A Northern Virginia sports arena that would move the Washington Capitals and Wizards out of downtown D.C. would receive what would be the largest-ever public subsidy for a project of its kind, an estimated $1.35 billion in state and local funds, if it goes forward.
To build the $2.2 billion project, Virginia wouldneed to create a sports and entertainment authoritythat would issue two bond offerings andwould need to contribute an additional $300 million from existing city and state funds, according to a 37-page study produced by investment bank JPMorgan for the state, 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 up front and sign a 40-year lease with rent beginning at $29.5 million annually and rising to $34.5 million, according to the study. That would make the company’s total contribution $819 million.
The net cost to taxpayers would ultimately reach an estimated $1.35 billion, according to the study. That includes $1.15 billion directly for the project — more than any comparable facility on record, according to J.C. Bradbury, a Kennesaw State economics professor who studies sports facilities and reviewed the study for The Post.
Borrowing for the project would come from two bond sales by the sports authority, according to the study and Virginia officials. One bond issuance of approximately $1.05 billion would be paid back with tax receipts from the project, parking revenue and the proceeds from the eventual sale of naming rights for the campus. The other bonds, for $416 million, would be repaid by lease payments from the team.
Bradbury, who has calculated the public cost of 220 venues going back to 1909, said Virginia’s subsidy could top even much larger venues such as Olympic Stadium in Montreal and the planned Tennessee Titans stadium, both of which received about $1.2 billion in 2020 dollars. Earlier this week, Oklahoma City residents approved at least $850 million of public funds for a new NBA arena, which will be a record subsidy for a basketball facility.
“There’s just a lot of public money here,” Bradbury said.
Gov. Glenn Youngkin (R) in an interview Friday said that the funds Virginia was offering for the project largely came from revenue that would not exist without its being built.
He said the arrangement was “pretty darn unique” because it would collect most of the needed funds from within the project’s boundaries, rather than by levying additional taxes across the commonwealth.
“This is the quintessential public-private partnership that takes revenues that otherwise would not exist and uses those as the underpinning 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 hall, underground parking, a conference center, a Wizards practice facility and Monumental’s corporate offices and media studio, all built behind an existing Target-anchored shopping plaza and next to the new Potomac Yard Metro station. Additional private development calls for two hotels, shopping and apartments beginning in 2029.
Following a splashy rollout of the plan Wednesday, Youngkin’s office downplayed the contributions that taxpayers would make to the project, issuing anews release saying: “There is no upfront investment or inclusion of any taxes already being collected by the Commonwealth 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 in fact make an upfront investment of $150 million to $200 million of redirected existing transportation funds, through a separate agreement between Virginia and Alexandria that has yet to be negotiated.
“There’s sort of an asterisk,” said one Virginia official, speaking on the condition of anonymity becausethe person was not authorized to discuss the plan. “That didn’t come across clearly.”
Asked about the upfront money, Youngkin said that those funds would be needed to upgrade transportation in the area regardless of what was built there.
“We know we’re going to have work to do on Glebe Road, we know we are going to need improvements along Route 1, and interchanges,” he said about major thoroughfares near the site. “We’re going to have bike paths, we’re going to have buses and we know all of this is going to be done over the course of time … We always knew something else was going to go here.”
The study also calls for $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 be subsidizing a billionaire.
The city would co-own the concert hall with Monumental, splitting the costs for construction, and the parking would be used to pay back the larger bond,Wilson said in an interview Friday. “Neither of those is going to enrich a billionaire or even incentivize a billionaire,” he said. That is “the basis for this project. Both of them are investments for the city that ultimately yield revenue for the city.”
Monumental’s managing partner, Ted Leonsis, is one of the wealthiest people in the Washington area, with a Forbes-estimated net worth of $2.8 billion. He has talked about taking Monumental public through an initial public offering (IPO).
Stephanie Landrum, president and chief executive of the Alexandria Economic Development Partnership (AEDP), acknowledged in an interview that the city would tap existing reserves forits contribution, including funds from its capital improvement and general budgets.
She stressed that the benefit for Alexandria would largely come in the form of the additional development that would likely go around the arena. “This money doesn’t exist unless we 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 at no cost. The study was labeled “Project Potter,” thought by two people close to the project to be a nod to literature’s famous wizard, Harry Potter, though state and city officials have declined to say.
Though Youngkin has spoken of the project with near certainty, saying the arena could open in 2028, the study makes clear the many agreements that would need to be negotiated, on top of required approvals from the Virginia General Assembly and Alexandria City Council.
He said the project’s biggest political challenge was probably making sure residents were happy with how fans would travel to and from games and events there.
