City Desk

Ballers and Cents: Why Is the District Helping Buy Land for a D.C. United Stadium?

dcu

When it comes to stadium financing, the private sector ain’t what it used to be.

Consider the Verizon Center. When Abe Pollin, the former owner of the building and its primary tenants, the Washington Wizards and Washington Capitals, died four years ago, every tribute made sure to note that he’d paid to construct the downtown arena himself. Which was true—as long as you overlooked the $70 million (worth more than $101 million in today’s dollars) the District government put up to acquire the land it sits on and improve infrastructure in the area. Or the $50 million in improvements the city bought for Pollin in 2007, a sort of 10th birthday present to the stadium. Set against the $693 million the District paid to build Nationals Park outright, of course, the $120 million the public gave Pollin looks downright stingy.

Compared to math like that, the deal the city reached with D.C. United last week for a soccer stadium on Buzzard Point looks pretty decent. The District would provide land and infrastructure improvements worth about $150 million; the team would pay another $150 million to build the actual arena. If the team (which loses money in its current home, RFK Stadium) makes an undefined “reasonable profit,” the city would get a cut. The complicated land swaps involved in the deal would also help the District spur development on the valuable real estate now occupied by the Reeves Center at 14th and U streets NW and build a new municipal office building at Anacostia Gateway, which officials hope will help create the kind of boom there that the Reeves Center did 20 years ago on U Street. And the team, a four-time Major League Soccer champion, would finally get a less-rickety home for about 20,000 fans, with sight lines built for soccer instead of baseball and football.

Just because the stadium deal is a better deal than most cities get for subsidizing arenas, though, doesn’t necessarily make it a bona fide good deal. D.C. United is a passion of mine: I went to my first game in 1996, the league’s inaugural year; I’ve had season tickets for 13 years; I bring my toddler daughter to enough games that she yells the team’s name when she sees its black-and-red logo; and I’ve traveled near (Gaithersburg—during rush hour!) and far (Los Angeles and Harrison, N.J.) to support the club. But I’d be even more excited about buying seats in the new stadium for the 2016 season if there was no public money for it at all.

Financially, D.C. United could afford to cover the whole $300 million tab on its own. The team’s primary owner, Erick Thohir, is the biggest media mogul in Indonesia; he also owns the Philadelphia 76ers basketball team and is reportedly negotiating to buy a majority stake in Italian soccer power Inter Milan. California venture capitalist Will Chang, one of Thohir’s partners, is a part-owner of the World Series–champion San Francisco Giants. Neither of them needs a handout from District taxpayers.

Even with recent budget surpluses, the District still has needs that go unfunded. Finding $8 million to keep the city’s libraries open on Sundays, for instance, took years. Why is a soccer stadium a better investment than increasing affordable housing, building more public parks, expanding efforts to control flooding in Bloomingdale, or any other item on city government wish lists lately? If the land swaps and development involved make so much sense as a real estate proposition, why wouldn’t private investors want to finance it all themselves, to make potential windfall profits down the line? And if selling the Reeves Center to a private developer makes sense as part of the stadium deal, shouldn’t the city just sell it on its own and keep the money?

The consolation for civic-minded soccer fans is that United didn’t push particularly hard to bluff its way into leaving town, the usual threat sports teams make to scare elected officials into building them stadiums. The team tried to build a facility in Prince George’s County a few years ago under previous ownership, but that deal fell apart; negotiations to move the club to a publicly funded stadium in Baltimore never seemed to get very far. Ownership and management insisted they wanted to stay in the District, and unlike the Nationals—whose owners last year tried to demand that Metro pay to keep trains running past the usual closing time to bring fans home from the team’s publicly funded stadium during the playoffs—the club goes out of its way to be a good corporate citizen. And like Pollin’s Verizon Center, the new D.C. United stadium will at least see the for-profit sports franchise that benefits from it pay for most of the construction of the building.

