Back to DC Sports and Entertainment Commission main page
Government and People
COUNCIL OF THE DISTRICT OF COLUMBIA
WASHINGTON, D.C. 20004
October 3, 2003
Re: The Sports and Entertainment Commission: Moving Beyond the Rhetoric
It is time for the Council to move beyond rhetoric, personality conflicts, and sound bites in its deliberations on the Sports and Entertainment Commission ("Commission"). In fact, it is time for the Council to focus on one key fact: running RFK Stadium and the DC Armory, and at the same time promoting the District as a sports and entertainment destination, is a money-losing proposition. Therefore, the current structure and funding of the Commission must be significantly modified.
When the Washington Redskins played at RFK Stadium, the Stadium and the Commission were guaranteed money-makers. Millions of dollars in revenue were generated - with little effort - from the Stadium lease, concession sales, and parking fees from a packed stadium. (The Commission could also count on several major music concerts per year to help fill its coffers, but this revenue opportunity has greatly diminished over the past several years.)
Without the Redskins, there is simply insufficient revenue-generating demand for the Stadium's use. No matter one's thoughts on the salary of the executive director and no matter one's position on certain expenditures of the Commission, the economics are clear: even with the best efforts of the Commission and its management, the revenues which can be generated by the Stadium and other Commission facilities are insufficient to offset the necessary costs to operate and maintain the RFK Stadium complex and promote the District as a sports and entertainment destination.
Because of this fact, it is time for the Council to rethink the mission and funding of the Commission. Based on a number of public hearings, several months of analysis, and meetings and conversations with parties involved with the Commission and sports management, I propose the following starting point for our reconsideration of the Commission's mission and its funding: The Commission should be abolished and the two major responsibilities of the Commission should be bifurcated and transferred to two separate entities. I am currently drafting legislation to achieve these goals, the basis for which is described in further detail below, and I hope you will support the legislation as it moves forward.
Although it might seem inefficient to use two separate, and perhaps new, entities to solve the problems of one existing entity, the new structure will provide several significant benefits: the District will be able to devote more resources to attracting sports and entertainment events throughout the District, and will be able to provide a sharper focus for these efforts; the District's tourism, convention, and sports and entertainment marketing efforts will be better integrated; the District will be able to leverage alternate sources of funding for its sports and entertainment promotion efforts; a substantial financial drain on the operations of the Stadium and Armory will be eliminated, providing greater financial security for these operations; the actual costs to operate the Stadium and Armory should decline; the District's financial risk associated with the operation of these facilities will be significantly reduced; and the District government's bureaucracy and costs will be minimized.
The first entity which would result from the abolishment of the current Commission would focus solely on the promotion of the District as a whole - and its wide variety of sports and entertainment facilities - as a venue and visitor destination for sports and entertainment events. This entity would be a non-profit corporation - an entity separate from the government, reducing the District government's size and costs - that would be funded by contributions from sports and entertainment businesses, other corporate sponsors, and the existing dedicated tax streams collected by the Washington Convention Center Authority. (The structure and funding of this new entity would be similar to the structure and funding of the Washington, DC Convention and Tourism Corporation ("WCTC"). In fact, the new Corporation might best be structured as a subsidiary of the WCTC.) The numerous benefits of this structure are discussed more fully in the final section of this letter.
The second entity - which might be integrated into an existing government office, thereby further reducing the District government's size and costs - would be responsible for overseeing the management and operations of the existing Sports and Entertainment Commission Stadium and Armory complex, but would not itself manage or operate the facilities. Instead, the entity would establish goals for the operation of the facilities, issue a request for proposals for the private management and operation of the facilities, oversee the administration of the contract, and report to the Council and Mayor. This second entity could take one of several forms, existing either as a division within the Office of the Deputy Mayor for Planning and Economic Development; an office or subsidiary of the Washington Convention Center Authority; or a newly created government authority responsible only for the administration of the facilities (led by a board with completely new membership). These types of entities exist in other jurisdictions, and my staff is currently researching their structures and benefits. (The Blue Ribbon Panel will likely also investigate this area.) This entity would be funded through the revenue generated by the contract for the operation of the facilities or through annually appropriated funds. The many benefits of this new type of entity are also discussed more fully in the final section of this letter.
When the Council makes its decision regarding the form of the entity which will oversee the facilities, the Council must keep in mind that it the near future it faces three likely options for the future of the Stadium and Armory: (1) Close the Stadium and end the nonmilitary uses of the Armory in order to minimize direct financial expenditures by the District; (2) Operate the Stadium on a short-term basis while a new, soccer-specific stadium and a Major League Baseball ballpark are constructed, and thereafter mothball or demolish RFK; or (3) Subsidize the operation of the facilities on a longer-term basis through an annual appropriation of funds, in order to realize the social and cultural benefits from the uses of the facilities and their positive, indirect economic impacts.
