Wizards owner: High arena rent makes it
hard to compete
Back in
October of 2014, during a smiles-all-around news conference held to
announce the NBA had finalized a massive nine-year, $24 billion broadcast rights contract with ESPN and Turner Sports, Washington
Wizards owner Ted
Leonsis sounded happy.
“There’s never been a better time to be an owner of an NBA
franchise — or, frankly, any professional sports team,” said Leonsis,
who reportedly paid $551 million in 2010 to take control of a Wizards franchise
that in January was valued by Forbes at $960 million.
But … y’know, you could always be happier, right? Greener pastures, and all
that?
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During a recent chat with The Washington
Post about a variety
of topics, the former AOL executive noted that, for all its benefits, ownership
does have its “challenges,” and that, in the years to come, he’d be open to
doing whatever’s necessary to alleviate them — including pulling up stakes and
skating from the Verizon Center, the Wizards’ home since its opening in 1997:
Leonsis purchased 100 percent of the Capitals and 44 percent of
the Wizards and Verizon Center from the late Abe Pollin in 1999 and acquired
the remaining stakes in 2010. Largely because of the unfavorable mortgage,
Leonsis said he is paying $14 million annually in interest and $9 million in
principal, as well as maintenance costs that last year totaled $13 million. By
comparison, he said, most teams pay rent of $3 million to $4 million to play in
municipally owned arenas.
The mortgage costs are a leading factor in what Leonsis
estimates will be a loss of $40 million in 2016 for his company, Monumental
Sports and Entertainment. But with naming rights for the building set to become
available in 2018 and with the mortgage paid five years after that, Leonsis
said he expects the company to become profitable eventually.
“No more paying four, five times the rent compared to other
teams that we compete with,” he said. “I know that sounds silly. But you’re
competing with a team that pays $3 million in rent, and you’re paying $40
million in [building costs]. . . . When we finish paying the mortgage, that
will right-size the business, and for once we would be advantaged
[economically], as opposed to disadvantaged.”
If the “But you’re competing with” portion of Leonsis’
quote raised your eyebrow, you’re not alone. For one thing, the Milwaukee Bucks
getting hundreds of millions in public money to build a new arena doesn’t mean the
Wizards are suddenly getting screwed by having to foot the bill for running
theirs, especially after the franchise already got taxpayer funding to cover the bulk
of the cost of a new practice facility.
Moreover, building costs and “unfavorable mortgages” don’t
appear to have in any way hindered Leonsis’ eagerness to spend money,
whether on non-hoops ventures — like anArena Football League team, an Esports franchise and an over-the-top streaming network—
or on his hardwood product.
The Wizards have the NBA’s
10th-highest total salary cap figure, shelling out more
than $104 million in salary and taxes this season. He’s not laying out that
much coin because he has to reach a minimum dollar figure set forth by league
rules; the Wizards are more than $9 million over the NBA’s salary cap of $94.1 million.
They remain below the luxury tax line, just south of $113.3 million, which is
reasonable enough, because spending above that line triggers punitive escalating payments as laid out in the collective
bargaining agreement between the league and its players. The Wizards are not
alone on that score. At the moment, only the defending champion Cleveland
Cavaliers are in line
to pay the tax this season.
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