The Costs and Benefits of DC’s New Home

Stadium provides path to financial solvency for United
by Peter Muller   |   Friday, November 07, 2014

United Capitol – column on DC United (DCU) & the Washington DC/DMV area soccer scene.

As D.C. United prepares to face the New York Red Bulls on Saturday in an attempt to salvage its Eastern Conference semifinal series, a cost benefit analysis released this week of the team’s proposed new stadium highlights how essential it is for the club’s long term future that United secure a new home.

D.C. City Council Chairman Phil Mendelson released the analysis Wednesday - prepared for the Council by an outside consulting group - showing the proposal to build a soccer stadium at Buzzard Point in Southwest D.C. would cost the city $25 million more than originally expected.  The plan calls for the city to contribute $131 million for land acquisition and related costs and United to spend $150 million for construction of the stadium.

But the report also highlights the economic benefits that would accrue to the District, including roughly $2.6 billion dollars in additional spending in the city over 32 years and the creation of more than 1,600 jobs.  In addition, the report anticipates the net fiscal benefit to the city would be $109.4 million over that time period.

For years United’s ownership group has said the team cannot succeed financially while playing at RFK Stadium.  The independent study backs up United’s claims, reporting that the club has been losing $7-$10 million annually in recent years.

According to the study, the stadium deal would reverse the team’s economic fortunes quickly – helping to make United profitable within the first year of inhabiting the building.

The report projects the club and the stadium would generate $27.5 million in the first year (projected to be 2017, which seems an overly ambitious timeframe), and combined with tax abatements would allow United to meet its debt requirements and still eke out a small profit.

Without the tax benefits, which would total $50 million, United would not be expected to be able to cover its debt payments until somewhere between years 12 and 19 of the stadium.

The value of the club is expected to increase significantly with a stadium deal.  Valued at $61 million in 2012 when the ownership team led by Erick Thohir purchased United, the analysis says that the value of the team would jump to $120-$130 million once a stadium agreement is reached and to $184-$195 million after completion of the building.

Additional notes from the report:

Stadium Naming Rights: One way United would be able to increase revenue is by selling naming rights to the new stadium.  The reports says United could generate roughly $2.5 million per year by selling naming rights to a corporate sponsor, which is in the middle of the range for MLS naming rights deals.

Local Broadcast Revenue: An area that does not seem promising for increased revenue is local broadcasting rights.  MLS was able to negotiate an historic national television deal this year with ESPN, Fox and Univision Deportes that will inject significant additional dollars into the league.  But MLS teams are not experiencing the same success with their local broadcast agreements.

“Most MLS teams incur more expenditures than revenues associated with local broadcasts,” says the report.  “According to MLS representatives, the revenue generated from local broadcasting is substantially offset by the cost incurred to broadcast away games.  The average MLS team incurs a net cost of approximately $300,000 annually for local broadcasts, while the top third MLS teams average a net surplus of over $600,000 annually.”

The report estimates D.C. United will generate a net loss of $150,000 each year in this area.

Capital Call: The report says that MLS teams have historically paid “capital calls” to MLS to help cover expenses for league operations.  The projected capital call for 2017 is $1.75 million per team.  But, interestingly, the reports indicates the capital call is expected to be eliminated in the coming years as league broadcast revenue, sponsorships and ticket revenue grow to a point where they can cover league operating expenses.  “At that time,” the report says, “excess League revenue will be used to enhance the level of play on the field.”  In other words, this money could be targeted to increase the salary cap.

NEXT UP: November 8 - DC United vs. New York Red Bulls, RFK Stadium, Washington, DC, 2:30 PM ET, NBC

Peter MULLER

Nationality:
USA
College:
Saint Mary's
Club Domestic:
DC United
Club Foreign:
Arsenal
Peter is a government relations professional in Washington, DC, and Los Angeles, CA. He has been a DC United season ticket holder since 1997 and has attended every MLS Cup except one – in 1998 when he was busy helping his boss get re-elected to Congress.
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