Washington Wizards, Capitals, and Mystics owner Ted Leonsis is reportedly asking Washington, D.C. for some money to renovate his arena, which opened in 1997, according to a Washington Post story that I almost missed because it dropped on Friday night. How much money, you ask? Well, the Baltimore Orioles and Ravens up the road are each getting $600 million (plus more if the state wants), what do you say we do $600 million?
The funding would make up the bulk of an $800 million renovation plan Monumental has outlined to the city, according to the two people, who spoke on the condition of anonymity to discuss sensitive negotiations. The remaining $200 million would be covered by Monumental, which is owned by founder and chief executive Ted Leonsis.
One of the people outlined the ask: Monumental would receive the $600 million over four years and use it mostly on construction. The major priorities are to transform the seating bowl — fewer nosebleed seats, more seats close to the court and ice — as well as add a food court that would be open during nongame hours and a new, glassy entrance at Seventh and F streets. Monumental wants to do incremental construction over four consecutive summers, starting in 2024, to avoid disrupting the playing seasons of the Capitals or Wizards, this person said.
The source here is “two people with knowledge of the situation,” which isn’t very specific at all, but the details are detailed enough that it seems like they’re coming from somewhere, anyway.
The teams’ arena is owned by Leonsis’s company Monumental Sports & Entertainment, and there’s nothing requiring D.C. to fund upgrades, but district officials sound pretty copacetic about writing some kind of large check regardless. D.C. Mayor Muriel Bowser, asked about the possible arena renovation subsidy, replied with a joint statement with Monumental saying that “The District recognizes that Capital One Arena serves as an important economic anchor as we continue to reimagine and reinvigorate our Downtown,” so that certainly sounds like the district and Leonsis are working together on something. D.C. Council chair Phil Mendelson said he would need to know the details of any plan before taking a position, but did say he in general “supports giving Monumental public funds because the arena is an economic anchor in a fragile downtown” (the Post’s words, not his).
And before you can get your bearings on this apparent $600 million ask that seems to have its political skids well-greased, the Post drops word down in paragraph six that Nationals owner Mark Lerner wants his own pile of public cash:
The Nationals, in September, sent local leaders a letter asking the city to repurpose parts of the existing “Ballpark Revenue Fund,” which is dedicated to paying off the municipal bonds floated to fund the construction of Nationals Park, into a “Ballpark Modernization & Sustainability Fund.” The proposal would put taxes on tickets, food and merchandise, taxes on parking and the lease payment into a new fund to maintain and modernize the city-owned ballpark, but it wouldn’t create a new tax or pull from other budgets.
That’s super-confusing wording, but it certainly sounds like now that the Nats’ stadium is two-thirds paid off, Lerner wants the taxes on in-stadium spending that are being currently kicked back to pay for about 30% of the cost of the stadium to start being kicked back instead to pay for future renovations of the stadium. How much would that amount to? The in-stadium tax money was initially projected to amount to $11-14 million a year back in 2004; I can’t find any more recent figures, but just assuming a standard rate of inflation that would be $20 million a year today, and more in the future, meaning Lerner’s ask could easily be worth well over $300 million in diverted future taxes that would otherwise go to the district treasury.
With the way stadium subsidy numbers are going, it’s easy to start getting a little jaded — oh, only $300 million, at least that’s not over a billion like some MLB owners I could mention. But between the Wizards, Capitals, Mystics, and Nationals, D.C. could easily be looking at over a billion dollars to zhuzh up sports venues that it expected to be done paying for now — and in the case of the arena didn’t even pay for in the first place — just because “economic anchors.” How big an anchor are they? Oh, hello, Stanford sports economist Roger Noll:
Noll said even when a new stadium is built, a city gets about as many full-time jobs as a Macy’s department store.
I bet the Chick Fil A across the street is more of an economic anchor than the arena with less/no subsidies, paying taxes, and open almost every day.
It would certainly be a better use of capital than a sports arena (dollar for dollar). Whether one restaurant is better for the region than the arena itself I don’t know, but certainly a small group of restaurants or bars and a strip mall or two would generate far more economic impact for the region.
Less money for millionaire players and billionaire owners, but you know, I’m fine with that..
