A Safe Bet? The city has invested big in sports stadiums as development tools. Are they worth it?

By Chris Heller • Photographs by Darrow Montgomery • June 26, 2015

At dusk, when the sun sets on Buzzard Point, the plan seems perfect.

As light reflects off the water, blinding from view the scrap yards and concrete plants and parking lots, it’s easy to imagine the area’s future: a riverfront entertainment district that spans southeast to southwest, from Navy Yard to Fort McNair, the two ends anchored by two stadiums. The first, Nationals Park, opened seven years ago. It cost $693 million. The other, a new home for D.C. United, will be the most expensive soccer stadium in America.

Rendering of the proposed D.C. United stadium. Handout photo courtesy of D.C. United

All told, about a billion dollars will be spent on these two stadiums. Both projects involve significant public investment, although each represents a distinct model of financing. Both pursue the same, long-sought dream to develop land along the Anacostia waterfront. And perhaps just as important, both reveal the lengths that policy-makers, past and present, will go to raise the profile of the District. If Nationals Park and the soccer stadium ignite a sports district as promised, it would stand counter to years of sports economics research. If they don’t … well, if that happens, the D.C. government will have subsidized two businesses owned by some very wealthy people.

While Washington’s other sports owners not-so-quietly poke around for new digs—yes, Dan Snyder, that means you and the Pigskins—we’re left to wonder: which of these deals will become the model for future stadium deals in the District? Is either truly beneficial for the city’s economy? And when, exactly, is it okay to use public money for private sports?

On June 8, Mayor Muriel Bowser revealed that she struck a deal with D.C. United to keep professional soccer in the District. The next day in the Wilson Building, her celebratory press conference culminated a long series of negotiations that, at times, had involved: land trades between the D.C. government, the real estate company Akridge, and Pepco; a plan to demolish the Frank D. Reeves Municipal Center; a vague proposal to build a replacement for the Reeves Center in Ward 8; a new Pepco substation near Mount Vernon Triangle; a displaced urban farm; Virginia Gov. Terry McAuliffe’s eleventh-hour attempt to woo D.C. United to Loudoun county; $106 million borrowed by the city; $32 million shifted away from other projects in the capital budget; $50 million in tax breaks; and the cheapest rent in the city.


“Let it be clear: D.C. is the sports capital and we’re the home of D.C. United,” Bowser said, after inviting the D.C. Council, team officials, and her economic development team to gather behind the podium. The councilmembers, flanked by the latest renderings of the stadium, draped D.C. United-themed scarves around their necks as they applauded. Councilmember Jack Evans, grinning, palmed a small soccer ball. D.C. United co-owner Jason Levien lagged behind, late off a train from Union Station. When he arrived, he got a turn at the microphone too. “It’s a complicated deal,” he said. “It’s taken some twists and turns, but there’s been a real trust level and a level of communication that has allowed us to move this forward.”

Levien was right. The deal is complicated, and it took many twists and turns and three mayors. Here’s how the city got to this critical moment.

RFK Stadium

D.C. United has played at RFK Stadium since the club’s first season in 1996. For more than a decade, though, they’ve been looking for a way out. They pursued several sites: at Poplar Point, in Prince George’s County, and even as far north as Baltimore. Those plans fizzled again and again and again. The team was stuck, it seemed, in a stadium too big, too old, too decrepit, and too expensive to support professional soccer. According to D.C. United officials, the team lost more than $5 million last season.

The promise of a better home—and the revenue it could bring—attracted a revolving door of investors to the club. Victor MacFarlane, a real estate magnate, bought the team in 2007. Two years later, bruised by recession losses, he sold to co-owner William Chang, a sports investor who also owns a share of the San Francisco Giants. Three years after that, Indonesian media mogul Erick Thohir purchased a majority stake and brought Jason Levien into the fold as managing partner. (In 2013, Thohir also took ownership of Inter Milan, a storied Italian team, for a reported $340 million.) Each of these ownership groups had the same goal: get the hell out of RFK and into a shiny new stadium. But when and where?

