Friday, November 18, 2005

DuPuy's Still A Sack Of Crap

He may be a sack of crap, but in at least one case, he's not lying.

Curly W uncovers a quote from DuPuy on the stadium negotiations and wonders whether he's lying:
"We believe the demands of the city vary from what was agreed to in the stadium agreement...there are creative solutions to almost every problem, and hopefully either in dealing directly with lending institutions or dealing with the city we'll be able to come up with some creative solutions. I'm hopeful this can be resolved next week."

Curly W inquires:
This is a very interesting statement. I've heard mention a few times during the past week that DC has changed the terms of the stadium agreement from last year. Is this true? I really wonder what the substance of that original agreement was. If DC explicitly agreed not to seek guaranteed rent from MLB, then DuPuy is right to claim that the city is changing the deal. However, if the rent provisions were left out of that original agreement entirely, then the District is right to seek the guarantee because Wall Street set unanticipated requirements for the bond financing.

Unfortunately, DuPuy is right. From the DC Stadium agreement (page 18, large PDF):
The team's obligation to pay rent and operating expenses shall be a general unsecured obligation for so long as the Team is in compliance with the MLB Debt Service Rule. In the event te Team shall violate the MLB Debt Service Rule and shall fail to cure the violation within 60 days after written notice from the Commission demanding that the violation be remedied, the Team shall provide the Commission with reasonable collateral (consistent with the market for Major League Baseball Club financing) to secure the Team's obligation to pay rent.

Now I'm not sure whether the Debt Service Rule would apply in this case. The rule holds that teams cannot have debt that exceeds ten times their operating cash flow. However, if a team has a new stadium (and it's unclear whether this applies to all teams or just teams building stadiums on their own) the amount can jump up to 15 times their operating cash flow.

Either way, there are too many unknowns in terms of the financing side of it to determine this, so we'll have to take DuPuy's word and conclude that the Nationals wouldn't be in violation of the rule -- and consequently, would NOT have to secure the rent payments like DC wants.

By the letter of the law, DuPuy is right. MLB and the city had already negotiated this provision, and now the city wants to change it (for good reason.)

The question becomes, how could they let this happen in the first place? Did the city not think the process through (which is a possibility because the ballpark legislation they crafted last year didn't include the provision either, and only came to light once they investigated the bond procedure). And why didn't MLB realize that this could be a problem.

What does this all mean? Well, if MLB doesn't back down (and technically, I don't think they'd have to at this point, even if I think they should), then DC will just have to pay a higher interest rate on the bonds, costing the taxpayers even more money. But at least the new owners won't potentially be on the hook for a few extra million dollars of rent, huh?

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