Last year, DC announced a tentative deal to fund and build a new soccer stadium for DC United through a land swap. The details haven’t been worked out yet, though concern is growing that the soccer team may ask more of DC than it will give back in return. By making sure DC United accepts more risk, the city can get a better deal.
Under the deal, DC would swap land in Buzzard Point owned by developer Akridge for the city-owned Reeves Center. Then, for $1 a year, it would
rent the land to DC United to build the stadium. While it appears better than the baseball stadium deal, considering how expensive it was, that’s not a particularly high hurdle to get over.
Both the DC Council and local budget activists have begun to question whether the deal is fair or wise. And public skepticism about the deal could help drive a discussion about how to craft a better one.
A new DC United stadium and a successful franchise could be good for the city. It could bring in business and tax revenue and create opportunities for entertainment, local unity, prestige, and civic pride. These things have value, and it would not be unreasonable for DC to help DC United as long as the benefit exceeded the cost, because a stadium is unlikely to happen without some public contribution.
Even AT&T Park in San Francisco, which is often billed as privately financed, got help with the land and transportation improvements along with continued city service to the park. Without any contribution from the city, no stadium will be built and it’s possible DC United could move.
So what would a good deal look like?
Have DC buy the land outright. They already own some of the land that the stadium sits on and they have the power to force landowners to sell if they need to. The District’s lack of borrowing ability is something of an impediment, but it can probably still buy and assemble the land necessary for less than DC United can.
And the city is, by definition, invested in the area, so it can hold the land for a very long time if the deal goes south. This makes it a low-cost, low-risk way to help the team. The District would continue to own the land and could always sell it later.
Use a crowdsourcing campaign to pay for transaction costs. Assembling the land will require title work and environmental site assessments that will cost a lot of money. DC United fans are eager to have a stadium. Let them raise $1 million of their own money to make it happen.
Periodically, the Green Bay Packers sell “stock” in the team to raise money for stadium-related projects, but this stock consists mostly of a piece of paper that doesn’t pay dividends. A similar campaign for DC United would demonstrate public support and allow those who care the most to pay the most, while reducing the city’s burden. It would also be a way to get fans outside of the city to pay more.
Let the District pay for environmental remediation. Currently an industrial site, the future stadium location will require environmental remediation. The cost of the land plus the cost of remediation should be somewhat related to the land’s value afterwards, suggesting that DC could recapture most of this expense when they sell.
DC United commits to pay for the stadium’s eventual removal. One day, the stadium will reach the end of its life, and DC United should be responsible for restoring the land to the condition in which they get it. They could meet this requirement by either posting a bond to cover the cost, or paying insurance to cover it in case they go bankrupt.
DC United pays market-rate rent and full property tax, eventually. The term sheet has DC United paying $1 in rent per year and getting a reduced property tax for 20 years. By buying and preparing the land for DC United, the District is already taking on a large portion of the risk for them.
But the price of the land will include the potential rent they can charge. Paying $1 in rent regardless of revenue, as is currently proposed, means that DC is losing money on its land investment. It’s a clever way to mask the contribution, but it isn’t in the best interest of the city. Nor is reducing the property taxes.
If soccer is doing as well as its proponents argue, then covering these expenses shouldn’t be too difficult. It would make sense to create a system for deferring these payments without penalty when revenue is low, or in the early years while the league is still growing. But they should be paid eventually, at an interest rate similar to what the city pays on its bonds.
Stadium-related sales taxes go to DC whether DC United profits or not. The current deal makes the tax revenue related to ticket sales, concessions, parking and merchandise available to DC United. In exchange, DC would share 50% of the revenue (which includes the tax revenue that DC would normally get) if DC United makes more than a reasonable profit.
This places all the risk on the city, but splits the reward with DC United. Because of concerns that the team will refuse to open its books or to move money around in such a way that it will never turn a profit, City Administrator Allen Y. Lew has stated that this part of the deal may not happen.
This is a good thing. It’s far better for the District to be involved in normal government functions like collecting taxes, than trying to be a business partner of Major League Soccer. Being their landlord is enough.
Tax future development to pay for transportation and security. If the argument is that the stadium will generate spillover development in the area, then it can help pay for stadium-related costs, like security and transportation improvements. In addition, the city could also dedicate about $5.5 million in stadium-construction-related taxes it will earn.
Instead of a land swap, sell the land with open bidding. Once DC determines the value of the properties it proposes swapping, potential buyers willing to pay more should do so. DC and developers on the other side of the swap could split the excess value.
This is actually not too far from what DC is already proposing. But it moves more risk and cost to DC United, its fans and the landowners near the stadium that will benefit most from it, which is where those risks and costs should go. By allowing DC United to defer some payments in the early years, DC can create a cushion for DC United to grow into this investment. That’s what a good deal would look like.