Analysis Predicts Stadium Windfall
Thursday, March 23, 2006
The Washington Nationals could generate $203 million in revenue during their first season in a new stadium, according to a District-commissioned report that includes projections that would make the franchise one of the richest in Major League Baseball.
Even after the initial excitement over the new stadium wears off, the Nationals can anticipate grossing $190 million from ticket sales, concessions and parking in the 2011 season and seeing that amount grow by 2.8 percent annually from there, said the report prepared by Economics Research Associates for D.C. Chief Financial Officer Natwar M. Gandhi.
In addition to stadium revenue, the Nationals already are earning $30 million a year from MLB's national television, sponsorship and marketing deals and $21 million from local television rights. The report did not address that revenue.
If the projections are on target, the Nationals would probably rank behind only the New York Yankees and Boston Red Sox, the only franchises to surpass $200 million in total revenue last year, according to Forbes magazine, and on par with the New York Mets, Los Angeles Dodgers and Chicago Cubs.
The projections greatly exceeded the expectations of city officials and MLB executives. And several baseball officials, who had not seen the report, expressed skepticism about the estimates when contacted this week.
"Any kind of number north of $200 million that doesn't include TV [revenue] sounds astronomically high to me," Nationals President Tony Tavares said.
In particular, Tavares and two people who formerly held business positions at Major League teams said the report's figures on ticket prices and revenue generated from tickets appear to be too high.
Gandhi commissioned the report to determine how much tax revenue the stadium would generate for the city, which plans to use the money to help pay debt service on construction bonds. He intends to include the report in the city's bond offering on Wall Street.
Gandhi's office and Economics Research Associates declined to comment on the report because they are still making minor revisions. The company, which specializes in economic analysis of the entertainment and leisure industries, has worked for both state and city governments and private corporations, according to its Web site.
The numbers in the report illustrate the power of the new ballpark to boost revenue for both the team and the city, which stands to earn about $23.4 million annually in stadium taxes in the first 22 years if the estimates are accurate.
Scheduled to open in 2008 near the Navy Yard and South Capitol Street in Southeast Washington, the ballpark will feature 78 luxury suites, 4,000 high-priced club seats, a restaurant, team stores and wide concourses with dozens of vendors.
During their first season last year, the Nationals generated about $100 million at Robert F. Kennedy Memorial Stadium, where they will continue to play until the new stadium is complete.
The doubling in revenue projected for the new stadium "is attributed to a combination of increased attendance, higher ticket prices, premiums on suite and club seat leases, and increased per capita spending," the report said.
No one disputes that the cash-generating potential of the stadium has helped drive up the prospective sale price of the Nationals franchise. MLB is asking $450 million for the team, one of the highest prices ever.
"We think the stadium will be a great success and that the team's finances will be in the upper echelons of the National League," said Jeffrey Smulyan, an Indianapolis media mogul whose group is one of three ownership finalists. "We think the revenues will allow the team to be competitive, and yet my assumption is those numbers [in the report] are very high."
Economics Research Associates reviewed data provided by MLB, the D.C. government and the Nationals to help make its analysis. The company also looked at figures from stadiums opened recently by other MLB teams, the report said.
The Nationals sold 2.69 million tickets and earned a profit of $10 million after taxes last season, according to team officials.
The report estimates that the Nationals will sell 3.17 million tickets in the first season at a new stadium, with interest tapering off the following two years and then stabilizing in 2011 at about 2.65 million tickets per year.
Although the number of fans in outlying seasons is not projected to be higher than last season, the amount those fans spend at the ballpark is expected to rise significantly. The consultants said the average ticket would cost about $38.48 during the first season at the stadium.
But Tavares and the two former baseball officials, who spoke on condition of anonymity because they had not seen the report, said that estimate was too high. Last season, only the Red Sox had a higher average price, at $44, according to Team Marketing Report, which tracks sports industry data.
The average price of all tickets available at RFK last season was $21.43, but the consultants from Economics Research Associates said the average price of tickets actually purchased was $26.75 because most of the unsold seats were the less expensive ones in the upper deck.
Once inside the ballpark, fans will spend more on food, alcohol and souvenirs, up from about $15.83 per fan last season to $22.26 in 2008, the report said.
The District has committed $611 million in public funds to the stadium project. The city will pay off the construction debt through stadium tax revenue, a gross receipts tax on city businesses, a utilities tax on businesses and federal buildings and a rent payment from the Nationals.
Because the projected stadium tax revenue is higher than city officials anticipated, they now expect about $58 million annually from all four funding sources, even though the debt service payment will be only $38 million. City officials said the extra $20 million a year could be used to pay off the debt early or put toward other needs.
"The team will get more money, but so will we," D.C. Council member Sharon Ambrose (D-Ward 6) said. "This is very good news."