Sacramento tries to keep its MLS bid—and massive downtown redevelopment—on the rails

March 29, 2021, 1:30 PM UTC

The atmosphere was raucous inside The Bank, a trendy food hall in the heart of downtown Sacramento, in October 2019. Fans of Sacramento Republic FC, the California capital’s professional soccer team, packed into the space for a press conference officially unveiling their club as Major League Soccer’s newest expansion franchise. 

MLS had handpicked Sac Republic to make the step up from American soccer’s second tier—where it would regularly draw more than 10,000 loyal supporters at its games—to the rapidly growing top division. Celebration was the order of the day, with the press conference at The Bank later giving way to a rally at the Capitol Mall attended by thousands of Sacramentans. 

Inside the boisterous food hall, speakers including MLS commissioner Don Garber, Sacramento Mayor Darrell Steinberg, and California Gov. Gavin Newsom heralded Sac Republic’s anointment as MLS’s 29th franchise. Also on hand was the soccer club’s new lead investor, the notoriously media-shy private equity billionaire Ron Burkle, who chose not to speak at the event but whose commitment to the cause was imperative. 

With Burkle’s backing, Sac Republic would have the capital necessary to join the MLS ranks and pay the league’s $200 million expansion fee. It could also build a brand new stadium that would anchor the city’s redevelopment of the long-neglected Sacramento Railyards—a sprawling 244-acre urban infill project that promises thousands of new residential units, millions of square feet of retail and commercial space, and a 1 million-square-foot Kaiser Permanente medical campus. With a new owner in place, Sac Republic could set its sights on joining MLS in 2022, and the city of Sacramento could count on a sparkling, state-of-the-art venue around which the Railyards redevelopment would flourish.

Nearly a year and a half later, those plans are now very much in question. In a stunning Friday evening announcement last month, MLS revealed that Burkle was reneging on his commitment to Sac Republic, citing “issues with the project related to COVID-19.” And though the league said it “continues to believe [Sacramento] can be a great MLS market,” Burkle’s retreat—which was driven by his growing discomfort with the overall cost of the investment, sources tell Fortune—has put Sacramento’s MLS plans on hold, and left the city and its soccer club scrambling to find new backing.

Otherwise, Sacramento risks losing its spot to any number of North American markets hungry for an MLS club of their own—as well as a critical component of one the largest urban renewal projects in the U.S.

“Our next steps are very clear: We need to find a new lead investor, someone who can see the opportunity of a [stadium] project that’s turnkey ready with approval from the city, and also sees the growth of MLS as an investment,” according to Sacramento Republic president Todd Dunivant.

Both club and city officials say there’s active interest from prospective investors in assuming the mantle vacated by Burkle and shepherding the club and its city into greener pastures. But all parties recognize that time is of the essence to save Sac Republic’s spot in MLS, and preserve its role as a key catalyst of Sacramento’s redevelopment.

“As mayor of the city I feel a sense of urgency, and yet I know that it takes some time to have conversations with potential investors [to replace Burkle] and to do all the vetting,” Steinberg tells Fortune. “These are complicated and important long-term financial decisions, but we’re acting with urgency.”

A rendering of Sacramento Republic FC’s planned stadium at the redeveloped Sacramento Railyards.
Courtesy of Sacramento Republic FC

An ‘indomitable’ city’s latest challenge

Talk to those charged with running the city and promoting its economic development, and the words “resilience” and “perseverance” consistently come up when discussing Sacramento. Having long sat in the shadows of California’s larger and more glamorous metropolises, the “Indomitable City,” as its Latin motto translates to, is no stranger to being discounted by outsiders as a sleepy government town with little else going for it—a dynamic that has instilled its denizens with a sense of civic pride and determination in the face of such slights.

“Look at what we went through with the Kings,” says Downtown Sacramento Partnership executive director Michael Ault, referring to the city’s fierce, successful battle to keep its beloved NBA franchise from moving to Seattle eight years ago. “This city has always shown resilience and a commitment to not backing down. We don’t shy away.”

Lately, Sacramento has had more reasons to feel optimistic about its prospects. Located roughly 90 miles northeast of San Francisco, the city’s housing market is booming amid a deluge of demand from buyers fleeing the ultra-expensive Bay Area, and stakeholders are keen to capitalize on Silicon Valley’s proximity to lure tech firms and diversify Sacramento’s economy.

“This is a city that, prior to the pandemic, was really on the cusp and has been transforming for the better part of the last decade,” Steinberg says. “Sacramento had a reputation for being a government town, and we maintain our pride in that designation, but it has become so much more over the past decade.”

The regeneration of the Railyards is a monumental part of that ongoing transformation. Built in the 1860s as the western terminus of the first transcontinental railroad, the sprawling site spans an area roughly eight times the size of Manhattan’s Hudson Yards, but has long sat dormant as a relic of the city’s mid-20th century urban decline. Nestled just north of downtown, near the banks of the Sacramento River, the Railyards has long functioned as both an industrial eyesore and a beacon of untapped growth for Sacramento’s urban core.

Dormant buildings stand at the Sacramento Railyards complex in Sacramento, Calif.
Ken James—Bloomberg/Getty Images

“The Railyards and waterfront development opportunities have always been looked upon as an incredible opportunity for us,” according to Ault. “If you overlay the [Railyards’] square footage, it’s roughly the size of [Sacramento’s] existing central business district. Not a lot of communities have the chance to double the size of their downtown.”