DESPITE SIGNIFICANT IMPROVEMENTS TO RFK STADIUM, THERE IS LITTLE DEMAND FOR THE STADIUM'S USE
There is no long-term demand for the use of RFK Stadium as a regular sporting venue. No major sports league is interested in using the facility on a long-term basis and none is on the horizon. Even the one remaining major league tenant of the stadium, Major League Soccer, is intent on moving to a new facility, either in the District or in suburban Maryland or Virginia.
As the Council is well aware, professional football was the last significant tenant at RFK Stadium. The Washington Redskins left RFK Stadium because of the inadequacies of the stadium. There is no reasonable possibility that professional football will return to RFK Stadium.
Major League Baseball ("MLB") and potential team ownership groups have made it clear to the District that RFK Stadium is not acceptable as a permanent home for a relocated MLB team. If Major League Baseball returns to the Washington region, the relocated baseball team will likely use RFK Stadium as an interim facility while a new, baseballspecific stadium is constructed. However, there is no reasonable possibility that professional baseball will utilize RFK Stadium on more than an interim basis (at least without a multi-hundred-million-dollar rebuild).
Major League Soccer ("MLS") is the only existing, regular user of RFK Stadium. (The Women's United Soccer Association, of which the Washington Freedom was a part,. recently ceased operations and future prospects for a professional women's soccer league are unclear; DC United, the men's professional soccer team, is now the only regular soccer tenant at RFK Stadium.) The owners of the District's MLS team, however, have made clear that they do not want to remain a tenant of RFK Stadium on a long-term basis. The owners believe that the stadium lacks the amenities and revenue-generating opportunities of a modern facility and that, even if these amenities were provided, the stadium is simply too large for the team's most profitable use.
Absent an agreement to finance and construct a new, soccer-specific stadium at the RFK complex (which the Commission is currently exploring with DC United's parent company), it is becoming increasingly likely that DC United would choose to move to a suburban location, where there is an outstanding offer to help finance a new, soccerspecific stadium for the team. Thus, there is very little possibility that Major League Soccer will remain a tenant of RFK on a long-term basis.
Other Sports Uses
Other major sports leagues, such as basketball and hockey, use indoor facilities, for which RFK Stadium is not appropriate. There is limited, erratic demand for the use of RFK Stadium as a sports special-event facility. Such special events include the recent Women's World Cup and international soccer matches. These uses provide a relatively small and uneven stream of revenue for the Commission which is insufficient to support the Commission's operations.
Other than sports uses, the only other potentially significant source of revenue for RFK Stadium is entertainment uses. Potential entertainment uses consist entirely of special events, and those special events are generally limited almost entirely of music events. On top of that, music event promoters consider RFK Stadium only for a small subset of music events, called stadium concerts. Unfortunately, the number of stadium concerts has declined significantly over the past several years. In 1998, there were 8 touring stadium concerts in the Washington, DC, region; in 2003, there were 2. (During this time period, outdoor music concerts have increasingly targeted toward smaller venues, such as the Nissan Pavilion, Wolf Trap, and the Merriweather Post Pavilion, which accommodate between 10,000 and 20,000 attendees. In addition, smaller concerts have increasingly targeted indoor venues, such as the MCI Center, a trend which has eliminated significant business opportunities for the Stadium.) Moreover, RFK Stadium faces significant competition from FedEx Field for these stadium concerts. Stadium concerts, therefore, represent a very limited potential for revenue generation for RFK Stadium.
Beyond stadium concerts, there is a limited, erratic demand for the use of RFK Stadium as a non-music special-event facility. As with special sports events, these uses provide a small and uneven stream of revenue for the Commission which is insufficient to support the Commission's operations.
ABSENT SIGNIFICANT AND SUSTAINED CAPITAL INVESTMENT (WHICH HAS BEEN PREVIOUSLY REJECTED BY THE COUNCIL), THERE IS LIMITED PROFIT POTENTIAL IN THE OPERATION OF THE ARMORY
The DC Armory has the potential to generate positive (though not substantial) revenue, but this revenue is unlikely to be generated without a significant and sustained capital investment plan for the facility. The Armory could fill a niche market for certain sports and entertainment events needing a relatively large, open, indoor space at a relatively low cost. The condition of the facility, however, limits its ability to generate revenue. The Armory opened in the early 1940s and has not seen substantial renovation since that time. The facility is not air-conditioned, essentially limiting its useful time period to 8 months of the year. Even during those 8 months, however, the outdated condition and limited amenities of the facility minimize its appeal to event promoters.