What the early praise for the Buzzard Point package really shows is what a lousy deal stadiums typically are for taxpayers. Only graded on the generous curve of stadium financing is United doing the public any favors. Keep that in mind as Mayor Vince Gray and Ward 2 Councilmember Jack Evans, who wants his job, muse aloud about bringing the Washington Pigskins back from Landover, Md., where they decamped in 1997 after former owner Jack Kent Cooke built the team a $250 million RFK replacement (which, like Verizon Center’s deal in D.C., also got $70 million in road and infrastructure funding from Maryland taxpayers). These arrangements have a tendency to get worse as they age, too: The Nats ballpark, after all, was originally supposed to cost the city “only” $440 million; by the time it actually opened in 2008, the price had gone up by 50 percent, in part due to land acquisition.

Ultimately, the District’s budget may make out OK under the D.C. United proposal. But if you expect the city to come out ahead every time a sports team comes calling, I’ve got a bridge in Brooklyn to swap you.

Stadium rendering via D.C. United

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Comments

  1. #1

    Mike Madden wrote an intelligent article. Thank you, City paper and Mike Madden.

    I'm not going to opine on the deal. The Gray Administration has not provided enough detail to say whether the deal makes sense for DC or not.

    Madden's piece provides some good facts on which on others can build as this amtter goes for full Council approval.

  2. #2

    Madden mentions the Redskins.

    Regardless of how you feel about the skins in DC, the fact is that a new Skins stadium won't fit on RFK's foot print. RFK's footprint is much smaller that FedEx Field's footprint.

    If DC wants the Skins, DC has tp put the Stadium straddling both Reservation 13 (site of hte old DC General Hospital) and RFK's current footprint.

    If you doubt this, go to GoogleEarth, as I HAVE DONE. Impose FedEx field's footprint onto RFK,and you'll see. Remember, the Skins will want to build a big stadium with at least 80,000 seats. And you'll need a lot of acreage for pRKING.

    So to build a new stadium, we'd have to build on Reservation 13. That might be a good idea. So, any talk of putting a new Skins stadium on RFK and of it not expanding into Res 13 is ridiculous.

    As long as DC government is honest about that fact, we can have a good discussion.

    again, if you doubt this, try Googleearth.

  3. #3

    The reeves center did not create the u street boom, the metro did. Some.

    The buzzard point deal is good for the owners who can't develop it for the foreseeable future.

    Now, as to anacostia gateway......how about poor old lonely poplar point? Next cycle. Poor old lonely poplar point.

  4. #4

    Chris, I agree. The Reeves Center did not revive the U Street corridor. Nor id teh DC government building on H Street, NE. Both "hot corridors" became more economically vibrant due to a number of factors. among those factors were a growing DC economy and. more residents with disposable income moving into the respective areas The U Street station clearly has helped U Street.

    Personally, I think better policing made a difference as well.

  5. #5

    Chris and Jim,

    There were dozens of factors that have led to the revitalization on U Street. The METRO stop and the Reeves Building were both significant for the access and office presence respectively. The Metro was six years before any of the major parcels were put into development, keeping the land on top of the station at 13th & U, where the Ellington, Langston Lofts and Union Row are redeveloped after 2000. The last lots at 8th & 9th and Florida Avenue are being developed now. Sure the metro has helped, but it also helped to kill off 90% of the businesses that had existed on U Street and 7th Street during massive construction delays.

    There are no simple answers.

  6. #6

    If it can redevelop and improve that area and increase the tax base by new venues in that area along with improved infrastructure then its a long term win for the city.

  7. #7

    Above ground parking would be built at RFK if the skins move there. Solves the size issue.

  8. #8

    Ditto on it being a good write up.

    What's most telling to me about this entire stadium discussion is the "outrage" from the GGW/Myop sect who have been essentially mute on the matter. No sensational stories about how ANY stadium deal is bad for DC. No stories about how the Gray administration is pandering to the lowest denominator. Just nothing...nada.

