The Washington Nationals’ stadium: a gift from the DC tax payers

Nate Cruz | Andrew Derifield | Josh Hart

May 3, 2006

Overview MLB moved Montreal Expos to

Washington in 2005 Currently playing in RFK stadium thru

2007 City paid for interim upgrades

MLB agreement requires that DC must produce new stadium in order to keep team

Timeframe: Actual and Assumed

2004

2038

2005

2008

DC wins Expos from MLB

Nats begin playing at RFK

Nats start at new stadium

Bonds for stadium construction issued

2006

End of stadium useful life

The new stadium

Located by the Anacostia River Blocks from the U.S. Capitol

41,000 seats 2,500 club seats 1,112 suite seats

Over 1 million gross square feet Ready for 2008 Season

Stadium location

Stadium design

Source: http://www.jdland.com/dc/stadium.cfm

Stadium site: current structures

Source: http://www.jdland.com/dc/stadium.cfm

DC’s hopes for new stadium

Catalyst for neighborhood development New housing, restaurants and other

entertainment venues will emerge Example of Coors Stadium in Denver

bringing about development in downtrodden neighborhood

Is the stadium worth it?

Should the taxpayers of DC subsidize the stadium at a cost of approx $678M?

Will this stadium add value to the city? Directly from stadium as well as adjacent

developments

General assumptions - overview Consider CBA for Nationals prior to new stadium

Costs of RFK improvements and new revenues Benefits

Game attendance Taxes Visiting team sales tax Existence value

Costs Land

Acquisition Infrastructure upgrades Environmental remediation

Stadium construction Stadium financing Metro station improvements Forgone property tax revenue

Estimated costs for the stadium are substantial

Sources: “DC Stadium Land Acquisition Cost Study,” Deloitte & Touche LLP - 22 March 2005; “Recommendation for Financing of Baseball Stadium,” DC Office of the Chief Financial Officer, April 2005; “Ballpark Hard and Soft Costs Cap and Ballpark Lease Conditional Approval Emergency Act of 2006,” DC City Council, 23 March 2006.

Cost Category Estimated Cost($ millions)

RFK Renovations (actual) 24

Land Acquisition 77

Infrastructure Upgrades 56

Environmental Remediation 8

Metro Station Improvements 20

Stadium Construction 475

Parking Garage Construction 16.5

Forgone Tax Revenue 1.6

Total 678

Renovations at RFK were significantly over budget

Original stadium agreement stipulated a $13 million expense to renovate RFK Stadium to accommodate baseball

Actual cost was $24 million

Source: “Ballpark Hard and Soft Costs Cap and Ballpark Lease Conditional Approval Emergency Act of 2006,” DC City Council, 23 March 2006.

Land/Infrastructure cost assumptions

• A sewer tunnel may need to be relocated at a cost of $29 million

Photo Source: http://www.jdland.com/dc/stadium.cfm

Cost Category Assumed Cost to DC Government

Land Acquisition 85-125% of cost estimate

Infrastructure Upgrades Assumed baseline is $56 million

Possible Sewer Relocation Assumed probability of 0.5 that expense is req’d.

Environmental remediation assumptions

$8 million estimated cost

Photo Source: http://www.maps.google.com/

Cost Category Assumed Cost to DC Government

Environmental Remediation 85-125% of cost estimate

Navy Yard Metro Station upgrade

¼ WMATA revenue is a subsidy – we are guessing the best case for DC is to pay ¼ of the $20 million total cost to upgrade

Source: “Proposed Fiscal Year 2007 Budget,” Washington Metropolitan Area Transit Authority, 2006.

Cost Category Assumed Cost to DC Government

Metro Station Improvements City will pay 25-100% of cost

Issues with Debt Washington’s current bond credit ratings:

Moody’s: A2 S&P: A+

We assume that all costs of construction, except RFK renovation, are being paid for through bond issue

Applicable Interest rate: 4.8 – 5.3% Broker fee: 1.5 – 3.2% of total debt issued 30 year bonds

Sources: “Recommendation for Financing of Baseball Stadium,” DC Office of the Chief Financial Officer, April 2005; “Debt Management,” DC Office of the Chief Financial Officer, <http://cfo.dc.gov/cfo/cwp/view,a,1323,q,590208.asp>, accessed 28 April 2006.

