Passing the Hat: Funding the Nationals’ Ballparkby Maury Brown
November 30, 2005
They got an apartment with deep-pile carpet
And a couple of paintings from Sears
A big waterbed that they bought with the bread
They had saved for a couple of years
They started to fight when the money got tight
And they just didn't count on the tears
—Billy Joel, "Scenes From An Italian Restaurant"
We’ve all seen it. That couple. You know, the king and queen of the prom. The ones that everyone said, “They look great together.” You take in the wedding ... the girls cry ... the guys dream of the bride ... life begins. Then the money problems kick in. A year later, there’s tension. There’s acrimony. The paint’s already faded, and the warrantee’s expired. Yet, they stay together. The good times are there, and the bad times as well. But the lines on the face show a little faster, and the dream house is foregone for the apartment. Welcome to the big time.
In September 2004 Washington, D.C. landed the Expos. Confetti flew and the love affair, twice removed, began again anew. It’s still a real love affair, one that has all the makings of a successful venture. MLB’s going to make a handsome profit. D.C. has proven its worth by getting 2.7 million tickets sold and reportedly making a $10 million profit after expenses in their inaugural season.
The problem is the new stadium. More correctly, it’s the public funding of the new stadium that’s hung like a dark cloud over the proceedings since that award in 2004. You see, when you don’t own something outright and are looking to sell, you take more chances than with something that’s all yours. MLB and Jerry Reinsdorf are certainly negotiating in that manner. Because the Nationals are owned collectively by MLB, the hardball tactics that permeate collective bargaining with the union seems to have surfaced. “No givebacks,” seems to be tattooed on the foreheads of the negotiators for baseball. The problem is D.C. is starting to grow weary of a couple of gnawing issues.
For one, MLB has said, “No lease agreement, no owner.” This has placed the Nationals in yet another season with MLB as the de facto owner, which means the president of the franchise, the manager of the team and the general manager are all left hanging. Add in the fact that payroll is constrained for free agent signings of any magnitude, and it’s no wonder members of the D.C. City Council are asking about what players may be back on the club next season, while they look at some other pressing matters. Those “other pressing matters” have been the costs of the new stadium for the Nationals, which hasn’t exactly been the bellwether for stable numbers. The price has been an ever-escalating target that hasn’t seemed to stop growing. This leads us up to the public hearing held by the D.C. Council this past Monday.
In December of last year an acrimonious D.C. Council passed a stadium financing package by a 7-6 margin. There was a catch, however. Councilwoman Linda Cropp added in a provision stating that the total cost could not exceed $535 million. Since that time, costs have continued to climb.
In the marathon that was the public hearing Monday, tensions moved to the boiling point when five men took the dais. Those five were Natwar M. Gandhi, the city's chief financial officer; Steven Green, special assistant to the mayor; Mark Tuohey, the chairman on the D.C. Sports and Entertainment Commission; Allen Lew, CEO of the D.C. Sports & Entertainment Commission; and Robert Bobb, the city administrator.
Gandhi got a considerable grilling over one glaring issue: The total cost jumped to $589 million, from the $535 million. The cost increase came from issuance costs for the bonds. This was supposed to be rolled into the $535 million, but technical amendments passed several weeks ago removed those costs by definition from the project costs. The District won't bond more than $535 million, but the administrative costs associated with the bonding does not technically factor into the cap number for the bonds issued.
This came as news to several on the Council. Democratic Council member Kwame Brown, who was not on the Council last year when that infamous 7-6 vote occurred, tried to remain as level-headed as possible when the numbers were announced. “I would have never voted to approve the amendment if I had known about this,” he said. Then leveling a gaze at the District CFO, he asked, “Did somebody lie to me?” Gandhi then called a lawyer who had worked on the amendment to speak in more detail on the matter.
Back to that $535 million cap. Planners and the DCSEC are looking to stay within the constraints with budget cuts. They cut approximately $55 million in costs by removing infrastructure costs and Metro upgrades from the budget. This seemed to be in violation of the stadium agreement, which David A. Catania, an Independent on the Council, immediately latched on to.
"We're headed to court if it goes through on these terms and these conditions,” he said. On the Metro station costs, Bobb mentioned that officials were looking to the federal government to cover the costs that had been removed. This prompted a wave of skeptical comments from the Council. Sharon Ambrose, Ward 6 Democrat and chairwoman of the Committee on Economic Development, replied, “Representative Davis isn’t going to help us. We can't go assuming the federal government will help us.”
