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
2005 2006
DC wins
Expos
from MLB
2008
Nats start at
new stadium
Nats begin
playing at
RFK
Bonds for stadium
construction issued
2038
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
$678M?
 Will this stadium add value to the
city?
 Directly from stadium as well as adjacent
developments
General assumptions overview



Consider CBA for Nationals prior to new stadium

Costs of RFK improvements and new revenues




Game attendance
Taxes
Visiting team sales tax
Existence value

Land
Benefits
Costs







Acquisition
Infrastructure upgrades
Environmental remediation
Stadium construction
Stadium financing
Metro station improvements
Forgone property tax revenue
Estimated costs for the
stadium are substantial
Cost Category
Estimated Cost
($ 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
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.
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
Cost Category
Land Acquisition
Assumed Cost to DC Government
85-125% of cost estimate
Infrastructure Upgrades
Possible Sewer Relocation
Assumed baseline is $56 million
Assumed probability of 0.5 that expense is req’d.
• A sewer tunnel may need to be relocated at a cost of
$29 million
Photo Source: http://www.jdland.com/dc/stadium.cfm
Environmental remediation
assumptions
Cost Category
Assumed Cost to DC Government
Environmental Remediation
85-125% of cost estimate
 $8 million estimated cost
Photo Source: http://www.maps.google.com/
Navy Yard Metro Station
upgrade
Cost Category
Metro Station Improvements
Assumed Cost to DC Government
City will pay 25-100% of cost
 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.
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 1318% 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)
24
RFK Renovation
Site Prep, Construction & Debt Costs
Foregone Property Tax Revenue
Total
498
40
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
Diamondbacks: No new spending
0.07
4,000,000
0.065
3,500,000
0.06
3,000,000
0.055
2,500,000
0.05
2,000,000
0.045
Attendees
Entertainment as % Income
DiamondBacks
1,500,000
0.04
1,000,000
0.035
0.03
1995
1996
1997
1998
1999
Spending
2000
2001
2002
2003
500,000
2004
Attendance
Devil Rays: No new spending
Devil Rays
0.07
4,000,000
0.065
3,500,000
0.06
•Assumed 75% of fans non-resident
•50% of their spending is new to DC.
3,000,000
0.055
2,500,000
0.05
2,000,000
0.045
•Their overall spending tracks with
attendance.
1,500,000
0.04
1,000,000
0.035
0.03
1995
Tax Revenue from ticket sales,
concessions, and merchandise only
counts for nonresident spending that
would otherwise be spent in the
suburbs.
1996
1997
1998
1999
Spending
2000
2001
Attendance
2002
2003
500,000
2004
Sources: Bureau of Labor Statistics and
Baseball-Almanac.com
DC’s taxes and Team rent
create some benefits
Potential Benefits
Count?
Comments
Tax revenue from
new gross receipts
tax
NO
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
Taxing DC companies is merely a
transfer of money, not a gain.
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 stadium
Source: “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
5
45.5
Rent from the Team
Stadium consumption taxes (tickets, food,
shirts…)
74
Business Utilities Tax
120
Existence 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
Crystal Ball simulations with 5,000 trials were performed for each scenario. Results are
in millions.
Mean
Normal -$210
Range
Min
-$359
Range
Max
-$66
Stand
Dev
$42
Low
-$489
-$767
-$219
$80
High
-$138
-$247
-$32
$32
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.