With a substantial and sustained capital investment program, the DC Armory would become a more attractive facility to the sports, entertainment, and meeting industries. The Commission has considered the feasibility of modernizing the Armory in order to attract and retain a sports team in a national league. The Commission, however, has limited resources to achieve this type of rehabilitation, which would require expenditures in the range of $15 million. In order to make significant progress on these needed renovations, and help establish the Armory as money-making facility, the Fiscal Year 2003 budget originally included $5 million for Armory renovations. The Council eliminated this funding. The effect of this action was to further limit the Commission's ability to generate revenue and hasten the point at which the Council was faced with the options outlined in this letter.
Without significant capital improvements, the Armory's ability to generate revenue and contribute to the financial stability of the Commission is very limited.
Beyond the inherent revenue limitations on the Commission's aged facilities, several other factors have contributed to the Commission's current fiscal and operational concerns.
THE PURPOSE AND IMPACT OF THE COMMISSION'S CAPITAL EXPENDITURES AT RFK STADIUM
During the final years of the Washington Redskins' tenancy at RFK Stadium, and after the team's departure, the stadium became the victim of deferred maintenance and seemingly indifferent management. As a result, the Stadium developed significant operational liabilities: the lower roof leaked, creating a potentially unsafe condition; the parking lots had deteriorated into a hazard with numerous, large potholes; there were no directional signs to guide patrons to and from the Stadium; directional signage inside the Stadium was limited and difficult to read; restroom facilities were poorly maintained; food and beverage choices were few and the overall concession service quality was poor; the scoreboard and sound system were antiquated and failing; and the overall appearance and perception of the facility was drab, dirty, and outdated.
Recognizing the already limited appeal of the facility for sporting and entertainment events, the management of the Commission, with the support of the board of directors, embarked on an aggressive effort to revitalize the facility in order to maintain thencurrent tenants, attract new tenants, and maximize the revenue potential of the Stadium. By embarking on these efforts, the Commission was able to retain DC United as its primary Stadium tenant; properly introduce the Washington Freedom as the then-second major Stadium tenant; bring international sporting events, including the Women's World Cup and international soccer matches to the Stadium; ensure Major League Baseball that the Commission and District were ready, willing, and able to welcome a baseball team to the District; and maintain an element of competitiveness with FedEx Field for stadium concerts and special events.
Despite these achievements in updating the facilities and bringing in additional facility users, it has become clear (as discussed above) that there is insufficient demand for the Stadium, and thus expenditures will exceed the revenues generated. That is, despite updating and improving the Stadium to the maximum extent possible with available funds, it has become apparent that the Stadium, due to its age, sports economics, and competing facilities, is inherently unable to generate sufficient revenue to meet expenditures, if the facility is to be operated and maintained at the necessary levels of staffing and capital expenditures and given the limited amount of resources available for investment in the facilities and their operation.
THE PURPOSE OF THE GRAND PRIX AND FRIGHT HOUSE AND THEIR IMPACT ON THE COMMISSION'S OPERATIONS AND FINANCES
In addition to working to improve the revenue-generating potential of the Stadium through significant capital improvements - and recognizing the possibility that even with these improvements the Stadium might not be financially self-supporting - the Commission attempted to improve its revenue potential by co-creating events that would utilize other assets of the Commission, such as the Armory and parking lots.
The two major activities the Commission engaged in, in this area, were the Grand Prix auto race and the Fright House. Both events, unfortunately, resulted in significant financial losses for the Commission. The Grand Prix auto race required a substantial upfront expenditure by the Commission. In return, the Commission anticipated significant income during the 10-year initial period of the race, which would more than offset the initial outlay. In fact, the first year of the race did bring a significant amount of revenue to the Commission. Unfortunately, the entity promoting the race dissolved after the first year's event due to conflicts within the management and ownership structure of the group and no further revenue from the event can be anticipated at this point.
The Halloween-related Fright House, at the Armory, was the second major event the Commission initiated in this area. The event lasted two years, requiring a production outlay of $1.1 million in the first year and $1.2 million in the second year. Unfortunately, because of outside events, losses from the Fright House were significant. The event was canceled during its expected first year because of the terrorist attacks of September 11, 2001; attendance during the second year was hurt by the sniper attacks then taking place in the Washington, DC, area.
The Commission's efforts to co-create major events was the second, and only remaining, opportunity available to the Commission to make the Commission self-supporting on a long-term basis. This effort was necessitated by the limited revenue-generating potential of the existing facilities and the limited outside demand for their use (even after significant capital investments).
