D.C. United report says city would make money on priciest MLS stadium ever, because [CALCULATIONS NOT INCLUDED]

As noted yesterday, now that the elections are safely over, the D.C. council has finally issued its report on the D.C. United stadium plan, and man, oh man, is it long. The report totals 406 pages, which I have done my best to look through and pull out the main takeaways. So, bullet points ahoy:

  • The first item of importance to note is the big logo at the top of page one, which belongs to Conventions, Sports & Leisure, one of the consultancy firms that specializes in these kind of economic impact studies. And when I say “specializes,” I mean that they do a lot of them, not that they necessarily do them well — CSL has a track record of crazy-high impact estimates, landed in hot water for conducting a stadium impact statement for the Los Angeles Angels when their parent company had recently signed a deal to run the Angels’ concessions, and is owned by the Dallas Cowboys and New York Yankees, which kind of puts a crimp in their claims to objectivity. But let’s not prejudge their work entirely based on past results — so, soldiering on…
  • Still on page 1: “All information provided to us by others was not audited or verified, and was assumed to be correct.” Given that those “others” mostly consist of D.C. United itself and the city officials who are backing the stadium plan, should we really read the other 405 pages?
  • At $286.7 million, this would be the most expensive MLS stadium ever. D.C. would  be on the hook for $131.1 million of that, plus $50 million in sales and property tax breaks, which jibes pretty well with my $178.5 million subsidy estimate from earlier this year.
  • The district would be overpaying for stadium land by $19.4 million and getting $11.2 million less for the city-owned Reeves Center than it’s worth. That’s not so much an added cost as a potential savings left on the table, but duly noted.
  • The stadium would create 1,683 full-time equivalent jobs, which would be right around the typical craptacular $100,000-per-job-created cost for most stadium projects. If the job projections are correct, of course — they appear to come not from any estimate of how many people would actually work at the stadium, but rather by plugging the total projected economic activity into a formula and calculating it that way, which is awfully dubious.
  • The stadium is expected to generate $109.4 million more over a 32-year period (why 32 years? why not?) in city revenues than it costs the city. This claims to account for both leakage (new spending that is generated outside D.C., such as when fans stay at hotels in Virginia) and substitution (spending that is just cannibalized from other local spending, say, if fans cut back on Nationals or Wizards tickets to go to more United games).
  • There are other problems, though: First off, the report doesn’t compare spending at a new stadium with current spending at RFK Stadium, instead counting all spending as new — on the grounds that “it is likely that D.C. United would relocate to another market if a new stadium is not developed in the District,” though really then you should be deducting the amount of old spending that would get redirected to other things (Nats, Wizards, whatever) in D.C. if the team were to leave.
  • Second, the report estimates that 73% of fan spending would be new to D.C. — and says this figure accounts for leakage and substitution — but doesn’t indicate where that figure comes from. If, as I suspect, it’s from D.C. United’s own figures on how many fans come from out of town, then there’s a huge problem here: Many people from out of town are already in town for other reasons and just choose to go to a sporting event while they’re already there. (I know the last time I went to a Nationals game, it was as a side trip for going to the Smithsonian and such, not the main course.) And while, as I discussed in the Nationals case, D.C. is a bit less susceptible to substitution thanks to so many people living outside the city limits in the Maryland and Virginia suburbs, they tend to come into D.C. for a night out anyway, so it’s dicey to assume that if they weren’t in town for a soccer game, they’d otherwise be spending all their hard-earned cash out beyond the Beltway.
  • D.C. will need to lay out its money before D.C. United even puts together the financing for its part of the deal, which raises “the potential risk of non-performance   by the developer.”
  • The subsidies are the only thing keeping United in the black on the deal: Even just without the tax breaks, “team/stadium operating revenue is not expected to cover debt payments until year 19 (2035).” In other words, United wouldn’t be making money on the stadium, they’d be making money on the subsidies.

There’s more — it’s 406 pages, how could there not be more? — but those appear to be the major points. The upshot is: The industry usual suspects say, using figures provided to them by the team and not otherwise checked, that D.C. should earn back a small profit on the stadium, provided all their assumptions about who’s spending what where are correct. That’s a lot more questions than answers raised, which makes it all the more unfortunate that the D.C. council has now left itself with only a month or two to make a decision on the stadium plan — unless, of course, they decide to kick it back to after January 1, with a new mayor and a new council. We shall see.


13 comments on “D.C. United report says city would make money on priciest MLS stadium ever, because [CALCULATIONS NOT INCLUDED]

  1. I could actually see MLS treating DC like the NFL treated Houston if the team doesn’t get a stadium. Relocate out of a big market as an attempted shockwave to convince politicians in places like LA and NY to support stadium subsidies.