    Obviously we can figure out why....

  9. #9

    Great article. I keep asking myself that same question - if the Reeve's Center is as valuable as we all know it is, why not just sell it at market rate? Use the profits to finance DC's portion of the stadium/land and keep the rest. No one seems to be mentioning that Akridge is clearly getting a steal. Someone on the DC side clearly has something to gain. A building AND land on 14th and U (which you could argue is THE SINGLE hottest spot in DC, MD and ALL of VA) for a parking lot in Buzzard Point. LOL. Wish I could find a deal like that.

    And FedEx could fit where RFK is. It will take some creativity, but parking will not be nearly as big of a necessity as it is in MD because of how close it is to a train! Just bring back the Landover Racists and let's call em' the Washington Skins (not Red).

  10. #10

    I don't care about the Redskins in DC but I'm not sure I agree that RFK footprint couldn't accomodate it mostly. Heinz Field in Pittsburgh is cited as an example of an urban stadium with transit access like RFK is. According to the internt the stadium sits on 12 acres. It looks like about the same amount dedicated to parking. Hard to tell exactly since it's shared with other uses. That's certainly enough for tailgaters. As Nationals Stadium has shown us, people WILL metro in. So a stadium, slightly less parking, some structured parking and some tailgating area could definitely fit reasonably.

  11. #11

    Jim--While I agree parking is an issue, I'm not sure a new football staadium could not be placed on the RFK site. Look at nationals statdium, no parking for 40,000 cars there. They depend on the subway and busses. The same could be done at RFK.

    As an aside, it was parking that caused the Skins to leave DC in the first place. DC was going to build a new stadium but Cooke wanted to pave over part of Langstion golf couse. Mayor Barry refused and planned to erect parking garages instead. Cooke felt the only way to get what he wanted was to build it himself. On the third try, he got his way at "RalJon".

    you are correct that with the current anti-car mentality in the city you could never build a parking lot as big as the one at Redskin Staadium, butt you could build garages like the nationals.

  12. #12

    Re:Nationals comparison, I see no mention here of the fact that DC United has been a tenant of the DC Government for 17 years, paying well in excess of $50 million in rent for a stadium in which the city has invested not a cent in upgrades. To the contrary, the "improvements" to RFK (paid for by MLB on behalf of the Nats during their brief stay,) dramatically eroded the venue's value for DC United fans, mostly be destroying the seating bowl.

    I just think it bears mentioning that for 17 years, DC United's tenancy has been a FAR better deal for the city than for the team's owners, to say nothing of their local supporters. If you want a reason *why* the city should pitch in to the modest extent that it will, there's an easy one.

    It's also important to note the 50-50 split in the overall cost. DC's half will be almost entirely for site design and construction, which means jobs and dollars pumped in to the local economy on a similar scale to the city's out of pocket costs.

  13. #13

    Parking garages at the RFK site? There used to be federal incinerator on the RFK site - long before RFK. Back in the day, they just dumped the ash out back. Well, the RFK lots sit on top of that ash. Some of it is toxic. When RFK was built, the dump was "capped" and surface parking was put on top. Wala, you have a tailgater's dream now. But if you break the cap, you could have a Brownfield. Someone would have to pay millions to clean it up. I'm guessing Dan Snyder won't want to pick up the tab.

  14. #14

    But... the city will still own the land that the DC stadium will sit on, yes..?

    The team is then leasing it... They aren't giving any land away...just...swapping it.

    So they aren't losing money, just striving for development in a new area, while capitalizing on the development in another area, through new land and cash.

    I guess I don't see where they are losing money, necessarily? Infrastructure improvements cost money, but that comes with every development effort, and is necessary, yes?

