Wednesday, November 30, 2005

Owning Up To A Mess

While I was enjoying the delights of a Minnesota winter, a mini firestorm broke out. I'm still trying to wrap my head around a lot of it; trying to separate the facts from the puffery.

This we know:
--In an article buried on Thanksgiving, the DC SEC admitted that they made the ballpark estimates without knowing where the stadium would be located, or what a potential design would be.

--The ballpark itself was budgeted for $244 million. It's over $300 now. And it's only at $300 because they've scaled back the design. They're taking out some offices, removing some plazas, but not touching the two tiers of pleasure palace luxury boxes that will raise the upper deck to nose-bleed-inducing heights.

--They have removed $55 million in the overall budget that was to be used for infrastructre improvements, including road improvements and changes to the Metro station to increase its capacity.

--Despite Mark Tuohey's incorrectly interpreted assertions, MLB has NOT agreed to pay $20 million towards the construction of the stadium. Jack Evans, today, says that that would be unfair of the city to ask for that contribution at this time.

Even if MLB contributed the $20 million, it would be a zero-sum game. The $20 million was intended for VIP Parking adjacent to the stadium. It's currently not in the plans, but if MLB pays the fee, they'll add it in, increasing the stadium costs. Regardless, the city will still need to come up with the same amount overall for construction costs.

--MLB is still refusing to guarantee $24 million in rent payments, in case the stadium is unusuable because of natural disaster or terrorist attack. The city claims it needs this to secure favorable interest rates on the bonds it will issue to pay for the stadium.

--The DC Council is claiming (and seems to have won the argument) that they have a right to approve or reject the lease. It's been reported that five council members are inclined to support the lease and five oppose it. The lease will need seven votes, and the final language of it will ultimately determine its future.

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In trying to process this and figure out where it's headed, I keep scratching my head. I don't really know where it's headed, nor do most people.

But I had a moment of clarity from a thread at the Ballpark Guys forum (a rare event, indeed). On a thread about the lease deal, one of their posters, Brian, claims that the stadium agreement is a toothless document. And looking at it, his argument makes a lot of sense:
Yes, under the BSA, if the City proceeds under the BSA, it must build the ballpark without any MLB contribution.

However, what if DC says: "Sorry, MLB, we just aren't willing to live with this deal anymore. If you want a ballpark, you're going to have to negotiate a new deal."

Under the BSA, MLB would have a right to terminate the agreement and move the team. Fair enough.

But what other rights would MLB have? Section 7.07 (c) of the BSA provides that DC must reimburse the team for lost revenues if the ballpark doesn't open in 2008. However, that provision further states: "provided, however, that: (i) if the Team exercises the termination right under Section 8.03, the Team waives the right to recover from the Commission compensatory damages in respect of any period after the termination date."

Furthermore, the BSA states: "Except as set forth in Section 7.07(c) (and without derogation of the parties' rights in respect of a breach or default under another Article that is also a breach or default under Article VII), there shall be no recovery for damages resulting from any breach or default under Article VII." Keep in mind that DC's obligation to execute the lease by 12/31/05 is pursuant to Article VII.

In other words, MLB would have a choice. Keep the team in DC and sue DC for compensatory damages for any lost revenues beginning in 2008, or move the team. However, there would appear to be no other claim for damages available under to the BSA.

So in reality, MLB would do one of two things: either move the team, or renogiate the deal. They aren't going to proceed forward for years without terminating just so they can start accruing compensatory damages 3+ years from now from lost suite/club seat revenue.

So, remind me, other than losing the team, what does DC really have to lose by playing hardball right now and demanding a renogiation?

And if a majority of the current Council believes this is a bad deal, other than some supposed "credibility" issue, why shouldn't they refuse to approve the lease just so they can kill it?

Read through the rest of his posts on that thread, as he further explains his theory.

On the surface it makes a lot of sense. I just wonder how the threat of arbitration, which MLB has threatened, would affect this. Unfortunately, my pea-sized brain can't figure that one out.

It's pretty damn good theater of the absurd though!

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Finally....The National Disgrace is finally meeting with more of the potential ownership groups. I'm glad he's had time to schedule them.

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