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A Northern Virginia sports arena that would move the Washington Capitals and Wizards from downtown D.C., if implemented, would receive the largest public subsidy ever for a project of its kind, an estimated $1.35 billion from the state and local resources.
Virginia would build the $2.2 billion project A Sports and Entertainment Authority needs to be created that would issue two bond issues and An additional $300 million would need to be contributed from existing city and state funds, according to a 37-page study prepared for the state by investment bank JPMorgan, a copy of which was obtained by The Washington Post.
The plan would require significant investment from the teams' ownership group, Monumental Sports & Entertainment, which would provide a total of $403 million upfront and enter into a 40-year lease with rent starting at $29.5 million per year and rising to $34.5 million, according to of the study. This would bring the company's total contribution to $819 million.
“Monumental, Youngkin announces deal to move Caps, Wizards to Virginia”.
The ultimate net cost to taxpayers would be an estimated $1.35 billion, according to the study. That includes $1.15 billion directly for the project — more than any comparable facility in history, according to JC Bradbury, a Kennesaw State economics professor who studies sports facilities and reviewed the study for The Post.
Funds for the project would come from two athletic department bond sales, according to the study and Virginia officials. A bond issue worth about $1.05 billion would be repaid with tax revenue from the project, parking revenue and proceeds from the eventual sale of campus naming rights. The other $416 million in bonds would be repaid through lease payments from the team.
Bradbury, who has calculated public costs for 220 venues since 1909, said Virginia's subsidy could even surpass much larger venues like Montreal's Olympic Stadium and the proposed Tennessee Titans stadium, both of which cost about $1.2 billion in 2020 received US dollars. Earlier this week, Oklahoma City residents approved at least $850 million in public funding for a new NBA arena, which would represent a record subsidy for a basketball facility.
“There’s just a lot of public money here,” Bradbury said.
Gov. Glenn Youngkin (R) said in an interview Friday that the funding Virginia provided for the project came largely from revenue that would not have existed without the project's construction.
He said the agreement was “pretty darn unique” because it would collect most of the needed funds within the project's boundaries, rather than imposing additional taxes across the commonwealth.
“This is the quintessence of a public-private partnership that uses revenue that would not otherwise exist as the basis to support the project,” Youngkin said.
For its investment, Virginia would get more than just an arena, as the project would also include a concert venue, underground parking, a conference center, a Wizards practice facility, and Monumental's corporate offices and media studio, all of which would be built behind an existing Target anchor Shopping center and next to the new Potomac Yard subway station. Additional private development will require two hotels, shopping and apartments starting in 2029.
After a splashy introduction of the plan Wednesday, Youngkin's office downplayed the contributions taxpayers would make to the project and issued a statement The press release states: “There will be no upfront investment or inclusion of taxes that the Commonwealth already collects to repay the bonds, and there will be no tax increases for local residents.”
But state and local officials acknowledged this week that Virginia would actually make an upfront investment of $150 million to $200 million in redirected existing transportation funds through a separate agreement between Virginia and Alexandria that has yet to be negotiated.
“There is such a thing as an asterisk,” said a Virginia official who spoke on condition of anonymity The person was not authorized to discuss the plan. “That didn’t come across clearly.”
When asked about the upfront money, Youngkin said those funds would be needed to modernize transportation in the region, regardless of what is built there.
“We know we need work on Glebe Road, we know we're going to need improvements along Route 1 and the interchanges,” he said of major roads near the site. “We're going to have bike lanes, we're going to have buses, and we know all of that is going to happen over time…We always knew something different was going to happen here.”
Plan to move Capitals, Wizards to Virginia raises transportation issues
The study also seeks $106 million from Alexandria, including $56 million to cover half the cost of the concert hall. Alexandria Mayor Justin M. Wilson (D) assured residents of the nearby Del Ray neighborhood in a remote meeting this week that they would not subsidize a billionaire.
The city would co-own the concert hall with Monumental and share construction costs, and the parking lot would be used to repay the larger deposit. Wilson said in an interview Friday. “None of this is going to enrich a billionaire or even incentivize a billionaire,” he said. That is “the basis for this project. Both are investments for the city that ultimately generate income for the city.”
Monumental managing partner Ted Leonsis is one of the wealthiest people in the Washington area, with a net worth estimated by Forbes at $2.8 billion. He has talked about taking Monumental public through an initial public offering (IPO).
Stephanie Landrum, president and CEO of the Alexandria Economic Development Partnership (AEDP), acknowledged in an interview that the city would use existing reserves its contribution, including funds from its capital improvement and general budgets.
She emphasized that the benefit to Alexandria would largely come in the form of additional development that would likely occur around the arena. “This money won’t exist if we don’t do the projects,” she said.
Youngkin spokeswoman Becca Glover said the governor's office requested the JPMorgan analysis on behalf of the state, which the bank provided free of charge. The study was titled “Project Potter,” which two people close to the project saw as a reference to the famous literary wizard Harry Potter, although state and city officials declined to say.
