On Friday just before noon, D.C. journalist Tom Sherwood broke the news that the city’s attorney general, Brian Schwalb, had sent a letter earlier in the week to Washington Capitals and Wizards owner Ted Leonsis telling him his lease prohibits him from moving the teams out of the city before 2047:
The fine print here gets a little complicated, but here’s what it looks like Schwalb is claiming:
- In 1995, then-team owner Abe Pollin signed a ground lease with D.C. for his then-new arena, which he built on his own dime but built on district-owned land, which he was allowed to lease for $100 million less than its market value. (D.C. also seized some of the land by eminent domain and put up $60 million for infrastructure improvements to the site.) The lease ran through 2027.
- In 2007, the D.C. council approved another $50 million in bonds for upgrades to the arena, in exchange for which Pollin agreed to extend his ground lease through 2047.
- Pollin later that same year signed a side agreement with the district to be able to opt out of his lease early if he paid off the $50 million in advance — but that, according to Schwalb, “illegally exceeded” what the 2007 law provided for, and so is “ultra vires” (beyond the district’s legal authority),”void ab initio” (invalid from the start) and “unenforceable.”
- Ditto a 2019 lease amendment, which likewise was signed by D.C. officials but wasn’t a law that could override the 2007 bond agreement.
There are a couple of big questions here. First, which most of the subsequent back-and-forth between Leonsis (who bought the Capitals from Pollin in 1999 and the Wizards in 2010) and Schwalb has focused on, is whether the 2007 bond law trumps any of the later side agreements. But there’s also the question of what the original lease actually binds Leonsis to doing — presumably there’s some kind of clause promising that the teams will play home games in D.C. throughout the course of the lease, but what’s the penalty if they don’t? Without seeing the original lease we don’t know, and that document has so far eluded my web searches; if anyone knows where to find a copy, please drop me a line.
As for why Schwalb is only raising this now, after a months-long campaign by Leonsis to build a new arena in Alexandria, Virginia with $1 billion or so in public money, D.C. Mayor Muriel Bowser did hint at trying to force the teams to stay last month, though she didn’t provide legal details at the time. In that light, Schwalb’s letter is the other shoe dropping, with the clear intent of trying to get Leonsis to drop his mostly dead Alexandria plan and instead take Bowser’s offer for $500 million in upgrades to the existing arena — in exchange for which Leonsis would extend his lease through 2052, which is a long way off but also only five years longer than the Bowser and Schwalb claim he’s bound by the current lease, so not really much of an extension if so.
The legal niceties aside, this is very much an indication that we’re entering the throwing-shit-at-the-wall stage of the Wizards and Capitals arena talks: We already heard last that Leonsis has talked to Maryland state officials about building an arena there, and over the weekend Virginia state senate majority leader Scott Surovell and two local business leaders proposed combining the arena with a stalled casino plan for Tysons, Virginia, to the west of D.C. The easiest route would clearly be for Leonsis to take Bowser’s $500 million and run, but he may still want to extract more concessions — you have to think he would love an actual enforceable opt-out before 2052, for one, so he has leverage for future upgrade demands — so he has no incentive to agree to anything just yet, certainly not before the lawyers hash out what he can and can’t do under existing law. Find a comfortable seat, we’re likely to be here for a while.
If the teams are really not able to leave DC for another 23 years, it seems foolish for the mayor to offer $500 million in arena renovations.
It sure does. Lucky for our guys.
Makes you wonder if anyone in the DC office even bothered to read what they had in place before negotiating, doesn’t it?
Interesting, but not at all surprising, that neither Monumental or the DC negotiators appear to have actually read the agreements they were presently bound by before starting discussions (either together, or in Leonsis’ case, with other locations).
I would suggest it is not that unusual for there to be “no penalty” spelled out for breaking a lease agreement that both Pollin and DC officials signed in good faith/swore would never be broken. The teams could be bound to play in the location covered without any penalty for failure to do so quite easily in such circumstances.
Whether that is a wise thing or not is another matter.
“Trust in Allah, but tie your camel” as the ancient saying goes.