Enter Buzzard Point. In July 2013, Mayor Vince Gray reached preliminary terms with the team to build a $300 million stadium between Half and 2nd streets SW, a few blocks southwest of Nationals Park. The team had privately considered Buzzard Point’s potential for years; if they were going to stay in the District, it was no surprise they’d end up moving to an undeveloped area close to the ballpark.

Buzzard Point

Gray’s deal had lots of moving parts. The 20,000 to 25,000-seat stadium, as it was initially proposed, would be built on a site that passes through private land owned by Akridge, Pepco, Washington Kastles owner Mark Ein, and the scrap company Super Salvage. If the District purchased those four properties, it could bundle them with land it already owned, then lease the site to the team for the low, low price of $1 a year. The only problem? The District was perilously close to hitting its debt cap in coming years, which made it difficult to borrow enough money to purchase property.

That’s when the land swap came into play.

Allen Y. Lew, Gray’s city administrator who led negotiations with United, believed that the District could trade for the Buzzard Point land. Rather than pay for it outright, Lew would swap city-owned properties to make the deal happen. The city could get the site it needed, avoid the debt cap, and meet the terms of its agreement with D.C. United. A bevy of locations were floated as potential trade chips: the Reeves Center, the Metropolitan Police Department’s headquarters on Indiana Avenue NW, One Judiciary Square, and a Department of Parks and Recreation building on the 1300 block of S Street NW. It was “like moving pieces on a chessboard,” Lew told City Paper in August 2013. Each owner had different priorities. Each owner wanted something unique.

The negotiations drew on for months. The city missed deadline after deadline until Gray submitted a deal to the Council in May 2014. It was four months late, and the Council still needed to approve it, but there was finally something on paper.

The new agreement hinged on Lew’s land swaps. Akridge would trade its two acres for the Reeves Center, which it would demolish to construct a $176 million mixed-use building. Pepco would give up some of its property for city-owned land at First and K streets NW, the current site of a school farm, where it would eventually build a new substation. The other pieces on the chessboard, Ein and Super Salvage, had also “brokered an agreement in principle” with the city, according to a statement released at the time by the mayor’s office. “The new soccer stadium will be the connector between developing areas around our baseball stadium and the new Wharf development along our Southwest Waterfront,” Gray said in the statement. “The new soccer stadium is the final catalyst for what is certain to become one of the most vibrant and sustainable sports and retail districts in America.”

And then the deal blew up.

Before Gray even made his announcement, the Council had raised serious questions about the tentative agreement. Then-Councilmember Bowser had criticized the Reeves swap months earlier, arguing that the city wasn’t going to get fair compensation for the property. “I think we can redevelop there—I’m not saying that we have to keep the Reeves Center there—but I think we have to be paid for what it’s worth,” she told the Washington Post in February 2014. Others had complaints too: Then-Councilmember Jim Graham wanted offices built on the Reeves site; then-Councilmember Tommy Wells demanded affordable housing be a part of Akridge’s development plan. At the Council’s first hearing on the deal, they wanted answers about the cost, purpose, and consequences of trading away such a coveted site. “Why are we taking one of the five most valuable properties the District owns and mixing it into this?” Graham told City Paper. “I think we should have an auction.”

These concerns led the Council to commission an independent analysis of the deal. That report was supposed to be finished by September 12—smack in the middle of campaign season—but Council Chairman Phil Mendelson delayed its release until November 5, the day after polls closed. It’s easy to see why. The report, a 400-page analysis by a group that included ex-City Administrator Robert Bobb, confirmed suspicions about those swaps: Under the terms of Gray’s deal, the city would have overpaid by more than $25 million to get the land. The report also issued stern warnings about other risks. Without better terms, the city would be obligated to acquire land in Buzzard Point before D.C. United had to commit to the project. In other words, the District could spend an estimated $131 million, land swaps and all, but the team could still bail before construction began.