Unfortunately, neither event achieved the Commission's goal, for reasons largely beyond the control of the Commission. The events instead highlighted the risk-intense nature of operating sports and entertainment facilities which do not have significant, long-term tenants. Moreover, the events diminished the Commission's reserve funds; this reduction in retained earnings has moved up the point at which the Council must review and modify the Commission's structure, functions, and financing.
THE IMPACT OF THE DISTRICT'S EFFORTS TO ATTRACT MAJOR LEAGUE BASEBALL ON THE COMMISSION'S FINANCES
As part of the Commission's statutory responsibility to promote the District as a location for sports teams and facilities, the Commission was designated the lead agency in the District's effort to attract a Major League Baseball team to the District. As part of this effort, the Commission contracted for two site evaluation surveys, financed the creation and production of promotional materials, hired an outside consulting firm to assist in the District's efforts, and engaged in several lobbying and informational activities. All told, the Commission has incurred over $1.2 million in expenses. These expenses, and other activities to promote the District as a sports and entertainment venue - which involve significant expenditures but have no current revenue-generating potential for the Commission - have further exacerbated the Commission's financial situation.
BIFURCATING THE CURRENT RESPONSIBILITIES OF THE COMMISSION AND DESIGNATING TWO SEPARATE ENTITIES TO CARRY OUT THOSE RESPONSIBILITIES
The limited revenue-generating potential of RFK Stadium and the DC Armory (absent significant additional capital expenditures and/or the ability to invest significant resources in the creation of inherently risky new sports and entertainment events), combined with the drain on Commission resources brought about by the Commission's promotional responsibilities, have led to a largely untenable financial and operational situation.
As noted above, I am therefore proposing that the Commission be abolished and the current responsibilities of the Commission be separated and transferred to two new entities. The first entity would promote the District as a venue and visitor destination for sports and entertainment events. This entity (perhaps named the Washington, DC Sports and Entertainment Corporation) would be a non-profit corporation, established and operated in a form similar to the current Washington, DC Convention and Tourism Corporation ("WCTC"). By separating out this promotional function, the District's efforts to attract sports and entertainment events would become more focused; would be better integrated with the District's other tourism, convention, and marketing entities; and a substantial financial drain on the operation of the Stadium and Armory would be eliminated.
The second entity which would be established from the abolished Commission would be responsible for overseeing the operations of the existing Sports and Entertainment Commission stadium and armory complex. This entity (perhaps named the District of Columbia Sports Stadium and Armory Authority), however, likely would not itself manage or operate the facilities. Instead, the Authority would establish goals for the operation of the facilities, issue a request for proposals for the private management and operation of the facilities, oversee the administration of the contract, and report to the Council and Mayor. As noted above, this entity could take one of several forms, and these forms must be more closely examined to determine their benefits and whether they could be integrated into the District's current operations.
Also as noted above, the second entity would be funded through the revenue generated by the contract for the operation of the facilities. It is possible that no business entity would be willing to pay the District to operate the Stadium and Armory. In that case, the contract would be subsidized through the accumulated reserves of the Commission. Although these reserves are limited, the new entity would have a more limited mission than the Commission and thus would incur lower costs; moreover, the contractor operating the facility would likely be able to operate the facilities on a less costly basis because of economies of scale and more limited government requirements. Therefore, the facilities' losses would be smaller, and the accumulated reserve might cover several years of operating losses. If those accumulated reserves become insufficient to subsidize the facilities' operations, the District would need to decide whether to provide operating funds to the facilities (such as it does for the Convention Center).
As I noted earlier in my letter, the Council must ultimately choose between closing the facilities; operating them only on a short-term basis, until a new soccer stadium and ballpark are constructed; or operating them on a long-term basis, likely with an annually appropriated subsidy. In making this decision, the Council must weigh the benefits to the District and District residents from the continued operation of these facilities, such as the cultural and entertainment opportunities the facilities provide and the indirect financial impacts, such as increased tax revenues for the District and job opportunities for District residents. The second and third options are the most prudent choices, and moving forward with the reorganization of the Commission will allow the Council to be in a better position to make this important choice.
The financial and operational issues facing the Commission are significant, and the Council's decisions in this area will impact the cultural and economic vitality of the District. It is time the Council moves past the rhetoric, and makes its decisions in a detached, reasoned, and fully informed manner. I hope the information and recommendations in this letter are helpful in moving us in that direction.
Back to top of page
Send mail with questions or comments to firstname.lastname@example.org
Web site copyright ©DCWatch (ISSN 1546-4296)