Although Youngkin has almost certainly discussed the project and said the arena could open in 2028, the study makes clear that many agreements would need to be negotiated in addition to the required approvals from the Virginia General Assembly and Alexandria City Council.
He said the project's biggest policy challenge would likely be ensuring residents were happy with the way fans would travel to and from games and events there.
“The one thing we all know is that we need to make sure everyone is happy, not just happy, but satisfied, with the long-term transportation plan,” he said.
The study does not fully account for who would be responsible for the entire $1.4 billion debt, as the Commonwealth and Alexandria would each “hedge” $560 million in debt. State and local officials said some details are still being negotiated.
An analysis accompanying the presentation by the Public Resources Advisory Group, a consultant hired by Virginia, concluded that supporting a similar amount ($576.9 million) was unlikely to change the commonwealth's credit rating on Wall Street, although Virginia could have “worsened debt capacity and flexibility for other projects,” depending on how the debt was categorized by budget officials.
The study included no such analysis of how Alexandria, which has a $2.4 billion capital improvement budget, would absorb such borrowing if the athletic authority defaulted on its bonds for any reason.
The project's fruits would be split between Virginia, Alexandria, Monumental and JBG Smith, the giant real estate developer that owns the land on which the Monumental complex would rise. According to the JPMorgan analysis, JBG Smith would sell that land to the Sports Authority for $130 million, giving the authority ownership of the arena and the property beneath it.
Monumental could sell the naming rights to the arena, but the Commonwealth could sell naming rights to the broader entertainment district or “campus,” with those proceeds also being used to pay off the bonds. The study estimates that naming rights for the campus would generate $10 million per year because the project is in the flight path to Reagan National Airport and visible to passengers from the air. But in an interview Friday, Virginia Secretary of State Stephen E. Cummings said the campus naming rights would not give the buyer a right to rooftop advertising; Only the arena's naming rights allow this.
According to the study and state and local officials, Monumental and Alexandria would co-own the concert hall under another agreement that has yet to be signed. Another $50 million in city funds would go toward building an underground parking garage, generating revenue that could be used to pay down debt.
Some of the state's projections are likely to be tested by lawmakers, both in Richmond and before the Alexandria City Council, where the The proposal is likely to dominate next year's local elections.
Alexandria Mayor Justin Wilson says he will not run for re-election in 2024
For example, the study assumes that 220 events will take place in the arena every year. But that's 21 more than Capital One was able to accommodate downtown in fiscal 2019, before the pandemic.
Virginia's forecast also calls for 17 Georgetown University men's basketball games, although Monumental Sports has indicated that Georgetown University will still play at Capital One Arena. A Georgetown spokeswoman said the school was “monitoring the situation.”
Roger G. Noll, professor emeritus of economics at Stanford University, found the forecasts inadequate, leading him to question “the reality of the revenue projections and the adequacy of the financial plan.”
Monica Dixon, president of external affairs and chief administrative officer at Monumental, said an agreement on Georgetown's future still needs to be worked out. Otherwise, she defended the study's predictions. “We are confident in the projected number of events for Potomac Yard and our financial advisors have validated the model,” she said.
Whether the General Assembly is willing to allow the state to do this Whether such financial risks will be taken remains to be seen.
“Ultimately, voters will have to say whether this is a responsible budget decision,” said Rep. Don Beyer (D-Va.), an Alexandria resident and former lieutenant governor of Virginia.
Beyer, a longtime political mentor to Wilson, has sought to eliminate the lucrative federal tax breaks that professional sports teams routinely use to finance new stadiums. But given the limited details he's seen, Beyer said the financial plan “seems responsible.”
“There would have to be something like a second pandemic – we didn't anticipate the first one – that would cause attendance at Caps and Wizards games to drop to zero and really throw the expected cash flow into disarray,” he said.
A deal recently offered to Monumental by the D.C. government, which hopes to keep both teams in the city, would cost both the company and the public less money. It would provide $500 million in taxpayer funds over three years for an $800 million renovation of downtown's Capital One Arena, a venue owned by Monumental. According to a bill proposed Wednesday by Mayor Muriel E. Bowser (D) and all 13 members of the D.C. Council, that offer would require the team to remain in the District through 2052 under a ground lease.
This proposal would also require legislative support and so far contains few details. The Wizards would likely continue to practice in a 4,200-square-foot arena in southeast D.C. that the county government completed in 2018 and is home to two other Monumental teams — the Mystics and the Capital City Go-Go, a Wizards farm team in the NBA G League – play their home games with a lease that still runs for about 15 years.
“Upgrading Capital One Arena will be an invaluable investment in our continued success and future prosperity,” Bowser said in a statement Press release.
If Leonsis goes through with the move and leaves DC, the separation could be costly. The Virginia study said that Monumental “will also pay approximately $200 million in rental costs for teams to leave the company,” a figure that includes the cost of terminating the existing lease at Capital One as well as leases for office space nearby as well as other potential moving costs.
Dixon said Monumental is focused on downsizing Capital One in collaboration with the district and anticipates such an arena could attract 100 events a year, including “family shows, community events, graduations, conferences, concerts, sports and tournaments.” .
Vozzella reported from Richmond.