“The one thing that we all know is that we do need to make sure that everyone is happy, not just comfortable but happy, with the long-term transportation plan,” he said.
The study does not fully account for who would be on the hook for the full $1.4 billion in debt, saying that the commonwealth and Alexandria would each “backstop” $560 million of debt. State and local officials said some details were still being negotiated.
An analysis attached to the presentation from Public Resources Advisory Group, a consultant hired by Virginia, concluded that backstopping a similar amount ($576.9 million) wasn’t likely to change the commonwealth’s credit rating on Wall Street, though it said Virginia could have “reduced debt capacity and flexibility for other projects” depending on how the debt was categorized by budget officials.
The study included no such analysis for how Alexandria, which has a capital improvement budget of $2.4 billion, would bear such an amount of borrowing should the sports authority for some reason default on its bonds.
The fruits of the project would be split among Virginia, Alexandria, Monumental and JBG Smith, the massive real estate developer that owns the land where the Monumental complex would go. JBG Smith would sell that land to the sports authority for $130 million, according to the JPMorgan analysis, allowing the authority to own the arena and the land beneath it.
Monumental would get to sell naming rights for the arena, but the commonwealth could sell naming rights for the broader entertainment district or “campus,” with those proceeds also going to pay down the bonds. The study assumes that campus naming rights would bring in $10 million a year given that the project lies in the flight path to Reagan National Airport, visible from the air to passengers. But in an interview Friday, Virginia Finance Secretary Stephen E. Cummings said the campus naming rights would not entitle the buyer to rooftop advertising; only the arena naming rights allow that.
Monumental and Alexandria would co-own the concert hall under another agreement that has yet to be inked, according to the study and state and local officials. Another $50 million in city dollars would go to build underground parking, creating revenue that could be used to pay back debt.
Some of the state’s projections are likely to come under scrutiny from lawmakers, both in Richmond and before Alexandria City Council, where theproposal is likely to dominate next year’s municipal elections.
For instance, the study envisions the arena hosting 220 events a year. But that’s 21 more than Capital One was able to host downtown in fiscal 2019, before the pandemic.
The Virginia projection also anticipates 17 Georgetown University men’s basketball games, even though Monumental Sports indicated that Georgetown University would continue to play at Capital One Arena. A Georgetown spokeswoman said the school “will monitor the situation.”
Roger G. Noll, professor of economics emeritus at Stanford University, found the projections of events to be wanting, causing him to question “the reality of revenue projections and the adequacy of the financial plan.”
Monica Dixon, president of external affairs and chief administrative officer at Monumental, said an agreement regarding Georgetown’s future still needed to be worked out. She otherwise defended the study’s projections. “We are confident in the projected number of events for Potomac Yard and our financial consultants validated the model,” she said.
Whether the General Assembly is willing to allow the state toassume such financial risks remains to be seen.
“At the end of the day, the voters are going to have to say whether that’s a responsible fiscal bet,” said Rep. Don Beyer (D-Va.), an Alexandria resident and former Virginia lieutenant governor.
A longtime political mentor to Wilson, Beyer has sought to eliminate lucrative federal tax breaks that professional sports teams routinely use to help fund new stadiums. But given the limited details he’s seen, Beyer said the financial plan “seems responsible.”
“You would have to have something like a second pandemic — we didn’t expect the first — that would make attendance at Caps and Wizards games go to zero and really upset the anticipated cash flow,” he said.
A deal recently offered to Monumental by the D.C. government, which is hoping 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 toward an $800 million overhaul of the Capital One Arena downtown, a venue that Monumental owns. That offer would require the team to stay in the District on a ground lease until 2052, according to a bill proposed Wednesday by Mayor Muriel E. Bowser (D) and all 13 members of the D.C. Council.
That proposal would also require legislative support and is so far light on details. It would likely have the Wizards continue practicing in a 4,200-square-foot arena in Southeast D.C. that the District government completed in 2018 and where 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 on a lease that has around 15 years remaining on it.
“The modernization of the Capital One Arena will be an invaluable investment for continued success and our future prosperity,” Bowser said in anews release.
Should Leonsis follow through with the move and leave D.C., it may be an expensive breakup. The Virginia study says Monumental “will also pay approximately $200 million in breakage for the teams to leave,” a figure that includes the cost to break its existing lease at Capital One, as well as leases for office space nearby, plus other potential moving costs.
Dixon said Monumental is focused on trying to downsize Capital One in partnership with the District and thinks such an arena could attract 100 events per year, among them “family shows, community events, graduations, conferences, concerts, sports and tournaments.”