Lease Deal Done; And Some Math

The Nats Blog is not dedicated to regurgitations of the news and linkies to the various articles written by vowel-challenged Barry Svrluga or baseball-challenged Thomas Boswell. We do mainly analysis, sprinkle in some clever off-topic references (I mean, who can forget our discussion of Diane Franklin?), DM does his ERV scoring and we try to stay out of history's way.

Other blogs have covered the apparently "final" lease deal between the City and Major League Baseball in loco parentis for the Nationals. I'm sure there is some fine detail on the Internet.

What I'm interested in is math. Pure, unadulterated math. What will it "cost" the city to build this stadium? How much will the team pick up?

1. LEASE

The lease apparently calls for $5.5 million in rent payments per year over 30 years, for a total of $165 million in lease payments. Now, since the cost of construction is paid up front, and the lease payments are made over time, you have to discount those payments overall. If the city of DC were securing a bond with those $5.5 million in payments at an interest rate of 5.5% (that's about the going rate for DC municipal bonds), that amount would be $79.9 million. That calculation does not account for maintenance costs or the fact that the Nationals will pay $1 for every ticket sold over 2.5 million tickets per year. Assuming maintenance costs of $2 million per year (an estimate based on the Ballpark in Arlington's costs), the amortized bond would be worth $50.8 million.

2. MLB PAYMENT

There is apparently a payment of $20 million by MLB towards the stadium construction costs, although the team would get some money back from non-game-day parking revenues.

3. NON GAME-DAY PARKING

There is the non-game-day revenue that the city will earn over the course of the 30 years from the stadium parking lots. Since the team will get 1/3 of those revenues, an amount estimated at $20 million, we could estimate the city's share at $40 million, or about $1.333 million per year. The bond value of that $1.333 million per year would be $19.4 million.

4. PLAYER SALARIES

One forgotten feature of having a team in the District of Columbia is that there will be a fair number of high-priced athletes paying taxes to the District. Now, many will be smart and live in Virginia or Maryland to pay the lower taxes there, but a contingent will undoubtedly choose the luxury of living in the Nation's capital. At D.C.'s current onerous tax rate of 9.3%, this could be a substantial amount of money.

The current team salary of the Nationals comes in around $50 million. Let's assume that 1/2 of the players with 1/2 of the team salary choose to live in the District. That's $25 million in taxable salaries in 2006. Because baseball salaries rise faster than inflation, and the Nats payroll will also rise to befit the Nats' big-market status, we'll assume that there will be $30 million in salaries paid to DC-resident players per year over the 30 years (a very conservative estimate). Throw in another $2 million in salaries and payments to front office personnel and other team employees. That would amount to $2.98 million in additional income taxes for DC each year, which would support a bond totaling $43.3 million.

5. TAXES ON CONCESSIONS

DM, Dexy's and I definitely contribute our fair share of income to the city by buying food at RFK. My guess is that I come it at something like $12-$15 per game between a chorizo, a beer, and the Ice Cream of the Future. Assuming my own consumption is a bit high, I'll estimate $8 per ticket in concession revenues per year. Since we all know that DC extracts an onerous 10% restaurant tax, $0.80 on that dollar is going back to the City. At 2.7 million fans per year, that is $2.16 million per year in revenues to the City. That income stream would support bonds worth $31.4 million.

Then there are souvenirs, which are taxed at D.C.'s sales tax rate of 5.75%. I'll be conservative and estimate that there would be a total of $3 million in merchandise sales at the ballpark, through the Nationals.com web site, and at the team store. That's another $172,000 per year in DC revenue, which would support a bond worth $2.5 million.

The Final Bill

I'm sure that I left out other potential revenue sources to the city, such as parking in non-stadium lots, taxes on money spent in restaurants near the stadium, taxes on team profits, and other baseball-related sources. But the baseball-related revenue I've talked about here amounts to city revenues of $303 million over the next 30 years. The bond-value of that $303 million is approximately $196.5 million, or more than 1/3 of the price of the stadium.