Large swaths of the project are already underway. Work began last fall on a new $500 million courthouse at the site, while Kaiser Permanente is soon expected to break ground on its expansive 18-acre medical complex. Still to come would be up to 10,000 new units of housing, as well as millions of square feet of new retail, office, and hospitality offerings spearheaded by the site’s private developer, LDK Ventures—though work on realizing all of the mixed-use components is expected to take years, if not decades.

The centerpiece, undoubtedly, would be a brand new home for Sacramento Republic. With an estimated price tag of $300 million and a planned capacity north of 20,000, the stadium would give the club an MLS-caliber, soccer-specific facility that would bring much-needed foot traffic to the Railyards. Though the era of publicly financed sports stadia has largely faded away—and city officials had little appetite for such an expenditure after contributing more than $250 million to the Kings’ new downtown arena—the Sacramento City Council approved more than $27 million in financing to help pay for the stadium’s infrastructure.

Steinberg says the city has identified millions of dollars in additional tax increment financing that it would be willing to deploy toward infrastructure costs, taking its contribution up to $45 million. As well as the 14-acre stadium site itself, he notes that the private investor backing Sac Republic and its new arena would be entitled to 17 acres of land adjacent to the stadium, which they would have the option to develop as they saw fit.

“The development opportunities are huge,” according to the mayor. “Once you get a foothold in a growing city, there will be many other opportunities as well. As far as the city is concerned, that option [on the 17 acres] absolutely remains, and it is a huge upside.”

Sacramento thought it had found an investor willing to realize that upside—until it didn’t.

Pittsburgh Penguins co-owner Ron Burkle (center) accompanied his hockey team to the White House in October 2016 to celebrate their Stanley Cup victory.
Cheriss May—NurPhoto/Getty Images

‘It was a great opportunity and it remains one’

Despite all of the pomp and circumstance surrounding Burkle’s commitment to Sac Republic, the Los Angeles-based billionaire never signed a financially binding agreement tying him to the club, multiple sources confirmed. Instead, the 16 months following the press conference at The Bank saw a confluence of factors conspire to ultimately result in Burkle’s withdrawal from the deal.

Representatives for Burkle’s private investment firm, the Yucaipa Companies, declined to comment. But sources with knowledge of Burkle’s thinking depict an investor who grew increasingly dissatisfied with the costs associated with the investment, particularly amid a financially destabilizing global pandemic.

They note Burkle’s unease at the $200 million expansion fee demanded by MLS, as well as escalating construction costs—driven by the pandemic’s strain on raw material prices—that they claim sent the stadium’s price tag as high as $400 million. Those sources add that the ownership group struggled to secure targeted financial commitments from various minority investors and note an increasingly challenged environment for construction financing. Coupled with other costs associated with owning the soccer club, such as the need to build a new training facility for Sac Republic, it all amounted to a check larger than Burkle was willing to write for an MLS team.

But that explanation draws little sympathy from Sacramento stakeholders who thought they had a commitment from Burkle to see through the investment. Several expressed frustration at what they saw as a reluctance by Burkle and his team to move forward with the Sac Republic project—particularly in the early months before the pandemic’s onset, when they had the design and planning approvals necessary to push ahead.

“I think there was just no execution on the project by the ownership group,” according to Barry Broome, president and CEO of the Greater Sacramento Economic Council. “If they had broken ground [on the stadium] last year, the construction pricing would have been dramatically better… The site is prepared, the stadium is designed, you have a fan base that’s going to sell it out, and a business community that’s going to sponsor it and buy suites. We just never really got a sense that they followed through.”

Multiple sources said they believe the pandemic soured Burkle’s willingness to invest heavily in a live sports enterprise, given the virus’ devastating impact on the business of professional sports. Burkle has witnessed this impact first-hand as co-owner of the National Hockey League’s Pittsburgh Penguins; the NHL expects to lose billions of dollars this season due to a protracted schedule of games played largely before empty stands. MLS is even more dependent on game-day revenues than other sports leagues due to its relatively modest broadcasting contracts, and sources said the uncertainty wreaked by COVID-19 made a project like Sac Republic all the more unpalatable for Burkle.

It’s also worth noting that Burkle had to deal with a devastating personal tragedy last year in the form of his son’s passing—a potentially sobering rationale for his disengagement from the Sac Republic project.

In any case, Sacramento is now left to try and salvage its MLS bid, and in turn Sac Republic’s place at the heart of the Railyards development. News of Burkle’s retreat from the deal was almost immediately met with speculation that the league could turn to another market like Phoenix or Las Vegas to realize its expansion goals.

While representatives for MLS declined to comment, sources familiar with the league’s thinking say it still hopes to pitch its flag in Sacramento given the advantages of its existing club and approved stadium project. But they add that other soccer-hungry cities are circling, and that MLS is eager to finalize its expansion plans before negotiating its next TV deal, which will take effect at the start of the 2023 season.

Steinberg, who notes that he has “a great relationship” with MLS commissioner Don Garber, says that Sacramento has already laid the groundwork for its inclusion in MLS. Now, the city just needs to find an investor willing to help realize its vision of a top-division club, playing in a state-of-the-art arena, in a newly revitalized downtown core.

“The league remembers when they came out here in 2019 and saw 10,000 people [at the Capitol Mall rally],” he says. “It was a great opportunity and it remains one, and I’m still confident we’re going to get it done.”