D.C. United profit guarantee could leave taxpayers underwriting big-name player acquisitions

As promised, the D.C. Fiscal Policy Institute has been digging into the nuances of the proposed D.C. United stadium deal on its blog, most recently with a pair of posts outlining how the land swap for the stadium site would work, and how the term sheet divides up the construction costs. Among the highlights:

  • “It is not clear why stadium land acquisition has to happen through swaps. The District could sell the Reeves Center and other valuable properties to the highest bidder and then use the proceeds to buy stadium land.” DCFPI notes that the Washington Post reported that D.C.’s chief financial officer had previously estimated the Reeves Center to be worth as much as $186 million, and would be swapped for a parcel worth an estimated $100 million; if formal appraisals of the land values differ, the soccer team would pay D.C. the difference, but there’s no guarantee that appraisals will actually match up with what land could fetch on the open market.
  • As discussed here previously, D.C. would guarantee United a “reasonable profit” (whatever that means), kicking back property and sales taxes if team profits fall short, something that DCFPI calls a “soccer safety-net for DC United.” DCFPI here notes something that hadn’t initially occurred to me: Because sports teams, especially in leagues clamoring for public attention like MLS, will often take on big expenses as loss leaders — they cite the Seattle Sounders‘ recent acquisition of Clint Dempsey here, though part of that cost was covered by the league — “by subsidizing DC United if it faces operating losses, the District would essentially pay for players and other investments aimed at improving the team’s future bottom line.”

With all the known unknowns in the United deal, there’s plenty more for DCFPI — or, you know, news reporters — to investigate in coming weeks. Washington Post, anyone? No? Okay, just asking.


7 comments on “D.C. United profit guarantee could leave taxpayers underwriting big-name player acquisitions

  1. That seems like a bit of a stretch. First, the salary cap in MLS is so ridiculously low that it still really hard for a team to spend itself into trouble hoping to sign a attention-grabbing loss leader. Even using a Designated Player spot, that the Dempsey deal is the biggest in league history shows where the bar is.

    And the Dempsey deal is not a great example. First, I have seen different reports on the transfer fee, some saying the league paid all of it (and some part of it). Second, Dempsey was put in Seattle by MLS (remember it’s still a single entity that owns all the contract). Why? Good luck getting that out of Garber (and a few clubs are not happy with how it all went down) but with such a large paying fanbase (40,000+ showing up to games) Garber was either putting Dempsey in a city he knew could afford them and/or rewarding a city for having so many fans.

    Point being, MLS bends over backwards to limit player salaries and protect owners from themselves. Now, if you’re a DC taxpayer, your worry might be the next CBA where the cap and the single-ownerness might be up for some substantial changes, but the league has generally “helped” teams not live beyond their means.

    Even the ridiculous BECKHAM IS MAKING $50M/YEAR deal was only around $5M in salary. The other $45M was estimated contingent revenue (from things like shirt sales, and exhibition matches) that was tied to money Becks would bring in. Covering just the salary was a piece of cake for the Galaxy.

  2. Yeah, I’m not sure Dempsey is the best example either. (DCFPI’s expertise is in finance, not soccer.) But the greater point still holds: If you see something shiny that costs, say, $1 million — whether it’s a player or a new salad bar — and know that if you spend that $1 million then *the District of Columbia will give you $1 million in extra tax money*, that’s a pretty huge incentive to spend money.

    Hell, unless there’s something about this profit guarantee that we don’t know, I don’t see why the D.C. United owners couldn’t just pay themselves (or if that’s too obvious, their wives) $10 million a year fees for negotiating their own concessions contracts, or something, and then turn around and say to the District, “Sorry, no profits left over, see?” Especially given the dodgy state of sports bookkeeping, this is a hugely dangerous clause.

  3. “I don’t see why the D.C. United owners couldn’t just pay themselves (or if that’s too obvious, their wives) $10 million a year fees…”

    I’d consider that a bigger abuse risk than a marquee (but in all probability over-the-hill) DP coming in. But, yeah, any clause that let’s owners syphon money willy-nilly is indeed hugely dangerous, not to mention stupid.

  4. So, now “Adam Smith” Capitalism means not only bailing out gigantic bureaucracies when they engineer their own demise, but guaranteeing that private for profit businesses will earn a tidy return on their 30-40% investment in a P3 despite the fact that the taxpayer sponsored project will earn essentially no return to public coffers?

    I don’t recall reading any of that in Wealth of Nations… and I don’t believe for a second that’s what he meant when talking about the “invisible hand”.

  5. I guess, you guys (everyone commented here so far) are not soccer (futbal/football) fans! If you are you’d be talking in soccer language. If you all recall (go to the DCU trophy case and see it yourselves) DCU is one of the most decorated team in DC sports. I am sure you all did not analyze National stadium and or Wizard’s with the same approach (if Redskins are coming, rumors, to DC, I’d like to read anti this project articles too!). The Buzzer Point is dump now. It has been that way decades. If (when) DCU stadium is built there, you won’t recognize the place after a few years later. If you don’t believe me go see the National stadium area. It was a scary place before the National Stadium.

  6. I’d say I’m now a moderate soccer fan, though admittedly DCU’s time as a league powerhouse is before my time. (Having a soccer-obsessed kid has helped convert me.) And I certainly did analyze the Nationals stadium with the same approach — go select “Washington Nationals” under Posts By Topic and see.

    From what I remember, the area where Nationals Park is now was mostly gay strip clubs before the stadium, which I guess qualifies as “scary” for some people. It’s certainly starting to see some development now, but given that there’s hardly a part of D.C. at the moment that isn’t covered with cranes building condos, it’s kind of tough to attribute that to the stadium.

  7. So because DC United has won stuff they deserve to have the gov’t guarantee them a profit? Also, what exactly is soccer language? Is it based on who has won the most World Cups? Like some Portuguese-Italian hybrid?

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