Last week, the District’s Dime took a hard look at how DC proposes to swap land to assemble the property for the proposed DC United stadium. Today, we explore how the District and DC United propose to share the costs and benefits. We see the terms as a “soccer safety-net” for DC United: In the end, the District would shoulder too much of the financial risk, and the team would bear too little.
At first glance, the term sheet splits the estimated costs 50-50: The District will buy land worth $100 million dollars for DC United and then pay for $50 million in infrastructure improvements, while the team will spend $150 million constructing the stadium. We think that split raises questions — if DC United’s owner is the main beneficiary of the new stadium, why should the city pay as much as the team?
Yet it is not even clear the deal would end up at 50-50. The term sheet is non-binding, several provisions are vague, and many of the costs for the District could turn out to be higher. The deal could even end up with DC taxpayers paying the team to guarantee that it makes a profit.
The costs of buying stadium land could end up above $100 million, with the expectation that DC will pick up the tab. Also, the proposal involves moving a substation for the electric utility Pepco. Beyond moving all the infrastructure and equipment, there may be significant environmental costs. Under the current terms, the District would pay for that, too, with no cap on what the city would spend.
The risks to the District don’t stop there. The agreement has a provision that guarantees DC United a “reasonable profit” from the day the stadium opens. “Reasonable profit” is not defined. What is spelled out is what the District will provide if that profit is not met: DC will reduce DC United’s property tax bill and provide the team with any sales tax revenues collected at the stadium site. On the other hand, if the team’s revenues are more than its expenses plus a “reasonable profit,” the excess profits will be shared by the team and the District. This arrangement would last the lifetime of the stadium.
This doesn’t seem like a fair deal for the District. Instead, it seems like a soccer safety-net for DC United:
- At the expense of other priorities, the District would guarantee a profit for DC United. Even if DC United breaks even in a given year, the District will subsidize the team up to a “reasonable profit.” This means that the District will take property and sales tax revenues that would otherwise be spent on schools, libraries, and hospitals, and put them toward DC United’s profit margin.
- The District would provide a safety-net for soccer, including covering initial investments and players. Start-ups and expanding businesses often take on costs that exceed their revenues as they “ramp-up” and invest for future production. In professional soccer, this will mean bringing in big-name players and hiring additional front office staff. These expenses can be huge, with one player acquisition and contract recently costing around $41 million. By subsidizing DC United if it faces operating losses, the District would essentially pay for players and other investments aimed at improving the team’s future bottom line
- There is little transparency or accountability in the current plan. Under the current agreement, the team’s ownership could make risky investments and business decisions, knowing that the District will subsidize any losses with tax revenue. The risk of any venture will fall on the taxpayer, not the team.
Join the Winning Goal Coalition to find out more about how to make the soccer stadium deal a winning one for DC residents!
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