1. The Washington Nationals’ stadium: a gift from the DC tax payers Nate Cruz | Andrew Derifield | Josh Hart May 3, 2006

2. 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

3. Timeframe: Actual and Assumed 2004203820052008 DC wins Expos from MLB Nats begin playing at RFK Nats start at new stadium Bonds for stadium construction issued 2006 End of stadium useful life

4. 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

5. Stadium location

6. Stadium design Source: http://www.jdland.com/dc/stadium.cfmhttp://www.jdland.com/dc/stadium.cfm

7. Stadium site: current structures Source: http://www.jdland.com/dc/stadium.cfmhttp://www.jdland.com/dc/stadium.cfm

8. 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

9. 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

10. General assumptions - overview  Consider CBA for Nationals prior to new stadium Costs of RFK improvements and new revenues  Benefits Game attendance Taxes Visiting team sales tax Existence value  Costs Land  Acquisition  Infrastructure upgrades  Environmental remediation Stadium construction Stadium financing Metro station improvements Forgone property tax revenue

11. Estimated costs for the stadium are substantial 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. Cost CategoryEstimated Cost ($ millions) RFK Renovations (actual)24 Land Acquisition77 Infrastructure Upgrades56 Environmental Remediation8 Metro Station Improvements20 Stadium Construction475 Parking Garage Construction16.5 Forgone Tax Revenue1.6 Total  678

12. 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.

13. Land/Infrastructure cost assumptions A sewer tunnel may need to be relocated at a cost of $29 million Photo Source: http://www.jdland.com/dc/stadium.cfmhttp://www.jdland.com/dc/stadium.cfm Cost CategoryAssumed Cost to DC Government Land Acquisition85-125% of cost estimate Infrastructure UpgradesAssumed baseline is $56 million Possible Sewer RelocationAssumed probability of 0.5 that expense is req’d.

14. Environmental remediation assumptions  $8 million estimated cost Photo Source: http://www.maps.google.com/ Cost CategoryAssumed Cost to DC Government Environmental Remediation85-125% of cost estimate

15. Navy Yard Metro Station upgrade  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. Cost CategoryAssumed Cost to DC Government Metro Station ImprovementsCity will pay 25-100% of cost

16. 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,, accessed 28 April 2006.

17. 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 13- 18% 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.

18. Total Cost NPV = $560 million CostNPV ($ millions) RFK Renovation 24 Site Prep, Construction & Debt Costs 498 Foregone Property Tax Revenue 40 Total  560

19. Stadium does not create new jobs Potential BenefitsCount?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)

20. Stadium does not create new spending Tax Revenue from ticket sales, concessions, and merchandise only counts for nonresident spending that would otherwise be spent in the suburbs. Assumed 75% of fans non-resident 50% of their spending is new to DC. Their overall spending tracks with attendance. Sources: Bureau of Labor Statistics and Baseball-Almanac.com Devil Rays: No new spending Diamondbacks: No new spending

21. DC’s taxes and Team rent create some benefits Potential BenefitsCount?Comments Tax revenue from new gross receipts tax NO Taxing DC companies is merely a transfer of money, not a gain. 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

22. 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.

23. Total benefits NPV = $335 million BenefitNPV ($ millions) New Income/Property Tax from Resident Players 77 New Sales/Hotel Tax from Visiting Team 5 Rent from the Team 45.5 Stadium consumption taxes (tickets, food, shirts…) 74 Business Utilities Tax 120 Existence Value (assume $2 per DC resident) 13.5 Total  335

24. 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

25. 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

26. NPV: Stadium is a loser MeanRange Min Range Max Stand Dev Normal-$210-$359-$66$42 Low-$489-$767-$219$80 High-$138-$247-$32$32 Crystal Ball simulations with 5,000 trials were performed for each scenario. Results are in millions.

27. 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.