Monday, October 10, 2005

Not All Its Cracked Up To Be

Sunday's WaPo had a front-page story on DC's baseball revenues. Short version: Team makes more cash than expected, the city less.

The team is expected to earn a $25 million profit, which is even higher than their mid-season projections.

When the team released those numbers back in June, I didn't think they were correct based on some back-of-the-envelope calculations. I had surmised that revenues increased by at least $60 million. That number would be even higher now considering the increased ticket sales.

The city falls short (over $500,000) because they're generating less revenue, in part, because of the 25% no-show rate. Typically, it's in the 15-20% range. Additionally, they overestimated the demand for parking. 45% of the people going to games took Metro; they were expecting only 40%. (Maybe the usurious $10 pricetag is a reason for that, eh?)

One aside -- Heath and Nakamura repeat one mistake I see with increasing frequency: "But the Nationals' first season in the city was such a success that baseball officials have set a sale price for the team of at least $450 million, far above the projections last year of $350 million to $400 million."

Wrong. The reason the sale price is higher has nothing to do with the success of the team. It has everything to do with the $75 million MASN pricetage that MLB had to pay to become equity partners *cough* with Peter Angelos. MLB's not going to eat that money on their own. It's a tangible asset that they're trying to include in the price.

But where this whole revenue thing becomes worrisome is in the harebrained private financing scheme.

As part of that, DC has signed away future revenue streams for $246 million in hand. In signing away future revenue streams, DC loses out a chance to make even more money in the future. But in this case, if the future revenues aren't high enough, DC would lose out as well -- Deutsche Bank wants a revenue guarantee. They want it both ways.

Either way, DC is a no-win situation. If revenues are higher than expected, they lose out on the gain. If they're lower, there's a chance they'll have to pay out of their own pocket.

So why is private financing, as currently constructed, a good idea?

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