By Daniel LeDuc and David Nakamura
Washington Post Staff Writers
Friday, July 11, 2008
More than midway through the baseball season, the Washington Nationals' owners have failed to pay $3.5 million in rent for the District's new ballpark, contending that the state-of-the-art stadium is still incomplete.
Besides withholding rent, the team is demanding damages of $100,000 a day, dating from March 1. The team and the city are also at odds over the timing of sales tax payments on tickets, with the Nationals paying game-by-game and the city wanting tax revenue from pre-sold ticket packages upfront.
D.C. officials said they plan to hire a special lawyer to handle what they expect to be prolonged arbitration over the ballpark, which was built with tax dollars.
"They are playing games there; the fans are paying the money to see the games; and no one I know of has asked for a refund," said D.C. Council Chairman Vincent C. Gray (D). The Nationals "ought to pay the rent for the facility they are using. The city is banking on this revenue. . . . It seems unreasonable at this stage that the team would not fulfill its obligation."
The fight is the latest in a series of disputes that has led to increasing ill will as the city and team seek to reap dividends from the investments they made to bring baseball to Washington. The District paid more than $611 million in public money to build the stadium complex along the Anacostia River, while the family of Bethesda-based developer Theodore N. Lerner spent more than $450 million to buy the franchise from Major League Baseball.
Although each side needs the other to make the stadium a success, neither appears willing to back down. The fight centers on whether the ballpark was "substantially complete" by March 1, when the city, which oversaw the construction, was contractually obligated to hand the keys to the Lerners.
District officials said the city secured a certificate of occupancy, as well as an additional letter from the architects, that declared the building fit for business before the season began. Since March 29, when the Nationals faced the Baltimore Orioles in an exhibition, the team has played 48 regular-season games at the ballpark, selling an average of 29,000 tickets a game.
Lerner's alma mater, George Washington University, played at the stadium March 22, and the city held a high school championship game there May 31. Pope Benedict XVI was there April 17, delivering Mass before more than 45,000 people without a glitch.
Through a spokeswoman, the Lerner family declined to comment.
Because they view the project as incomplete, the Lerners have refused to pay $3.5 million in rent, asked for damages and demanded that the city pay for various items that remain in dispute, including LED lights used in the scoreboard.
Construction crews turned the ballpark over to the team in phases so that there would be time to prepare the playing field and clubhouse and have time for concession workers to be trained. Construction officials said all the revenue-generating portions of the ballpark were completed well before Opening Day. Under their deal with the city, the Nationals receive all of the profits from food, drinks and other items sold.
But office space for team executives, connected to the south side of the ballpark, was not ready until three weeks after Opening Day. Before that, the team continued to use its old offices at RFK Stadium rent-free.
A "punch list" of hundreds of items remains incomplete, according to team officials. More than 100 construction workers are still at the stadium during off-days, a source close to the Lerners said.
That source stressed that the overriding issue for the family is living up to terms of the contract between the city and Major League Baseball, which the Lerners inherited upon buying the team in 2006. The source spoke on condition of anonymity because negotiations are continuing.
"In the mind of the city, there's an attitude that, 'Hey, you got a free stadium. Cut us a break,' " the source said. "But if you read the letter of the agreement, this is not subjective thinking. . . . This has nothing to do with the Lerners trying to take advantage of ambiguous language."
In addition to the rent dispute, the Nationals and the D.C. government are fighting over the timing of payments on several million dollars in taxes from ticket sales, according to other sources familiar with the conflict. They, too, spoke on the condition of anonymity because of the sensitivity of the issue.
Instead of turning over the tax money as soon as the bulk of full- and partial-season ticket packages were sold last winter and spring, the Lerners are making payments on a game-by-game basis, the sources said.
The District is counting on the rent and sales tax, along with a special tax on city businesses, to help pay off construction bonds for the ballpark. Last week, the city's Office of Tax and Revenue sent a letter to the Nationals demanding the money, the sources said. District finance officials declined to provide The Washington Post a copy of the letter, citing privacy laws governing individual tax payers.
D.C. Mayor Adrian M. Fenty (D), who as a council member voted against the stadium package, declined to comment, according to a spokeswoman. Acting Attorney General Peter J. Nickles said he is confident that the city will win a legal fight.
"We feel the stadium is substantially complete and that we'll be able to work it out," Nickles said.
The escalating dispute is drawing the ire of stadium critics.
"Now everyone has buyer's remorse and can't believe this was such a bad deal. But many of these bells were rung," said D.C. Council member David A. Catania (I-At Large). "This whole process has happened because it was so hastily put together and because the city has not bothered to look out for its long-term interest, and there is going to be one issue after another for years to come."
The Nationals owners have already been through a round of arbitration over ballpark costs, including over a demand that the city pay for the team's uniforms. The arbitrator ruled in the city's favor, but since then some city officials have privately expressed increasing frustration over the family's stands.
The Lerners were selected by Major League Baseball to purchase the Nationals; the city had supported a different potential buyer. The family has earned the bulk of their development fortune in the suburbs, with such projects as Tysons Corner.
"The owners of the team are very strong business people, and they take a very businesslike approach to the whole relationship. They enforce their rights to the extent they can," said council member Jack Evans (D-Ward 2), an ardent baseball booster.
"The city needs to behave accordingly and enforce our rights within the contract. And then if that's done, the relationship should be fine, as long as everyone complies with the documents."