Total Virginia subsidy for Caps, Wizards arena could top $1.5B, aka “just a lot of public money”

The Washington Post did a late Friday news dump revealing that they’d obtained a 37-page JPMorgan study of the proposed Capitals and Wizards arena project in Alexandria, Virginia that filled in some of the missing pieces of the deal. The main takeaway, according to the Post, is that “the net cost to taxpayers would ultimately reach an estimated $1.35 billion,” which is an impressively ridonkulous number; let’s break down all the details, though, and see what we get:

  • The state of Virginia would issue two bonds, one for $1.05 billion and one for $416 million. The former would be repaid by a combination of tax kickbacks from the project, parking revenue, and the sale of naming rights for the project; the latter would be repaid by team rent.
  • Virginia would kick in another $150-200 million in money from existing transportation bonds, this despite Gov. Glenn Youngkin’s vow that “there is no upfront investment or inclusion of any taxes already being collected by the Commonwealth.” (One unnamed state official told the Post that this was “sort of an asterisk” on the governor’s statement; the governor said that the area would need transportation spending anyway, but didn’t say if without a giant arena project that would otherwise amount to $200 million.)
  • Alexandria would kick in $106 million, about half of it for a concert hall, though it’s possible the city would get some of that back from parking revenue. (Mayor Justin Wilson told the Post that this money wasn’t “going to enrich a billionaire” because it was an “investment for the city.”)

Clearly, to come up with a total subsidy figure, we’re going to need to know how much of that $1.05 billion bond will be repaid with siphoned-off tax money, and how much with actual project proceeds. But while the Post didn’t provide a breakdown, it fortunately did share the JPMorgan report with your friend and mine, Kennesaw State economist J.C. Bradbury, and Bradbury answered that question for me via email (from memory while on the road, so take these as estimates): Of the total debt service, about 60% would be paid off with tax money, 25% from parking and naming rights, and 15% from team rent. If I’m doing the math right, that means that if we’re talking a total of $1.466 billion in project bonds, that would involve about $880 million in tax money; add in the transportation bonds and city spending, and we’re looking at somewhere around $1.15 billion in tax money going into the project.

On top of that, previous reporting has indicated that the arena would be owned by the state, which would exempt it from property taxes. If that’s worth the $380 million we previously estimated, then the total taxpayer subsidy could clear $1.5 billion.

Bradbury, noting that the recent Tennessee Titans stadium set a high bar for stadium subsidies at $1.2 billion, summed up the proposed Virginia deal to the Post as “just a lot of public money,” and that looks pretty undeniable regardless of what final number is arrived at. In exchange, the public would get back an as-yet-undetermined trickle of new sales and income taxes, while (yes, billionaire) team owner Ted Leonsis would rake in the actual money from ticket sales, concessions, naming rights to the venue itself, and all the other stuff you get from actually running an arena.

There are still a ton of side agreements to be worked out before it gets finalized, as well as official approval from the state legislature and city council, so this isn’t the most expensive sports subsidy in history yet, but it could well turn out to be. Two random people on the street have differing opinions on this!

The Post had a busy weekend on the Virginia arena front, also reporting that Leonsis wants to move out of D.C. once he’s paid off his mortgage because he doesn’t like the terms of his mortgage (so very much wut), as well as that a relocation by Washington’s NBA and NHL teams would put pressure on D.C. Mayor Muriel Bowser to ante up for a Commanders football stadium, “because of the public perception that she ‘lost’ the Wizards and Capitals.” One unnamed “person with direct knowledge of the Commanders’ stadium search” told the Post, “Obviously, D.C. needs a sports team. They need more than one sports team,” which very much sounds like the Post allowing a source to hide behind anonymity to dish opinions and spin, a big journalistic no-no. The Post’s own ethics policy further promises:

There are situations in which we will publish information from a single source, but we should do so only after deliberations involving the executive editor, the managing editor and the appropriate department head. The judgment to use a single source depends on the source’s reliability and the basis for the source’s information.

I would love to get a transcript of that multi-editor conversation in which the reporters argued that, yes, this unnamed Commanders or district official is 100% reliable that D.C. “needs a sports team,” and/or that this assertion was factually confirmed by a second source. Credit to the Post for getting ahold of the JPMorgan report and asking Bradbury to do a proper analysis, but when two reporters on the other side of the newsroom are promoting sports subsidies as a political necessity, it’s hard to hand out all that many props.

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7 comments on “Total Virginia subsidy for Caps, Wizards arena could top $1.5B, aka “just a lot of public money”

  1. I’m no anonymous source but I’d think this would have the opposite effect on the Commanders stadium, taking Virginia off the table.

  2. DC still has a height limit on buildings, reducing the profitability of a project to replace Capital One Arena. In all this, I would feel bad for the Hoyas. It wouldn’t make sense to keep a 20,000 seat arena downtown if the primary tenant is a college team, but would moving to the campus arena with 2,200 capacity be a program killer? Moving to the Virginia complex would probably have the same effect on the Hoyas like playing in Rosemont had on the DePaul Blue Demons.

    1. Leonsis or one of his spokespersons has already said they’re keeping the arena open for concerts and whatever else. It’s absolutely profitable with or without the professional teams, but why turn a billion+ down when it’s handed out?

      His ownership of COA also makes it an even better deal to take Virginia’s money. He’s not going to have to deal with DC getting another arena operator to compete with his new place, he’ll own or control both primary DC area arenas.

      1. According to setlist.fm, this year there have been 52 dates of concerts through 12/19. Maybe more events have been there that don’t get classified as concerts (WWE, Globetrotters, ice capades, etc.) Maybe they can add more events if 80 dates aren’t committed to the Capitals and Wizards, but that still seems like a waste of downtown real estate.

        1. The NBA and NHL games tend to gobble up the best non summer weekends. So they may find some takers now that they’re available. But then Leonis will have two arenas competing with each other for concert dates. Does he want them at the arena he owns, or the one he gets for free? And are there even enough touring acts to fill those dates?

          1. They’re not competing if they’re both owned or operated by his company. It’s a good problem to have. They’ll coordinate.

    2. For a long time DePaul was successful in Rosemont. It was hard for students to get there from Lincoln Park, but suburban alumni and good teams helped fill the place. I think the collapse was more the result of bad decisions on coaches, ADs, presidents and conferences. Even in their new downtown arena, the downward spiral continues.

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