  15. #15

    SW,DC: As has been reported here at City Paper, Ackridge will almost certainly be putting a lot of cash on its side of the balance, along with its parcel in the stadium footprint, in exchange for the Reeves Center site. It's not a straight swap - the city will also be getting a big chunk of cash in the deal. It might be that the city uses that cash to buy out Pepco and Mark Ein (the other landowners on Buzzard Point) and/or to fund the construction of the new Reeves Center in Anacostia. Or they might use it for something else, like one or more of the priorities Madden lists in the column.

    My take: the mayor and amenable CMs are using the political cover of a stadium deal to dispose of some assets they'd rather be producing tax revenue for the city, which can't happen as long as they're owned by DC. The Reeves Center site is one of those, and 300 Indiana Ave NW might be one too. It's hard to say if the city could have sold these assets straight up - an auction would have been even more time consuming and could lead to potential litigation when a bidder feels hard done by missing out, and it could very easily be much harder to get all the Council members on board without the many goodies to dish out to each ward (e.g. new Reeves Center in Ward 8). By structuring the deal as land swaps, there's no cash on the line.

    I am sympathetic to the notion that Thohir & Co. should pay the land acquisition and preparation costs themselves, but I don't have much of a problem with some limited (and well-defined) amount of money coming from the city. Stadiums like this are more akin to theaters and other cultural amenities that don't necessarily need to be profitable to the city for the residents to obtain value. (Which is not to say that unlimited funds should be committed; a balance is necessary, and thus far I am optimistic that the deal between the District and United has found that balance.)

  16. #16

    @ AMT:

    Good points on the political cover. On the soccer stadium as a cultural amenity: Like I said, I love the team, and I'll be at RFK this Saturday, so I certainly see the value for the city in having them here. On the other hand, theaters and museums and galleries and the like are typically not for-profit ventures owned by very wealthy private operators who stand to make more money from their ticket sales. This deal practically guarantees United a profit, by giving the team a tax break if they don't hit the "reasonable profit" number they agree on.

    It's entirely possible that the balance has been struck, but until the land swaps are complete and we have a better sense of what's being done and who's paying for it, we won't really know. The biggest problem with the stadium deal so far is its total lack of transparency; we can't even judge whether it's a good bargain for the city.

    @ David: Yes, infrastructure is necessary in lots of development. But it's not necessary that the city pay for it. If you were starting a business and needed to buy land for your office, would you expect the taxpayers to buy it for you?

    @ Jon: United also got use of the stadium for 17 years. Obviously the terms were unfavorable to the team, and the baseball configuration sucks (especially the missing stands behind the south goal), but it's not like they paid rent and got nothing for it.

  17. #17

    As usual, The Simpsons have the authoritative word on publicly-financed stadiums:
    Mr. Burns: "Welcome, to the American dream. A billionaire using public funds to construct a private playground for the rich and powerful."

  18. #18

    @Mike, I thought part of the deal involved Akridge actually developing the new Public Safety/Reeves Campus as well? Can we get clarity on this?

  19. #19

    @ DC Guy:

    That's the problem, there isn't much clarity on that. Our reporters are trying to sort out details along those lines.

  20. #20

    Mike Madden, thank you for your dialogue on this.

    The catch here is that the people negotiating on behalf of the District (Gray and a few key Councilmembers) are eager to get a deal done no matter what the cost. So, who is looking out for the interest of DC taxpayers? Wh is willing to say, "Hey, the deal stinks." You can never win a negotiation that you are not willing to walk away from.

    We taxpayers have to rely on the media, Councilmemeber Catania and Chairman Mendelson to make sure we get a good deal.

  21. #21

    AMT. You just said that there was a huge chunk of cash Ackridge would give in the deal, then said there was no caso on the line. Lol. Either way unless its $75 million or more, it's a bad deal. DC could get much more on the market then buy that Buzz Pt. lot for $10 million or less. The Reeves Center would fetch nearly $100 million (I'd imagine). So sell it at a price close, then buy the lot and Pepcos share of the lot. the city stands to net 10s of millions!?!? And DC has successfully sold real estate in the past.