Foregone tax revenue DC government will permanently loose

property tax revenue from the stadium site We estimated that it can currently generate

$1.6 million in annual revenue Average annual increases in assessed value

will be 3-8% Actual market value appreciation has been 13-

18% in the immediate area We assume an 80% collection rate

Sources: “DC Stadium Land Acquisition Cost Study,” Deloitte & Touche LLP - 22 March 2005; “Housing in the Nation’s Capital, 2005,” Fannie Mae Foundation & The Urban Institute, 2005.

Total Cost NPV = $560 million

Cost NPV($ millions)

RFK Renovation 24

Site Prep, Construction & Debt Costs 498Foregone Property Tax Revenue 40

Total 560

Stadium does not create new jobs

Potential Benefits Count? Comments

New Construction Jobs

NO Unemployment is near record low; recent construction boom.

New Retail Jobs NO Retail employment at record highs.

New Jobs for Baseball Players

NO No positions to be filled by unemployed DC residents.

“…Orlando and Washington again posted the lowest unemployment rates in February, 2.9% and 3%, respectively…”

-BLS Metropolitan Area Employment and Unemployment Summary(4/5/06)

Stadium does not create new spending

Devil Rays

0.03

0.035

0.04

0.045

0.05

0.055

0.06

0.065

0.07

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

3,500,000

4,000,000

Spending Attendance

Tax Revenue from ticket sales, concessions, and merchandise only counts for nonresident spending that

would otherwise be spent in the suburbs.

•Assumed 75% of fans non-resident

•50% of their spending is new to DC.

•Their overall spending tracks with attendance.

DiamondBacks

0.03

0.035

0.04

0.045

0.05

0.055

0.06

0.065

0.07

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

En

tert

ain

men

t as

% In

com

e

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

3,500,000

4,000,000

Att

end

ees

Spending Attendance

Sources: Bureau of Labor Statistics and Baseball-Almanac.com

Devil Rays: No new spending

Diamondbacks: No new spending

DC’s taxes and Team rent create some benefitsPotential Benefits Count? Comments

Tax revenue from new gross receipts tax

NO Taxing DC companies is merely a transfer of money, not a gain.

Tax revenue from new utilities tax

½ Federal gov’t pays utilities taxes, so their part is new to DC, but not paid by DC.

Tax revenue from ballplayer residents and visiting teams

YES Income, property, and sales tax from players living in DC is new, as is sales/hotel tax on visiting team spending.

Rent paid by team YES But DC gave away naming rights, so rent is reduced by $2.5M/yr

No benefits from increased property taxes

Actual property value increases from 1999-2004 has been 13-18%.

Ballparks can decrease local property values (ie. Traffic and noise)

No new appreciation in property value was assumed to be attributable to the stadiumSource: “Housing in the Nation’s Capital, 2005,” Fannie Mae Foundation & The Urban Institute, 2005.

Total benefits NPV = $335 million

Benefit NPV($ millions)

New Income/Property Tax from Resident Players

77

New Sales/Hotel Tax from Visiting Team 5Rent from the Team 45.5Stadium consumption taxes (tickets, food, shirts…)

74

Business Utilities Tax 120Existence Value (assume $2 per DC resident) 13.5

Total 335

Simulation: randomized variables Cost Assumptions

Land Acquisition Cost Environmental

Remediation DC-Borne Costs for

Metro Station Cost Over-/under-run Bond Sales Fee Bond Interest Rate Ave Property Tax

Increase Sewer Pipe Relocation

Benefit Assumptions Ave DC CPI Ave DC Pop Growth Ave DC Income Tax

Burden Ave Growth of MLB

Salaries Ave % of Stadium

Spending New to DC Ave % of Players

Living in DC Ave Naming Rights

Value Ave Per Capita

Existence Value

CBA simulation: 3 Social Discount Rates

Normal: 6.25% Approx. interest for well rated corporate

bonds Low: 2.5%

EPA est. High: 8.5%

Cost of capital for “ordinary” business at commercial bank

NPV: Stadium is a loser

Mean Range Min

Range Max

Stand Dev

Normal -$210 -$359 -$66 $42

Low -$489 -$767 -$219 $80

High -$138 -$247 -$32 $32

Crystal Ball simulations with 5,000 trials were performed for each scenario. Results are in millions.

Conclusion: stadium is a bad deal for DC

No scenario produced positive NPV There are no indications that stadium

will create significant new entertainment spending

In order to obtain NPV=0 for stadium, Nationals’ must have an existence value per resident of about $35-40 per year.