The report made one thing very clear: the Council wouldn’t support the deal as it was. And without the Council’s approval, the stadium plan would be dead. “It wasn’t going to work. We had to restructure things,” Mark Tuohey, director of the mayor’s Office of Legal Counsel, said. (Bowser tapped Tuohey last November to aid negotiations.)

Rendering of the proposed D.C. United stadium. Handout photo courtesy of D.C. United

A few weeks later, the hammer dropped. Mayor-elect Bowser pledged to “de-link” the Reeves Center from the stadium deal. “I want to be very clear about this,” she said at a meeting of the Federal City Council, “I support building a soccer stadium in the District of Columbia, and I support investing public dollars to get it done.” The rest of the deal would largely remain intact, but Reeves wouldn’t be traded away. Akridge, of course, was far from happy to be on the short end of Bowser’s decision. “I was very disappointed,” company president Matt Klein told City Paper. “That might be the kind way to put it.”

Within a week, the Council pushed new legislation to fund the stadium project sans Reeves. The Council’s plan, which also nixed a $7 million sales tax break for D.C. United, was passed in early December, then finalized in a unanimous vote. To cover its share of the project, the District would borrow $106 million and shift $32 million away from other budgets, including money meant for school modernization.

While the legislation has unanimous support, outgoing-Councilmember David Catania nonetheless offered tough words about it. “Just so we’re clear, $95 million over the next five years has to cover the following: two new middle schools, all the development associated with Reservation 13, Walter Reed, half of St. Elizabeths, and Metro. We have precious few capital dollars left,” he said, before voting for the deal.

After Bowser was sworn in as mayor, her team began putting together the final pieces of the deal. They hadn’t struck a deal with Akridge, but under the Council-approved spending cap, they had to stick with a $21 million offer that the company would not accept. In January, Mendelson said the two sides were “very far apart.” Four months later, neither side has appeared to budge. If the mayor can’t buy the land, she’ll have to seize it through eminent domain. The city needs to control the Buzzard Point site by September 30. “We’d all like to

see a resolution with Akridge,” Tuohey told me. “We’d like to resolve this with them. We both know if we can’t, we’ll use eminent domain, and it’ll be worked out in court.”

As for the deal with D.C. United, a few big turns threw it off course before the final agreement was signed in June. Bowser’s team, led by Deputy Mayor Brian Kenner, set their sights on an issue highlighted in the Council’s report last summer. They wanted assurances that the team wouldn’t back out after the city purchased land. As the Post reported in June, city officials demanded two things from the team: protections against cost overruns and a $25 million promise that the stadium would be built. “The District wanted to be sure that it was protected against any and all possibilities. That was really what was at issue in these final negotiations,” Tuohey said.

D.C. United balked at the new proposals. And just like that—surprise!—they began looking at stadium sites in Loudoun county. “I think D.C. United got somewhat annoyed that the deal appeared to be changing again,” Evans said. He never thought the deal was threatened, though: “You’re going to locate a stadium somewhere near Route 66, near a Metro that doesn’t exist, with no infrastructure in place for a stadium? That sounds like something else they did a while back, doesn’t it? It’s called Fed-Ex Field.”

Buzzard Point

The club returned to the negotiating table, ultimately striking a deal with the city that offered more protection to both. The team bargained that $25 million guarantee down to $5 million, but also promised to sign a non-relocation agreement. A deadline to complete a feasibility study was pushed up to early September, which means the team has to commit before the city has to acquire land. D.C. United promises to break ground before January 2017, and the stadium must open by September 2018. If the city spends more than $21.2 million on Akridge’s land, the team will help cover half the additional cost, up to $20 million. On the other side, if the city doesn’t own the Buzzard Point site by the end of September, or if it doesn’t hand over the land by September 2016, the team can walk away.

