District would use tax money to guarantee D.C. United “reasonable profit” on stadium deal

When I wished for somebody in Washington, D.C. to crunch the numbers on the D.C. United stadium plan so that I wouldn’t have to, I was secretly hoping for the D.C. Fiscal Policy Institute to weigh in, since they did an excellent job breaking down the numbers on the Nationals stadium deal a few years back. And last night, DCFPI obliged, with a long post on their blog exploring the details of the plan.

Some of this we covered here last week: D.C. would engage in a complicated land swap that would end up with the District buying land in Buzzard Point worth an estimated $100 million and handing it over to the soccer team for $1 a year. D.C. would also provide $40 million to tear down existing buildings on the site, build new streets and sidewalks, and so on. D.C. United, meanwhile, would pay the estimated $150 million cost of building the stadium itself, making for roughly a 50/50 split on a $290 million project.

Except: An additional clause in the stadium agreement that could dramatically change the public share of the costs. From DCFPI:

According to the terms, if DC United is not expected to make a “reasonable profit” after meeting its operating costs and debt service, the team would pay reduced property taxes and the District would give all the taxes collected at the stadium – presumably property and sales taxes – to DC United.  If the team is expected to make more than a reasonable profit, the team would share a portion of these excess profits with the city.

In other words, D.C. taxpayers would effectively be guaranteeing D.C. United a profit: If team revenues fell short of what was expected — and nowhere in the agreement does it say what’s considered “reasonable,” or how this would be calculated — the District would cut the team a break on its property and sales tax bills to fill in the gap. The Washington Post previously estimated that such a kickback could be worth $2.6 million in its first year, rising as United had higher tax bills to write off; over time that could easily be worth $60 million or more in present value if team profits lag (or the team can present a set of books that show them lagging), which would put D.C.’s public cost at more like $200 million.

On the upside, the clause does also say that D.C. would share in any windfall profits, so it’s possible the city’s cost could go down from $140 million. Still, given that United would get all the revenues from the stadium while paying no rent, this amounts to: Pay for half our stadium costs and also share the risk with us that we won’t make enough profit on the deal, and maybe if we have enough money left after taking all of the revenues we’ll let you have some. As opening gambits go, it’s better than the Reinsdorf Ultimatum, but that’s not saying much.


11 comments on “District would use tax money to guarantee D.C. United “reasonable profit” on stadium deal

  1. It also sounds like, “We’re about to pay $150 million to build our building, and we think it will boost the surrounding area. Please provide land and infrastructure.” To me the only objectionable part is the $1 rent, and even that is justifiable.

  2. Ben, you left out “and don’t make us pay taxes if it doesn’t work out.”

  3. Yeah, that left out bit is really objectionable. The gov’t shouldn’t be guaranteeing the financial viability of a privately owned sports franchise.

  4. Not that profit guarantees are unprecedented, of course:

    http://www.fieldofschemes.com/2013/07/31/5614/benson-to-profit-by-392m-over-15-years-from-sweetheart-saints-lease/

  5. I’m pretty sure that if I had that deal I would make sure the stadium never ran a profit on paper.

  6. “The gov’t shouldn’t be guaranteeing the financial viability of a privately owned sports franchise.”

    Ah, c’mon, even for a soccer team whose handful of games a year are going to “boost the surrounding area”? If DC doesn’t give them what they want, they could take their $thousands of economic activity to the burbs!

    (Don’t bother – I know $thousands is an exaggeration.)

  7. You boys are a ray of sunshine. The government already does a lot of the public service things that you mentioned above such as improving libraries and other public works. And every once in a while it is nice that they help stimulate an area by doing exactly what they would do if they planned on developing Buzzard Point with homes and condos, libraries and parks to keep a local sports team that is historically the most successful sports team in the district. It doesn’t make it wrong even if you are not a fan of the sport. I’m a DC resident and enjoy going to sporting events along with parks and libraries.

    According to your theory the team should pay for everything associated with getting the land ready and the construction. Should every home owner in America have to pay for the construction of the streets and public utilities that run to their communities as well as the building of their home?

    At the end of the day if the team makes money and is successful then it will help grow that area along with the Nationals stadium like the Verizon Center has done for that area. If the team is losing money then the owners will be as well.

  8. Most people who buy a home have to pay for the land under it, yes. (Also property taxes on it, which D.C. United could get out of if their profits weren’t “reasonable” enough.)

    Also, I happen to be a fan of MLS. But that doesn’t make it right, either.

  9. I think what people don’t get in DC and elsewhere is that there is a difference between a venue being popular and a policy tool being effective. The MLS could sell out every game and the ability of the building to “promote” additional development could fall flat, which would make the public expense a lot more problematic to justify.

    Washington, DC has been the hottest real estate market in the country for a number of years now, yet every time a new building in SE/SW is built it gets pegged to the Nationals Stadium. In fact development in those areas has significantly lagged behind the area around the Transportation Department, probably because living near a stadium is kind of a pain on game days, and the extra business only comes about 85 days a year for businesses. Although I think the bar made out of shipping containers is quite charming.

    It is interesting also that Buzzard’s Point can’t break the development barrier even when other similarly run-down areas of the district have seen significant home sales and building activity. It does not have a metro station close by–nor will it–which will likely limit its attractiveness.

    What’s funny to me is that for all the complaining about RFK–there is actually nothing wrong with it for soccer games and it is far nicer than Anfield and about half the “iconic” soccer stadiums of England that fans rave about seeing. Maybe an attention span problem.

  10. Neil,

    I retract my earlier statement. This looks like a sham to get a free stadium.

  11. Good points GDub. RFK is a cool soccer venue and has a lot of history but the biggest difference from the examples you mentioned above is that those teams in England owns their stadiums thus helping their overall economic fortunes. D.C. United rents out RFK and hemorrhages money every year. I do not want to see the team leave the area and am excited about this development of the long term future of Buzzards Point as well.