What would you estimate the income taxes generated by the Chic-Fil-A is? because the top income tax rate in DC goes from 4-10.75%. The Chic-Fil-A employees would probably fall at 6% (for $10K-40K) while the guys who play for the Wizards are either at 9.75% ($500K-$1M) or 10.75% ($1M+). The Wizards and Capitals have a combined payroll over $200 million so just player salaries generate over $20 million per year in payroll taxes.
That’s before you factor in all the front office and arena staff (which are on par with the Chic-Fil-A staff)
I am assuming here that you intended to reply to me and not the OP, Aqib. If so:
1. If you read my comment you will see that I am expressing doubt that a single Chic Fil A would generate more economic activity (which is more than just payroll taxes, obviously). You seem to believe I am saying the opposite of that.
2. You have assumed that all employees of all the sports franchises will pay income tax on their full gross income… in fact virtually no-one pays the marginal tax rate on their full income (including you and I) because of built in exemptions.
Further, If the payee in question is an executive or professional athlete they will certainly be taking advantage of multiple tax shelter opportunities that ordinary workers do not have access to (you recall the plethora of generous athletes setting up foundations to “give back” during the 1990s I’m sure… I certainly do) to reduce their tax owing and, in some cases, payroll and income taxes deducted at source. Even lousy sports agents and tax accountants know how to do this successfully.
So your $20m from the Wizards and Caps alone boast is unlikely to be accurate. Since professional athletes and sports executives have access to top level tax attorneys (if nowhere else then through their bosses bosses bosses…) a more reasonable figure would be $5-7m annually… and that assumes that all athletes covered are residents for tax purposes (something we cannot know, frankly).
Balanced against that is the all important net calculation, in which you have to subtract the annual debt carrying costs associated with ‘keeping those jobs’ in Washington… which can be huge, frankly, and tends in most districts to easily outweigh the net benefit to the city of a handful of high paying jobs and a large number of temp arena gigs in security, concessions, janitorial etc.
$5-7m is still a healthy number of course, which is why I put doubt on the notion that a single restaurant with a total payroll of (probably) under $1m (there are more employees and contractors associated with a fast food joint than most people think) would be ‘better’ for the city’s economy than an arena.
That said, when you roll in multiple fast food joints and a strip mall or two – much less a big box store development for example – that costs the city little or nothing in subsidy (and which may generate net positive development fees & tax revenues unlike arenas generally do) and has many more FTE employees than a venue that is open and fully staffed for 4-6 hours 100-150 days a year (max), it is easy to see how the economic benefit calculation shifts toward the stores and not professional sports.
The “wizards and caps alone” comment ignores a large number of other factors. The dangled carrot in these kind of calculations is always the “loss” of the income stream. What is never examined in any detail is the cost to ‘keep’ these jobs (or if, in fact, the jobs and their alleged tax revenue would be in jeopardy absent the subsidies at all).
You’re right that I oversimplified the calculation by simply multiplying the teams’ payrolls by the marginal tax rate for the the taxes on player salaries. On the flip side I think you’re exaggerating the use of tax planning for athletes. The income tax loopholes don’t really target people whose income is primarily salaried income its more for capital gains and entrepreneurs and money managers. The ESPN 30-for-30 episode broke talked about how athletes tend to pay the highest marginal tax rates.
However, my overall point is that when anyone does the an analysis you have to include payroll taxes as part of the equation. While you can explain away sales taxes as ones that would be taken up by the substitution effect (which I am not sure is 100% true because you can’t isolate how much is generated by people who came into town for a game or if people would spend the money not spent on sports in the same place). You could also explain away development around a sports venue as only pulling from other parts of the metro area. However taxes on teams payrolls won’t be explained away. People say that if people went out to dinner or movies instead of games then restaurants will hire more people etc. Well those jobs would be a substitute for game day staff at arenas. Game day staff at Capital One Arena is about 1000 people. I don’t include those because if people are going out to dinner in DC instead of games those dinner shifts are likely to be filled by the folks who would normally work at the arena on game night.
Take the Bills stadium for example. There have been an endless number of articles written about how bad that deal is. How terrible it is that the state is paying $850 million for the stadium. Now at current interest rates it would be about $50 million a year in debt service. If they issued 30 year bonds to pay for it. NOT ONE article mentioned how much income taxes Bills players pay. Now the income taxes won’t cover the debt service (at least in the first few years) but its not an honest calculation if you don’t include it.
