwaukee Bucks using their new buildings as anchors for massive real estate projects. That development helps generate even more money for teams.
    Still, there remains a debate about who should fund sports projects, and what will be different in a post-pandemic environment.
    CNBC spoke to executives about the sports stadium and arena landscape and what’s to come.

    An aerial view shows the USD 1.66 billion MSG Sphere at The Venetian, where construction work is stopped due to the coronavirus (COVID-19) pandemic on May 21, 2020 in Las Vegas, Nevada.
    Ethan Miller | Getty Images

    Smaller venues, more experiences

    In the last 20 years, teams maximized arena revenue by adding larger corporate suites, club, and general admission seating. However, the ongoing Covid pandemic is changing that thinking.
    Bill Mulvihill, the head of U.S. Bank sports and entertainment group, assisted in financing the Los Angeles Rams SoFi Stadium, which cost $5 billion. He echoed others who predict smaller venues on the horizon for the next generation of stadiums and arenas.
    Mulvihill said more clubs are creating plans for in-arena spectators and TV viewers. “The idea is to have some unique fan experiences, not just drive up the total number of people in your building,” he said.
    “I think the talk and the trend are smaller capacities overall when talking about arenas,” added Rob Tillis of investment firm Inner Circle Sports. “The bigger NFL stadiums will maintain large capacity.”
    To enhance the value proposition of attending games, you may notice your favorite team is leveraging seating experiences like the NFL’s field-level suites. The Texas Rangers incorporated new seating options for Globe Life Field – their $1.2 billion ballpark. It includes suites on the field and two field-level lounges along the first and third baseline.
    CNBC took a tour of the Rangers’ new park last August.
    The field suites were pretty enjoyable, and sitting in the lounges felt like watching a baseball game while at a local sports bar with the field actual field nearby.
    “These new buildings are focused more on providing a variety of premium seating projects to meet the demands of the market,” said Dan Barrett, president at CAA Icon, the stadium and arena planning division of agency CAA Sports.
    “We’re competing against the 80-inch television in your living room,” said New York Islanders owner Jon Ledecky, who in November 2021 opened the $1 billion UBS Arena.
    “All these new arenas will have to give fans a reason to get up – go to their car and come to the event. If we don’t have a first-class experience, they’re going to watch the game at home,” Ledecky added.
    To paint a picture of future experiences, Mulvihill pointed to Madison Square Garden and New York Knicks owner James Dolan’s project in Las Vegas. The MSG Sphere, a $1.8 billion entertainment venue, will feature tech that allows spectators to hear concerts in different languages and an infrasound haptic system – a vibrating floor.
    “I think some of the ideas he’s talking about, how to view a concert in a different way, could carry over to the sports space,” Mulvihill said. “If that technology is slick and works, it could be transferrable to other venues.”

    Climate Pledge Arena rendering
    Source: Amazon

    Sustainability, grab-and-go technology  

    UBS Arena was built during the pandemic, which caused delays. But development firm Oak View Group rose to the challenge and invested $2 million in germ-killing air flirtation systems, something more teams will consider installing.
    Another 2021 Oak View project is Climate Pledge Arena in Seattle, where the NHL’s Kraken play. Executives praised the Kraken’s new home, noting it’s carbon-neutral and powered by solar and electricity.
    “Almost every arena will try to be carbon-neutral going forward,” said Oak View CEO Tim Leiweke. “I think you’re going to see more of a commitment toward sanitation.”
    The arena also uses grab-and-go tech from Amazon that lets customers pay for items automatically without having to check out with a cashier. (Amazon pioneered this technology in some of its convenience and grocery stores.)
    Barrett from CAA Icon — which oversaw Climate Pledge and the Golden State Warriors’ Chase Center in San Francisco — thinks facial recognition tech, automated concessions, and robotics will also expand.
    “Climate Pledge and [Chase Center] have set the bar high from a technology standpoint, fan engagement, and fan experience,” he said. “That’s until the Clippers building comes online. I’m sure given Ballmer’s background, he’ll want [Intuit Dome] to be the model going forward.”

    Inside of LA Clippers new arena
    Source: LA Clippers

    Intuit Dome will include a double-sided Halo video board with 44,000 square feet of LED lights and use walk-out tech for concessions. 
    “In five to 10 years when Ballmer is done, some of the older buildings are going to look really old, really quickly,” said Tillis. “They’re going to look like dinosaurs and won’t have the additional revenue-generating capabilities.”

    But who pays the bill?

    Technological enhancements aside, there are still debates surrounding who should fund sports venues.
    In 2016, the Brookings Institute published a paper against using public dollars to fund stadiums. The report estimated from 2000 to 2014, more than $3 billion in tax revenue was lost on tax-exempt municipal bonds used to finance pro sports venues.
    Leiweke, who aligned the Islanders with private money to build UBS Arena, agrees that it’s best to avoid public funds.
    “Municipalities and states need to be spending their money on schools, education, transportation, and life safety,” said Leiweke. “Now there is an ever-evolving thinking going on about how we [privately] finance these buildings and operate these teams to find new revenue streams going forward,” he added.
    In most circumstances, teams have leverage when soliciting public dollars, and sometimes threaten to relocate if they don’t get the money. That can hurt local economies. But after St. Louis sued the Rams for departing in 2016 – receiving a $790 million settlement – teams will probably think twice before relocating.

    Buffalo Bills owner Terry Pegula.
    Brett Carlsen | Getty Images

    Hence, in western New York, the NFL’s Buffalo Bills owner Pegula Sports and Entertainment is expected to split the cost of a new venue with the state.
    Engineering firm AECOM released a report estimating a $1.35 billion price tag for a new venue near the existing Highmark Stadium, and projected a minimum of $300 million more for a downtown stadium. The Bills’ lease at Highmark expires in July 2023, and the team’s goal is to be operating in a new, 60,000-seat field by 2027.
    Asked if inflation worries could impact financing for sports owners, Mulvihill responded: “These are long-term, 20, 30-year decisions for owners, cities, and states. The 10 percent increase in the cost to build is not materially changing those decisions.”
    Barrett projected up to $15 billion would be invested in new pro sports venues over the next 15 years. That estimate increases to $20 billion when calculating renovation projects. Both Barrett and Mulvihill suggest more teams will remodel than start new.
    The Jacksonville Jaguars and Green Bay Packers are among the NFL teams looking to remodel. In the Packers’ case, they raised money by issuing $90 million of public stock to help fund a $250 million renovation project to Lambeau Field.
    “You’re going to see significant investments over the next 10 to 15 years,” said Barrett, adding Major League Soccer franchises including champions NYCFC among teams lurking for new stadiums.  

    Fintech and crypto looking to spend

    Should clubs line up private financing, which they usually do, more revenue awaits.
    The Clippers aligned nearly $1 billion in naming and partnership deals for Intuit Dome, which is scheduled to open in 2024. Paul Danforth, president of CAA Sports, said fintech and crypto companies are particularly eager to spend money on sports to establish their brand in a digital age.
    Danforth cautioned markets like Buffalo shouldn’t expect megadeals like Los Angeles teams, “but it’s still a great opportunity for a brand in upstate New York and into the NFL.”
    Said Danforth, “In the past, they couldn’t afford to buy naming rights. But some of these businesses are growing at such a rapid pace that it’s accelerating their opportunity to be in those conversations. And these opportunities don’t come around that often. So that’s why brands want to be associated with them,” he added.

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