  22. #22

    Why not just re-build RFK into a perfect soccer stadium for DC United? The Metro statin is already there. THe parking is already there. It just makes so much more sense than the complicated arrangements that are being proposed.

    This is why I think the Gray Administration is, well, lying. There is something they're not telling us.

  23. #23

    JimA, there is no lying.

    The District does not own RFK or any of the land there. If it were as easy as you just painted it, it would have been done ten years ago.

    Doing anything at the RFK site requires an Act of Congress.

    I suggest you stay away from accusing anyone of lying until you are better informed about the situation, JimA.

  24. #24

    JimA: There are numerous reasons why the RFK site has never seriously figured into this discussion, and they are a matter of public knowledge, as anyone who follows, say, the Soccer Insider blog at the Washington Post knows. The Gray administration couldn't hide the relevant facts if it wanted to. I have time to mention only a couple of considerations here.

    For one thing, the land belongs to the National Park Service. Estadio RFK only came about because Congress passed legislation that directed NPS to work with the District over 50 years ago. A new stadium would require an updated NPS-District compact, which would probably require another act of Congress, as NPS is unlikely to authorize a new stadium under its own authority.

    Also, as others have pointed out, many people in District government hold out hope that the Potatoes will someday seek to return to the District from Landover, and they're saving their pitch to Congress for a new stadium on the RFK site for that eventuality.

  25. #25

    When you go to the Nats stadium and you go buy food there ask the people where they are from and they'll all tell you they are from D.C. Lots of jobs for locals in the neighborhood and D.C. That works. Developing an area like around Verizon or around Nat's stadium works for taxes. Nothing's perfect.

  26. #26

    I find the substance of the article to be a refreshing alternative to the unquestioning cheerleading we've been getting on the subject from the Post and other local media, but I must ask if any City Paper editors bother checking articles for proper vocabulary. As an example, this piece misuses the word "bring" twice, when the proper usage should be "take" ("I bring my toddler daughter to enough games..." and "keep trains running past the usual closing time to bring fans home..."). Hint: if you're GOING somewhere, then you might TAKE someone along; when you ask someone to COME to where you are, then you might ask that person to BRING something or someone along.

  27. #27

    If you are going to provide jobs and revitalize the city why do it for free if you can recoup some of that money. The stadium will provide jobs, restaurant and other businesses will benefit from the stadium so why not try to partner with the city. This is a partnership.

  28. #28

    MM--Excellent commentary. Thought this might be of interest.

    From: Ann Loikow, aloikow@verizon.net [DC Watch]

    I started looking into the proposal between the District government and DC United to build a new soccer stadium in southwest. I read the term sheet and did a little research into the owners of the team. The more I read the more concerned I got. Here is a quick list of the issues:

    1) Why are we subsidizing a rich Indonesian? The majority owner of DC United is a very rich Indonesian by the name of Erick Thohir. He also owns an interest in the Philadelphia '76ers and major in other sports related businesses and media interests in Indonesia. His family are incredibly wealthy. His brother is on the Forbes list of billionaires. You can read more about Erick Thohir at http://tinyurl.com/lz9skua/. My first gut reaction is that this guy can easily afford to assemble the land he wants for a stadium for DC United without government financial assistance. Given the many needs in the District, it looks very outrageous that we are devoting hundreds of millions of dollars for the benefit of someone like him.

    2) The term sheet looks very lopsided in terms of what each side is obligated to do and on what timetable. The transaction agreements have to be finalized by October 1, 2013, and the District government has "obtain site control of the Stadium Site" and "obtain the necessary legal approvals from the Council . . . and, if required, the United States Congress" by January 1, 2014. For a deal that has only been proposed since July 25, 2013, this is awfully fast for a very complex and expensive--for DC taxpayers--deal. In addition, the District government has until March 1, 2015, to complete the necessary infrastructure work and utility relocation, demolish all existing structures (except "necessary elements of the Pepco substation"), complete its environmental remediation, and get approvals to close streets and alleys needed for the project. If the District government fails to meet this date, we basically have to arrange for DC United to get RFK rent free.