  2. I hope for a fair deal and this looks better than most. I’ve been very interested in the project as I live there and I can offer more insight into some of your bullets from the meetings I’ve attended including yesterdays:
    1 – If you are going to do an assessment of this type why would you not choose a group that has done so many, you could argue though that this would make them more likely to want to appease big business.
    2 – The “others” listed do not include the city and DC United, those groups are the middle man of sorts. All of these details directly regarding the stadium study (except the attendance numbers) are through contractors hired to acquire this information. In this case you will need to vet them as well. But that information is also available on the city’s web document portal.
    3 – Correct. However, without this the team would not make a profit and be able to reinvest in certain player commodities under MLS rules without these benefits. By introducing the tax breaks assessed as $50 million over the lifetime, DC gov ensures that they will receive a larger cash flow than currently and additionally the potential growth around the area including taxes from that.
    4 – I see this as a negative and positive. The loss of this money is important to note, but waiting the 2-3 years for a building auction on the Reeves center would cost the city considerably more in lost property tax and rent to self (since they own the building) as well as growth in the SW area missed out on.
    5 – As stated at the round table yesterday. The jobs are also due in part from the hotel that is being built along with the stadium. Though I still don’t think that many FTE jobs will be created.
    6 – Note that this number does not take into account any other incomes, only the stadium and hotel site assumed to be built. This makes the net income a more impressive figure to me.
    7 – The people that attend soccer games in DC are less likely to attend other sports other than hockey (sell outs already) and baseball (widely available, would not attend any more or any less). Look up the demographics for attendance and you’ll see a large number of hispanics that do not attend the others at all.
    8 – Very few people from out of town just happen to attend a DC United match. RFK is not in a part of town most people want to stay or go to at night. If they come to RFK it is for a reason. Otherwise the families from suburban metro DC would stay out there.
    9 – Scariest part of the deal to me. However, new language had been added to the Stadium bill stating that if the cost goes over $150 million DC United would assume some of the costs. If they do not honor this there will be large financial penalties. Financially, some are questioning if DC United has the money, but if it cannot pay it’s part of the bill, the bill states they cannot move to another city and are trapped at RFK or they must fold. Since MLS is a single entity then the entire league is on the hook here and no likeness can be used in another city. If the bill is not approved within a year, the team will leave most likely anyway.
    10 – Correct that the subsidies keep DC United in the black, however, your analysis “United wouldn’t be making money on the stadium, they’d be making money on the subsidies” is poorly worded. Not just because you removed the assumed $60 million in debt based on other stadiums debts, which could end up being more or less, but that you state they would not be making money through the stadium is wrong. They would be making money, however, they would owe more money back on this assumed $60 million dollar debt than their profit would allow to pay. See #3 for other reasons this is beneficial to the DC government.

  3. $286 million for an MLS Stadium!?! And I bet it won’t have one feature that Lew Wolff’s private stadium he built for the San Jose Earthquakes didn’t have with its $60 million price tag. This is what happens when you get the public dole involved… suddenly costs go through the roof.

  4. “However, without this the team would not make a profit…”

    Why is it DC’s responsibility to build DCU a stadium in a way that lets them stay profitable? Does the city make a hundred million dollar plus investment in other businesses who want upgrades in PPE?

  5. The reason you don’t hire the company that “does so many” of these surveys is because 1) they aren’t very good at the job and 2) they write surveys that assume the conclusion.

    If the city hadn’t spent the last two+ years deciding how to build a soccer stadium with public money, the land could have been bought and sold already. Selling land in a bad deal to “save money” is the worst kind of business. The DC market looks up, not down, so there’s no reason to sell at an assessed loss.

    The arguments about profitability of DC United are mostly irrelevant. Even if you argue for an enormous ‘public benefit’ of the team making the playoffs, no sports owner buys a team to make a profit (which normally can be make good with bookkeeping anyway). That “MLS rules” should play a role in public policy discussions is one I haven’t heard before.

    Most likely, the team could fold and hardly anyone would remember in a year.

  6. “They would be making money, however, they would owe more money back on this assumed $60 million dollar debt than their profit would allow to pay.”

    You know what owing more on your expenses than you earn in revenues is called? A loss.

  7. Riky did a great job explaining the local viewpoint. His statements regarding alternate sporting events and visitors to the area are correct. Soccer fans are loyal to their sport, and they almost all have to go out of their way to attend the games. Many of the fans, myself included, live outside DC — some as far as Richmond — and still regularly attend games.

    Aside from the local intricacies, there are a few issues that you glossed over in your post.

    First, regarding the tax abatement you refer to in points three and ten, this is in place due to the high-tax locality. Even with the “subsidy,” DC United will have the highest tax burden of any MLS team. The tax abatement is further necessary, not so much for the team to turn a profit (most soccer teams operate at a loss), but so the team will be able to cover its debt to build the stadium (and, therefore, would have difficulty receiving credit in the first place).

    Second, you question why a 32-year period was used in the analysis. The expected life of the stadium is 30 years, and it is standard practice to use the full expected life of a project when completing a cost-benefit analysis. The additional two years accounts for the two years prior to the expected opening of the stadium.

    Third, the risk of non-compliance as detailed in the report was significantly downplayed during the DC Council’s hearing on the stadium report. Non-compliance by DC United would essentially amount to the dissipation of the team, which is not something that’s in the cards.

  8. I also forgot to add that the percentage of the stadium project being funded by District government (56%) is in line with the average percentage of public funding for MLS stadiums (54%).

  9. We honestly need to get a Kickstarter campaign going, or something similar, to fly Neil around to council meetings like this one so he can attempt to raise common sense and stop at least a portion of public money going into stadium deals. I’d chip in in a heartbeat.

  10. Super genius at the Washington Business Journal says that DC not only gets a new stadium but a new municipal center as well. I assume that his brilliant solution on how to pay for the new municipal center after having already gifted the Reeves Center revenue to the United is hidden behind the pay wall.

    http://m.bizjournals.com/washington/print-edition/2014/11/07/viewpoint-let-s-bring-this-d-c-nited-stadium-deal.html?ana=e_ph_prem&u=p06EkPffXISblosC07ntgdKjXzO&t=1415366922&page=all&r=full

  11. The fact that, by their own admission, the users of the stadium would overwhelmingly be individuals who live outside of DC goes to show just how ridiculous alot of these stadium deals are in the era of regional sports franchises and TV deals are. One metro area gets saddled with the large expense of providing entertainment and “amenities” to commuters and suburbanites, who then return promptly to their suburban areas where they are never on the hook for the eventual boondoggle.

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