Will a DC United stadium be worth it?
Last week, we looked at how much DC taxpayers have paid to build and maintain Nationals Park. What are they getting in return? And will the city's deal to build a new soccer stadium be worth it?
In 2003, baseball boosters hired consulting firm Brailsford & Dunlavey to estimate the benefits of a Major League Baseball team in DC. Later, they would help manage the design and construction of the stadium. They determined that the construction of a $272 million stadium would result in $5 million in one-time tax revenues. The stadium cost over twice as much, so if the same ratio holds, it produced $12.9 million in tax benefits.
But supporters also cite external benefits. Tourism would create jobs and tax revenue. Baseball and the stadium would be a cultural amenity, attracting concerts and other events. The stadium would also spur the redevelopment of Capitol Riverfront. But there just isn't any hard evidence that Nationals Park has led to any development.
The stadium didn't cause development
There were many other factors at play in Near Southeast that led to redevelopment, much of which occurred before the stadium site was selected. If the stadium truly were a catalyst, development would have occurred around it first, rather than scattered throughout the neighborhood.
On the 10 squares immediately adjacent to the stadium, only 2 smaller projects have broken ground: the Camden South Capitol apartment complex across the street and 55 M Street, whose main tenant DDOT moved there because of its proximity to the US Department of Transportation. Meanwhile, NoMa, where the stadium was originally supposed to be built, has experienced rapid development without one.
Research shows that stadiums do not spur development. In a survey of the economics of sports facilities, Siegfried and Zimbalist concluded that there is "no statistically significant positive correlation between sports facility construction and economic development." Even Brailsford & Dunlavey didn't assign a value to it at Nationals Park.
The stadium doesn't produce a lot of tax revenue
The stadium also generates some tax revenue, through hotel and restaurant taxes and income taxes from newly created jobs. Councilmember Jack Evans estimates the stadium produces up to $500,000 in tax revenue per game during the playoffs, which would require visitors to spend at least $3.5 million at hotels and restaurants.
Where Evans got that number is anyone's guess, but economists with the Kansas City Federal Reserve estimate that the average imported tax revenue for a MLB stadium is about $1.5 million a year. However, that includes tickets and parking, which we've already counted, and it assumes that 20% of fans are from outside of the metro area. But 85% of Nationals fans come from Virginia and Maryland.
Assuming there are 2.5 million tickets sold each year and each ticketholder spends an average of $33 outside the stadium, we get a total imported tax of ~$5.6 million. It's worth noting that that number is probably higher than it should be, because much of it represents hotel spending, but fans from Northern Virginia or Maryland are unlikely to rent a hotel room. It's also higher than Brailsford & Dunlavey's $4.7 million estimate.
The same study estimates the job creation and income tax benefits of a MLB stadium at $1.365 million a year. It's possible that DC's income tax take would be lower since, like its fan base, its employees are more likely to live in Virginia or Maryland.
Brailsford & Dunlavey also estimated that the city would collect $4.2 million in increased business franchise taxes from baseball-related activities, though it's unclear how they determined this and the city does not report it separately.
Is Nationals Park a cultural asset?
Stadium supporters say that venues and sports teams provide a significant cultural amenity in the form of entertainment, local unity, prestige, and civic pride. Having a sports team makes people happy, and a city has a legitimate role in helping people to be happy and making a city appealing. But what is this worth?
A 2001 study of the Pittsburgh Penguins' contributions to the public good tried to answer that question and put the value of the team between $4.20 and $6.94 per household. If we multiply $6.94 by DC's 260,136 households, we get a value of $1.81 million in public good benefits.
That value is for the team alone, not the stadium, which may add some cultural benefits by hosting concerts, weddings, and other events. So I'll round up to $2 million a year.
DC also spent $82.6 million for transportation infrastructure to support Nationals Park, but it has limited value outside of baseball. A second, $20 million entrance for the Navy Yard Metro station is nice, but is probably unnecessary outside of event days. Most of the $27 million spent on rebuilding the Frederick Douglass Bridge next to the stadium was to improve its aesthetics. But DDOT also resurfaced the bridge, did structural work, and added new streetlights and guardrails, extending its life and usefulness to travelers.
Therefore, in return for their investment, DC taxpayers get ~$11.2 million in jobs and tax benefits, another ~$2 million in public goods benefits, some development benefits, and a grab-bag of transportation improvements.
It's possible that the team's future success will lead to greater attendance and thus greater revenue to offset the stadium debt. But for now, DC is out $127.9 million and losing at least another $10.735 million every year on its stadium investment. Even Brailsford & Dunleavy's estimate, which stadium boosters used to justify the stadium, predicted the 30-year net present value of the stadium, which cost $670 million, to be just $526 million.
What about DC United?
DC pays $150 million for land and infrastructure improvements. DC United pays the same amount to build the stadium. If the team makes a high enough profit, then the city would get a cut. Much of the land is unused right now, so there would be less use of eminent domain.
But it's hard to see DC United Stadium providing as much in external benefits that Nationals Park does.
Major League Soccer just isn't as popular as baseball and it plays fewer games, so per team attendance is about one-eighth as high as baseball's. Assuming that visitors spend the same amount of money, the amount of expected tax revenue falls to just $2.9 million. That includes public good of the team, even though it's not a given that DC United would leave the DC area if they didn't get a stadium. It also includes sales taxes, even though there doesn't appear to be any plans for a special soccer tax.
The rent DC United will pay will be $1 a year, though DC United will pay up to $6 million a year in property tax, and any sales tax collected at the stadium could be paid back to DC United if they don't make a "reasonable profit."
This is not quite the same as guaranteeing DC United's profit, as the DC Fiscal Policy Institute has been saying, but it is a pretty sweet deal, and one that any other business in the city would love to have.
Meanwhile, DC is also contributing about twice as much for its stadium as the average MLS city does. As DCFPI points out, there is no cap on the land acquisition costs, so the price could easily go up, just as it did with the baseball stadium. The whole thing will be funded by complicated land swaps that lack transparency or the assurance that DC is getting the best possible price for its assets.
Though the costs of this stadium deal will be far lower, it is likely the benefits will be too. Those benefits would need to amount to at least $9.5 million a year to cover the $150 million price tag. In order for that to happen, the $150 million price to DC would have to hold steady and DC United would need to be successful enough to pay its entire property tax and generate revenue per attendee similar to the Nationals, while paying DC an additional $600,000 from profit sharing and covering its own security.
While DC stands to benefit if soccer does well, they're at risk to lose money if soccer does poorly. There may be a deal out there that can make breaking even a likelihood, but so far, this doesn't appear to be it.
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