    Why are the taxpayers picking the costs of demolition and environmental remediation (in addition to land in the form of street and alley closings, and possibly more, if I am reading the maps of the site correctly)? In addition, the District government has to "pursue resequencing options" to advance construction of the streetcar line and construct a streetcar station at the stadium and designate the stadium site as a "Designated Entertainment Area" under Title 13, Chapter 8, of the DCMR. I don't know the ramifications of being so designated, but it bears looking into.

    In contrast, DC United supposedly has until March 1, 2015, to obtain all necessary Zoning and BZA approvals and advance the design to at least the "design development completion level." If they fail to meet that date, they have until March 1, 2017. Similarly, the stadium is to be substantially complete and ready for commercial operation by January 1, 2017, but if it isn�t, they have until March 31, 2020, before the District has any legal remedies.

    3) In addition, the District's groundlease to DC United is only $1 a year for the useful life of the stadium. The District government also shall bear the costs of all fees, proffers, or deposits customarily levied by District agencies (DCRA, DDOT, DOE, Office of Zoning, etc.) during the permitting and approval process (another taxpayer subsidy!).

    4) I haven't fully parsed how the revenue sharing, "other revenue" and real estate tax provisions work (paragraphs D, E, and F), but it looks like we are giving up additional tax revenues, in addition to the fees mentioned above, we should otherwise get and in many ways ultimately subsidizing their operating losses.

    5) Also, what are we giving away in authorizing DC United to "have the right to undertake ancillary development on the Stadium site"? What does this mean that they are getting? What is the cost to the government and the taxpayer?

    6) Why are we doing all this for a team that only played sixteen home games in the District this year? At least the Nationals play 81 games for twice the maximum size crowd (40,000 versus 20,000).

    7) Finally, to avoid bumping up into the borrowing limit, it is proposed that the District government give up some of its prime downtown buildings in lieu of borrowing the money to purchase the site from Pepco, Akridge, and Mark Ein. The buildings that have been mentioned as possible targets of this land trade are the Reeves Center, One Judiciary Square, and the Daly (MPD) Building. No mention has been made of what the cost will be to the taxpayers of replacing the office and other space we would be giving up and whether it would be in anywhere as central and convenient a location as these buildings are.

    I must admit this looks like another attempt to be "penny wise and pound foolish" by getting rid of prime property for the benefit of private companies and developers that the public would never be able to replace with equivalent property. I know those proposing this will say the buildings need renovation, etc., but that is because our government routinely does not properly maintain our public assets.

    I would much more prefer spending the funds necessary to renovate and bring District property up to snuff than do these sales to private companies at what often looks like bargain prices. In the case of the Daly Building, it seems it would make much more sense to renovate the building, using One Judiciary Square as swing space while we did so, so that the police department's headquarters could remain downtown, at a Metro stop and next to the courts! The District's holding cells are in the Daly Building. Moving them somewhere in the city would start creating all sort of complications and costs for getting prisoners to court.

    8) Since Pepco owns about half the site and has a major substation on it that it just recently upgraded as part of a major reliability improvement (see http://www.pepco.com/welcome/news/releases/archives/2012/article.aspx?cid=1942 . If that substation has to be moved, where would it be moved, what are the implications for power transmission in DC, and would DC ratepayers end up paying for rebuilding this substation elsewhere (new Pepco rate case here we come)?

    9) Finally, in a market sense, I think the development of this area does not need massive government investment and gifts to private companies. This is a desirable area and many private developments are in the works. This whole effort reminds me of the proposal several years ago to give tax breaks and grants to Northrop Gruman, one of the world's largest and wealthiest defense contractors, which fortunately for DC taxpayers didn't go through.

    Mr. Thohir can well afford to acquire and develop the land and build a stadium for his team. He doesn't need our subsidy.

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