Leonsis could simply say “so what? We’re leaving. Whaddreyougunnadoaboutit?” (if he had an actual option in place, which he appears not to at present)
At which point I would expect DC’s legal department will start filing actions that reference Stan Kroenke’s departure from St. Louis and the resulting precedents & penalties among other things.
They may or may not be able to ‘force’ Leonsis to keep his underwhelming sports assets in their current location. But if not, they can certainly sue his ass for every dime in (real or perceived) lost revenue associated with a move in violation of the lease, plus the full value of the renovation contract/extension they signed with his predecessor in good faith, including interest.
Depending on how the current contract was written, it may or may not “replace” the original. It could simply be an augmentation of the original, in which case there may be other penalties that might apply. Generally, ‘new’ deals will be written to supersede the old. But not always.
You’d think an ex AOL exec would understand the value of (often penurious) contracts wouldn’t you?
Indeed, the “why is this just coming up now” is curious. I’m guessing there were billable hours to be had.
Insofar as this is still at least contestable in court, the city may still want to offer that $500m just to settle the issue or attract bidders for one or both of the teams Leonsis is trying to take out of the District. The city council may also want to improve the arena for the same dubious reasons city councils always do – “jobs,” “development,” “concerts,” “world-class city” etc.
I wouldn’t call the Caps underwhelming. They generally whelm. He’s done a pretty good job of taking them from afterthought – both locally and in hockey – to Stanley Cup champions. They had almost no season-ticket holders when he bought the team and now they have at least some and have generally been fairly well-run in the Ovechkin era.
Forbes has them 9th on the list of valuations at $1.6bn. I know those lists are sketchy, but that valuation sounds right. Roughly 8x what he paid for them.
The Wizards are another issue.
Fair point. The Capitals have been better and more relevant under Leonsis’ ownership than under Pollin… though they did make multiple playoff appearances in the decade or two prior to Ted’s takeover. IIRC they were eliminated by the eventual cup champion in ’91/92 & 94, and then were swept by the Red Wings in their first finals appearance (’98?).
We can’t ignore the impact of drafting a generational player who will ultimately become the highest scoring player in league history… which really doesn’t have anything to do with shrewd ownership or management. That said one player does not a team make.
Yes. 1998.
Chris Simon (RIP)
A good story about imminent domain please bear with me.
Years ago the school district in my old hometown Laredo, TX wanted to expand a grade school on the west (poor) side of town. They gave a local realtor the power to kick these tax payers out of their homes. So he (shockingly) gives the homeowners not just fair market value but replacement value! Contracts are signed, checks delivered, everyone’s happy except the school board!
Those elected human stains expected Mr. Wright to lowball the victims for pennies on the dollar.
After all, their houses are now worthless right?
Mr. Wright calmly explained to the school board that the homeowners needed to be made whole. After all, they didn’t do anything wrong.
Oh, the school board wasn’t having it! They had the stones to sue Mr. Wright for what? Violating existing real estate customs of sleaziness?
I can’t remember, it was over 20 years ago. But I saw it with my own eyes: one man (a real estate man!) did what was fair and proper and right.
Of course the local judge threw the case out if court. I lost track if it After that.
Side note to the side note: my girlfriend and I rented our first apartment from Mr. Wright in 1979. My sister worked for him for a few years. She mentioned in passing that I had broken up (we were long gone from that apt. by then) with my girlfriend. He was mortified! “I thought they were married! I helped a couple live in sin!” I wonder how many Rosaries it took to make up for that!
Humans are complicated.
Thanks Neil for indulging me!
Alexandria says the plan to bring the DC teams to VA is dead: https://apnews.com/article/virginia-washington-sports-capitals-wizards-fedabae3b196b6e79a759f7e6aa44a86
A new arena in Maryland probably won’t happen because the state just gave mountains of free money to the Ravens and Orioles.
If DC pols were smart, they wouldn’t give Leonsis $500 million unless/until he proves he has a viable option to move the teams elsewhere.
Update: They’re not smart (at least the mayor isn’t).
https://www.fieldofschemes.com/2024/03/27/21178/with-va-arena-plan-dead-leonsis-grabs-first-half-billion-dollar-check-he-can-find-in-dc/