“In some ways, it’s a better deal than what we had before,” says Ed Lazere, executive director of the DC Fiscal Policy Institute. A long-time opponent of excessive public spending on stadiums, Lazere criticized Bowser for waiting to act on issues that were laid out in the report delivered to the Council last year. “[The Council] paid a lot of money to get a really good study. It pointed out many, many ways in which the city was at risk,” he said. “Within a matter of weeks, the Council passed legislation at the mayor-elect’s urging that ignored most of the recommendations.”

Which brings us back to the $286.7 million question: Is this stadium worth it?

Buzzard Point

Although the District’s costs are capped at $150 million, there’s no guarantee it won’t spend more than that. If the city runs into unexpected trouble as it performs environmental clean-up—a very real possibility in an industrial area like Buzzard Point—and eminent domain proceedings set the fair market value for Akridge’s property much higher than anticipated, that cap could be broken. (Also, the District will grant $43 million in property tax breaks to the team over the life of the lease, which means the true cost of the project could rise above $200 million.) Ward 6 Councilmember Charles Allen, however, believes that District’s deal to split cost overruns will provide enough coverage. “I think the $20 million represents the worst-case scenario. I don’t know what we’re going to find beyond that,” he said. “And, of course, if it went beyond the $20 million, I’d be very concerned about that. But I really don’t believe that’s going to happen.”

Thanks to Nationals Park, cost overruns can still be a sensitive subject in city politics. The ballpark, which was built by the District, was originally projected to cost $440 million. The actual bill was nearly $700 million, though, partially because of the costs tied to eminent domain. To pay off bonds that financed the project, the city currently relies on four main sources of revenue: a “ballpark fee” levied on large businesses, annual rent from team ownership, a tax on sales inside Nationals Park, and a portion of the utilities tax paid by non-residential taxpayers. (The city also collects $1 from every ticket sale after the first 2.5 million sold each season. The Nationals’ reported attendance broke that mark the last two seasons, and is on track to do so again this year.)

According to the Office of the Chief Financial Officer, the ballpark fee has provided the bulk of that revenue in every fiscal year since 2011. Last year, the fee alone generated nearly $35 million. Team owners pay roughly $5 million a year in rent, a fraction of what the city coughs up every year to pay down its bond debt. The city has collected more than $50 million annually in recent years.

Evans, who is possibly the city’s staunchest advocate of stadiums, dismissed concerns about the cost. “Why do you think nobody knows what the cost was? Do you know why nobody knows? Because nobody cares,” he said. “The fact of the matter is, Nationals stadium has been a wild success. Nobody knows what the cost overrun on the land was. Nobody knows if there was any, and if they do, they probably wouldn’t care either because it’s been such a big success.”

“Success” is a word that’s thrown around a lot when people talk about Nationals Park. It was a massively expensive project, which sparked one of the city’s most acrimonious political battles, and now it’s touted as a triumph. Evans and other stadium backers point to the area’s staggering development. The neighborhood is littered with construction sites. Nine mixed-use or residential parcels, four office buildings, and three parks have been developed in the area since Nationals Park opened.

Of course, the ballpark wasn’t the first big project in Navy Yard. In 2007, the U.S. Department of Transportation moved its headquarters to the neighborhood. A year before that, a Marriott hotel and the Capitol Hill Tower had opened on L Street SE and New Jersey Avenue SE, respectively. Would the area have changed as much without a baseball stadium?

Jacqueline Dupree, a Capitol Hill resident who manages JDLand.com, a tremendously detailed site about Near Southeast, believes that ballpark encouraged those changes. In 2003, more than a year before the city announced its plans for Nationals Park, Dupree began cataloguing photos of the area. She said she doesn’t have an opinion about the stadium, but she touts an encyclopedic knowledge of the development that took place around it. Nobody has spent more time watching what’s happened. “My feeling has always been that the baseball stadium didn’t create the plans and the redevelopment of this neighborhood, but it sure as hell lit a match under it,” she said.

