Stadium Thoughts, part 2
April 19, 2022
by Steve Thomas
My last Washington stadium update was about a month ago (click here to read), but since that time there’ve been some developments in what has become a neverending drama. It therefore seemed like a good time for another column as well as a few words about how such a transaction might be structured. I’ve written two other, older columns about the possibilities for a new Redskins Commanders Washington stadium over the past few years. You can find part one here and my column from 2021 here.
What’s happened recently appears to be that both Maryland and Virginia have had second thoughts about the scope of potential financing they are willing to make available in light of Dan Snyder’s many scandals. Politicians don’t want to associate with someone who’s toxic, because that looks bad when it comes to voting time. Certainly, there’s an inordinate number of bad and/or corrupt people in elected office as compared to the rest of society, but even in that world, doing business with a guy accused of both mistreating women and trying to cheat people out of money is generally bad for reelection.
As a result, the proposal floating through the Virginia legislature, which had originally included public funds in amounts as high as $1B, now is allegedly down to $350M in construction financing. Virginia seems to be willing to allow the team to own the property, which is a major benefit to Snyder and company. Maryland, on the other hand, has long maintained a cap in the $400M range, but with the state owning the land. As far as the District of Columbia goes, mayor Muriel Bowser and others involved with DC governance have made occasional statements in favor of the team returning to the District, but they have not made a proposal of any sort. In my view, it’s highly unlikely that the District can produce both a viable stadium location and financing package, so that will problem most likely have to stay a dream.
You may have seen that the owners of the Buffalo Bills recently received a commitment for $850M in public financing from the state of New York and the local government to fund a little over 60% of the construction costs of a new stadium. That’s an enormous amount of money for any state, even New York. The difference here is that the owners, Terry and Kim Pegula, are scandal-free, and Terry Pegula is a successful real estate and oil and gas mogul, which clearly got the politicians involved up to a level of comfort that simply doesn’t exist in Washington. Snyder is none of those things. He’s burdened with scandal, has not experience in real estate, and has been mostly unsuccessful in his non-football business ventures.
If we assume that, in round numbers, a stadium is going to in the range of $1B – $1.5B, with funding in the range of $350M – $400M from either Maryland or Virginia, probably funded by either public or private bonds and possibly tax credits, that would leave around $600M to $1B to be financed. Being someone who’s done major commercial real estate financing deals for a long time, including being involved in multiple stadium construction projects to one extent or the other, I can tell you that this level of financing is possible. Yes, Snyder would have to be a guarantor and put up some cash of his own, but if Snyder owns the property, the lenders will accept a lien on the real property and a collateral assignment of lease and other income as collateral.
A loan of this size will almost assuredly have multiple lenders, because essentially nobody but the federal government (which has had recent success in creating unwanted and unnecessary inflation by tossing trillions of non-existent dollars into pointless pork-barrel spending, then lying to the public about it) is normally willing to fund that much money by themselves. Oftentimes, a major national bank will take the lead but have a consortium of smaller lenders, for which the national bank acts as a lead agent, to manage the loan. Snyder could also look to other sources of private financing if need be.
The NFL has been known to help fund stadium projects with sometimes as much as $150M – $200M. However, remember that Snyder is the guy accused of bilking the other owners out of money – raise your hands if you think the league will be in the mood to help him. My hand is down.
The complete financing picture would therefore be cash directly from Snyder of some amount – think tens of millions, not hundreds of millions, probably – plus public financing of up to $400M, and then private financing between $500M and $1B, financed with initial terms applicable to the construction process, which then will transition to 30 year permanent financing.
Assuming that Snyder owns the property, he’ll form a new company to be the owner and then enter into a lease with Pro Football, Inc., which is the owner of the team. That way, the team itself isn’t on the hook in the event of liability for things like personal injury or business-related lawsuits, keeps a lien from being placed on the team – which the NFL wouldn’t allow – and the owning entity can show its lenders guaranteed income coming from the team. However, game ticket sales alone don’t fund debt service that’s going to amount to millions per month. This is why we recently heard team president Jason Wright talking about a goal of 100 events per year. It’s going to take that level of income to effectively manage the enormous debt service that will be involved. Snyder will look to attract all of the major national stadium acts to the new stadium. Success in this area will be mandatory.
Snyder also wants to construct a commercial mixed-use development consisting retail, restaurants, bars, and possibly office and residential condominiums. Further, he has made it clear that he wants to incorporate sports betting into a new stadium complex. The days of a stadium buy itself, with no other services, are probably over.
In addition, Snyder’s total lack of experience in real estate shouldn’t be understated. A person with no experience could figure out how to manage a small local property, but we’re talking about a billion-dollar stadium with surrounding large-scale commercial developments. Snyder currently doesn’t have the infrastructure necessary to support and manage such a development, but he’s so arrogant that he probably thinks he does. Jason Wright isn’t a real estate guy either, so he won’t be a big help. Large commercial real estate developments need a management team and a host of other specialties to function properly. They’ll need to find an entire group to do this for him.
All of this is to say that Snyder has a long and expensive road ahead of him in order to get to the point at which a stadium and surrounding commercial development are open and operating. Frankly, I think there’s at least a non-zero a chance he can’t get it done at all. We’ll have to see how it goes, and for that matter, if Snyder remains team owner. Fingers crossed on that one.