All in all, costs have risen on the stadium from $244 million to roughly $300 million. Land costs are up from an estimated $77 million to $97 million. Brown asked the question that needed to be asked of Gandhi: “How did you determine how much cost overruns would be?” Brown mentioned that through his research he discovered that cost overruns for ballparks were roughly 20%; the CFO had factored in 10%. Gandhi replied, “We based the figure off of construction of baseball and football facilities.” At that point, Brown mentioned that 20% figure again. Gandhi’s reply was, “I’ll defer to the Council member on this matter,” but he added that figures had been based on prior developments, not just ballparks.
What may come as a key sticking point, however, was the DCSEC Chair’s statement regarding a possible $20 million payment by MLB to cover cost overruns for parking. Several news organizations reported—prematurely, it seems—that Tuohey had said that MLB was willing to cover this cost. Next-day editions were corrected with the following statement by the DCSEC chair: "I didn't say an agreement had been reached on the $20 million—I said we were close to an agreement," said Tuohey.
What was lost in the parking discussion is that in negotiations, MLB requested 400 spots for VIP ticket holders adjacent to the facility or underground. As the cuts mounted, these parking spaces were dropped. The cost requested to cover the parking spaces? $20 million. So even if this offer of $20 million does come to fruition, it’s possible that the monies could be targeted at an amenity MLB requested. This, in terms of the overall for the DC Council, has to be viewed as a zero sum gain.
The lease agreement will likely have to come before the D.C. Council for a vote, as the Baseball Stadium Agreement reads, “the obligations of the Commission are further subject to any applicable statutory or other limitation on its legal powers, including, but not limited to, any statutory requirement to obtain District Council approval of a contract for the expenditure of $1,000,000 or more in a twelve-month period.”
While the hearings and vote that came before the Council in December 2004 were contentious, matters can still escalate further. Monday saw Council member Jack Evans (D-Ward 2) try to reign in tempers and accusations between the likes of Council members Carol Schwartz (R-At Large) and Catania on one side and Gandhi and Tuohey on the other, as pressure has mounted at a rate matching the cost overruns. Failure to get the lease approved by the Council by December 31, 2005 would be a serious mistake, according to MLB President Bob DuPuy.
If D.C. is looking for MLB or the new Nationals’ owners to cover costs, it may be an exercise of spitting in the wind. Baseball representatives have made it clear that the Baseball Stadium Agreement outlines that any cost overruns are the responsibility of the District. DuPuy’s comment about what would occur should a deal not be reached by the December 31 deadline was, "The stadium agreement provides for arbitration if a deal is not reached and would be one of the options.” To add to that, MLB spokesman Rich Levin said, "We believe it is important for all parties to honor the terms of the agreements that were made."
So a showdown is probably coming. Those who see this as a sign that if push comes to shove, MLB will pull up stakes and move the club out of D.C. need to splash some water on their faces and consider that MLB’s looking at eight ownership candidates willing to pay $450 million for the right to own the franchise in Washington, D.C. No other market would garner that price tag. Also, given the fact that the Stadium Agreement has been signed, the District may try to push for some much-deserved cost overrun coverage, but the city would most likely lose in arbitration, as outlined in the Stadium Agreement as well. The words “Let the buyer beware,” ring true in this case.
So, that leaves the option of value-engineering the facility when costs continue to escalate, or possibly to move the site location to a spot adjacent RFK Stadium. The latter of these isn’t a logical option to cure this ill, as Jack Kent Cooke discovered back when the Redskins were considering building a new facility there. HazMat costs to deal with exceedingly high levels of lead at the site would add to the budget, as would the inability to reach another milestone date imposed in the Stadium Agreement of Opening Day, 2008. Given that property has already been purchased at the Navy Yard location, RFK seems a solution with ostensibly the same problems D.C. is facing now with the Navy Yard site.
That leaves value-engineering the stadium. “No marble countertops, but Formica,” as Cropp attested to. So while fiscal responsibility may keep the costs capped at $535 million, the stadium design will continue to have attributes scaled back before the public has even seen the ink dry on the drawings of the site. Maybe some deep-pile carpet and a couple of paintings from Sears.
In the end, it’s back to that marriage, one that may be of convenience. One that should one day have more smiles than arguments over money—or will it? What does seem certain in this relationship is that it has the capacity to get more acrimonious by the time New Year’s Eve hits.
Maury Brown is the editor of BusinessOfBaseball.com, co-chair of SABR's Business of Baseball committee, and covers the business of baseball at his blog, The Baseball Journals. His analysis and commentary has been published in the Boston Globe, CNN/Money, Toronto Globe and Mail, Los Angeles Times, Pittsburgh Post Gazette, San Jose Mercury News, and Oregonian. The opinions expressed here are solely those of the author and do not represent the opinion of the Society for American Baseball Research or its Business of Baseball committee. Maury can be contacted through the miracle of e-mail.