Why else does this matter? As the city devised ways to pay for the Buzzard Point site, the lingering cost of the ballpark meant a new tax on business was off the table. “When the soccer stadium came up, the business community was very clear they didn’t want another business-imposed tax to pay for it,” Lazere said. This constraint led the city to pursue land swaps, which led the Council to remove Reeves Center from the deal, which led to a financing package that relies on money from other projects in the capital budget. “You don’t get anything for free,” says Brian Flahaven, a Ward 6 Advisory Neighborhood Commissioner who opposed the Buzzard Point deal. “The city chose to put the money toward a new soccer stadium, rather than keeping these [school] modernizations on track.”

R and Half streets SW

Evans, meanwhile, believes the soccer stadium compares favorably to Verizon Center, a hallmark accomplishment of his political career. Abe Pollin built Verizon Center; D.C. United will also build its own stadium. Both are on land owned by the city. And, as Evans sees it, the new deal could ignite development along the Southwest Waterfront. “I believe the soccer stadium will have the same effect,” he said.

Lazere disagrees. “It seems like any rational cost-benefit analysis would say this is not the best way to spend hundreds of millions of dollars to promote economic development,” he said. An oft-cited 2008 study corroborates his opinion, concluding that publicly financed stadiums “cannot be justified” as a tool to promote economic development, create jobs, or grow income.

“Claims of large tangible economic benefits do not withstand scrutiny,” Coates and Humphreys wrote in a 2004 Cato Institute paper, while arguing against the ballpark plan. “Careful analysis of past economic experience in cities that built new stadiums and attracted new teams does not bear out those claims.” Does that mean the District’s spending was a mistake? While the economic literature is damning, no after-the-fact study of Nationals Park has been published.

Ward 6’s Allen believes that the stadium could be a “strong catalyst” for the area, so long as there’s a sensible development plan around it. “How do we build in the type of housing we want to create? How do we build in businesses? How do we build in parks and public spaces?” he said. “I think there’s huge potential, but it’s got to be done right.”

So, what does this mean for the future of sports in the District? When D.C. United moves to Buzzard Point, the city will still hold a lease for RFK that doesn’t expire until 2036. Bowser hasn’t been shy about her desire to see the Pigskins back in the District. “There’s only one place for the Washington [Pigskins], and that’s at RFK,” she told WMAL host Larry O’Connor in May. EventsDC, which manages the site, commissioned an as-yet unfinished study last August to study potential uses of the stadium.

At Bowser’s press conference, she said that the “concept” behind the Buzzard Point deal could also apply to a new football stadium. If the mayor gets her meeting with the Pigskins—and she’s been trying—she’ll almost certainly make a similar pitch. Connect the dots and the framework for an offer comes into view: The city would pay to demolish RFK and clear the land, then Dan Snyder would build a stadium with his own money. “The stadium would have to be built by the team,” said Evans. Tuohey toed the same line, albeit a bit more hypothetically. “I think the expectation would be that the team would build the stadium,” he said.

That’s far from the only proposal for the site, though. A group called Friends of Capitol Riverside Youth Sports Park wants to see some of RFK’s many parking lots turned into space for community sports. Mike Godec, the president of the group, believes the park could also fit into plans for a new football stadium. “Whatever else gets done with the RFK site, our proposal is not only compatible with it, but enhances it,” he said. According to Godec, the Capitol Riverside Youth Sports Park plan has been endorsed by every ANC that borders the area. And for what it’s worth, Allen mentioned the proposal by name when I asked him about RFK’s future. “I would love to see that ocean of asphalt that is out there right now ripped up and turned into green space,” he said.

As for the Pigskins? Allen prefers the park. “It’s something that really helps serve our city a lot more than just eight Sundays out of the year,” he said. “I think we can do some type of sports use on that site, but I’d really rather it be sports use for our city and for our residents.”



Source: www.washingtoncitypaper.com

Category: Forex

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