When it comes to big box stores, WalMart gets tens of millions of subsidies every year in tax incentives from state and local governments. Now I know that this is a sports site so we only talk about sports deals, but if you look at corporate subsidies for non-sports the other deals will make you throw up.
Amazon alone gets $5 billion in subsidies. Even with their New York headquarters getting scrapped they still got $671 million in state tax breaks most of which was for their movie studio
“People say that if people went out to dinner or movies instead of games then restaurants will hire more people etc. Well those jobs would be a substitute for game day staff at arenas. ”
That’s incorrect. If I spend $100 at a sporting event, then that $100 goes to somebody’s paychecks — players, hot dog vendors, people stitching baseballs in Haiti. If I spend $100 at a restaurant, that $100 likewise goes into somebody’s paychecks — waiters, chefs, people picking arugula in California.
There are a few ways in which the two situations are different: Higher-income earners pay a higher percentage of their income in taxes (though not as much for state and local income taxes as for federal), some money for athletes comes from out-of-state spending like by TV viewers; and on the other side, athletes are less likely to live year-round in the place they work than pastry chefs are. So it’s not a 1:1 replacement, no, but it’s a lot closer than people pretend it is.
I wrote about all this at length here:
https://www.fieldofschemes.com/2015/01/28/8430/wisconsin-governors-arena-plan-depends-on-future-nba-players-averaging-33myear-salaries/
And there are many, many studies finding that per-capita income does not go up in a city thanks to the presence of more sports teams, as would happen if athlete income were a net gain. Here’s just one that’s available online:
https://www.sciencedirect.com/science/article/abs/pii/S0166046202000108
Sure you wouldn’t notice the impact of $200 million worth of athletes payroll on an entire metro area. On the flip side if a team left you wouldn’t see prosperity raining down except in a rare case like St Louis where they got hundreds of millions of dollars in cash as the team left.
As far as the pasty chef goes vs athletes goes, the pastry chef is on par with the cooks in the arena. That’s why I didn’t include the arena staff income as part of the equation.
As much as you say that the presence of a team has an inconsequential impact on an areas economic output on the flip side the impact on government budgets is also inconsequential. For all the hype about the State of NY’s $850 million contribution to the Bills stadium the states annual budget is $229 billion.
I do not think that word “inconsequential” means what you think it means…
The arena was part of a big transformation in that part of DC and it was privately funded.
Whether that transformation was the best outcome for the city as a whole is not clear, to be at least.
Losing the Wizards and the Caps to a new arena somewhere else, like Virginia, would be a bummer. But I suspect there are better ways to create economic opportunity with that $600m.
You’re thinking that if Leonsis doesn’t get his $600m he’ll abandon the arena he owns for an arena that doesn’t exist? How would that work?
Hey, the threat doesn’t have to be rational to work…. see NY Yankees… but yeah, this one makes no sense at all (I mean the demand).
If he can con politicians in Virginia or Maryland into building him a new arena, he might.
Math is not my strong suit…. but aren’t we nearly up to $2Bn already when factoring in the $600m each for Orioles and Ravens along with the presumed $600m for the Caps/Wizards owner?
Seems like with the Nats ask (whatever it turns out to be) we could easily be over $2Bn without ‘even trying’ here.
Yay, capitalism…
I’m not sure why you’d add those particular bills together. DC is not Maryland, even though it probably should be.
Looking at a map, it seems like DC and Baltimore are all one market, but for a variety of reasons, they really aren’t.
You’ve answered your own question there. They ‘really are’, or MLB wouldn’t have required the Nats to indemnify the Orioles (For one thing. For another the NFL leadership – Tagliabue and Jack Kent Cooke – worked against a Baltimore expansion franchise in the mid 90s… that franchise went to, of all places, Jacksonville instead).
I also left out DC United, the Mystics and whatever Monumental’s professional pickleball franchise will be called…
Ah, Ted….
https://www.washingtonpost.com/sports/2023/11/08/wizards-capitals-qatar-ted-leonsis/
I’m sure they are ‘hands off’, Ted, but be careful. But some of them do occasionally bring bone saws to the AGM. As it turns out, you never know when you might need one…