DC mayor’s lease-back plan could add $110m (UPDATE: or not!) in public costs to Caps/Wizards arena

Six months after the Washington, D.C. council approved spending $515 million on upgrades to the Capitals and Wizards arena, Mayor Muriel Bowser has finally come up with a proposal for that last step — and it involves a lease-back deal where the city would buy the arena for $87.5 million and lease it back to owner Ted Leonsis for between $1.5 million and $2.3 million a year in rent.

“The deal was always written, if we left, the city was going to get the building,” Leonsis said. “This was a way for us to, I think, cement the partnership. … This is a way to say if we’re going to spend $800 million, we want all of the dollars going into it.”

There’s a lot going on here, so let’s recap:

• The city already owns the land under the arena, which is the whole reason for needing a lease to begin with. It also means Leonsis does not currently pay property taxes on the land itself — just $1.3 million a year in rent.
• By buying the arena itself from Leonsis, Bowser would not only give the team owner $87.5 million, she would remove the building from the tax rolls as well.

[UPDATE 10/23/24 1 pm ET: After emailing with a team representative and Propheter and going through the proposed arena purchase legislation, I’m now satisfied that the $87.5 million purchase price would actually come out of the $515 million already approved by the council, not on top of it. (The wording of both the legislation and the media coverage is super-convoluted, but the Leonsis rep confirmed that this is correct.) I’m putting together an update post to run either later today or tomorrow morning — I’ll post a link here once that’s live. (FURTHER UPDATE: It’s up.)]

• Economist Geoffrey Propheter, the guru of all things sports and property tax, notes that by a previous agreement, all of the arena’s real property (the building itself) is already exempt from property tax. What would be exempted would be personal property (all the stuff in the arena), which Propheter estimates would make the new tax break worth about $1-1.5 million a year, or $18-27 million in present value.

[NOTE: That was assuming the sale of personal property, which Monumental has finally confirmed is not happening.]

• Propheter further notes that Leonsis would get rights to an alleyway and a strip of street frontage as part of the deal, plus arena air rights. Total value: “chump change but still non-zero.”
• Also, though the teams’ rent would go up under the new deal, it would go up slightly more under the old deal, costing the city about $5 million in present value.
• That bit Leonsis said about “if we left, the city was going to get the building” refers to a clause the city got in exchange for previous publicly funded renovations in 2007, which guaranteed that if the teams moved or their existing lease expired, D.C. would be able to take possession of the arena for free. So spending $87.5 million to get Leonsis to sign a new lease that costs the city at least $23 million worth of lost taxes and rent is awfully WTF.

[NOTE: As noted above, it’s not really $87.5 million in new spending if it’s coming from the money the council already approved. As for the value of the lost taxes and rent, see the followup post.]

(D.C. deputy mayor Nina Albert also said, in the Washington Post’s paraphrase, that “the sale-leaseback model is good for the District because it ensures the money planned for the project will be used as intended and not subject to taxes.” That doesn’t make any sense — taxes are good for the District, since it collects them — nor does the Post’s claim that “the company would have to pay hundreds of millions of taxes back to the District on the renovation money it would receive” without the new lease — as noted above, there’s only about $18-27 million worth of taxes owed now — but an Important Person and an Important Newspaper said it, so I’m passing it along.)

Bowser’s plan still has to go through the D.C. council, so there’s at least the possibility someone will raise some questions here. But right now it looks like the mayor is looking to pile an additional $110 million of public money on top of the $515 million that was already approved. Which, yes, is a way of guaranteeing Leonsis gets “all of the dollars going into” the deal, but one would think a mayor’s priority would be to get some of the dollars for her constituents, too.