Attorney Aaron Swerdlow was recently quoted in Inside Nova's article entitled, "Potomac Nationals Stadium Proposal Nears 'Best and Final' Pitch". The full article can be accessed here.
Prince William County and the Potomac Nationals are putting the finishing touches on the framework for a deal to build a new stadium for the minor league team in Woodbridge, and supervisors are poised to lend their seal of approval to the project in the first public discussion of the issue in months.
Documents and email correspondence obtained by InsideNoVa through a public records request show that the county prepared a “best and final” letter of intent Feb. 16 outlining the terms of a deal that would clear the way for the construction of a county-owned stadium on a plot of land near Stonebridge at the Potomac Town Center. The county would raise roughly $35 million in municipal bonds to back the 4,600-seat stadium’s construction, then the team would repay the county the roughly $2.7 million in debt service costs each year over the course of a 30-year lease, as well as $450,000 in annual rent for the land.
But those terms are largely the same as what P-Nats’ owner Art Silber and representatives with the JBG Cos. (the owners of the town center and the proposed site of the stadium) proposed when talks to replace the aging Pfitzner Stadium started to heat up last December. What’s changed is that the county is now reserving the right to conduct a “bond validation suit,” a legal strategy to let a judge weigh the wisdom of the county’s bond plans, and requiring the team to hold one year’s worth of debt service and rent payments in reserve to protect against any potential disruptions in the stadium’s financing.
After months of closed-door discussions on the issue, supervisors are now set to vote on signing a final letter of intent with Silber and JBG at their March 7 meeting. While county leaders are generally optimistic about the terms they’ve hammered out, they admit that the proposals for the project aren’t perfect.
“We’re really close to a place where we’re going to either move forward with a plan based on what you’re seeing now, or not at all,” County Supervisor Marty Nohe, R-Coles, said in an interview. “I am hopeful we’ll have an agreement in principle through some form of letter of intent in the next two weeks…But if we can’t put a deal, or the strong basis for one, together in the next few weeks, we’re probably out of the baseball business for a while.”
Nohe noted that the bond validation suit is a particularly crucial step for the county, as he finds the deal “way too risky without that.” Documents show the county first proposed conducting such a process in a Jan. 3 draft of a letter of intent, with County Executive Christopher Martino charging that the previous deal terms suggested by Silber and JBG were “unacceptable.”
Nohe compares the bond validation process to “essentially suing yourself,” inviting legal challenges to the decision to issue the bonds up front and “preclude the courts from hearing any other challenges down the line.”
Aaron Swerdlow — an attorney with Gerard Fox Law who has advised minor league teams on stadium deals— says that courts tend to give localities “pretty wide latitude” in these sorts of proceedings, since they’re mainly trying to determine whether the bonds are “a reasonable risk a local government or community would take.”
“It’d have to be pretty egregious to be denied, and I have yet to see any facts to suggest this would qualify,” Swerdlow said. “This could be wrapped by late fall. It’s really a delay rather than a hindrance.”
But Nohe notes that the process does come with the prospect of lengthy public hearings to solicit input on the bonds, and any appeal of a legal challenge could stretch all the way to the Virginia Supreme Court. Those delays may not mean much to the county, but they’re certainly impactful for JBG and the P-Nats — the Single-A team may need to be out of Pfitzner by the end of the 2018 season.
“JBG has an expensive piece of land with nothing on it, and every day there’s a delay costs them money,” Nohe said. “For the Nationals, every day this is delayed, they’re not any closer to moving into a new stadium.”
Tom Sebastian — the senior vice president of development with JBG — wrote in a Feb. 13 email to Martino and county supervisors that the company has received an “unsolicited offer” for some of the land the stadium would be built on, and expressed frustration that JBG’s leadership feels “at the end of our rope.”
Though the team’s so far declined to discuss the deal publicly, Art Silber followed up with a Feb. 17 email to county staff, calling it “offensive for you to say best and final offer” to describe the county’s Feb. 16 proposal. But by Feb. 20, Seth Silber — Art Silber’s son and part owner of the team — assured county staff that they’re “close to agreement on these terms” and added some slight modifications to the letter of intent.
But stadium-financing experts warn that the county should still harbor serious concerns about the risks associated with the project.
Victor Matheson, an economics professor at the College of the Holy Cross, suggested that the fact that a bank or some other financial institution hasn’t stepped up to help the team finance the stadium should be a red flag for the county — documents show the team prepared a financing structure to market to private entities, to no avail. With annual payments to make of over $3 million, Matheson worries the team may have to raise ticket prices to an untenable level and depress attendance in the process.
“You may be left with essentially nothing to operate the team, because every single dollar of revenue generated goes to the stadium,” Matheson said. “In order to finance that, you basically have to double the price of your tickets.”
Matheson warns that ballpark-goers looking for an affordable night out may be particularly sensitive to any price increase, and the long-term prospects of maintaining attendance could be dicey at best.
“Building a new stadium is wildly profitable and successful in the short run, but the honeymoon effect only lasts for a short period of time,” Matheson said. “After about 10 years, all the boosts you get from a shiny new stadium wear off…And that’s a problem when you have 30 years of bond payments.”
Swerdlow added that an economic downturn, or even a simple dip in quality of the minor league team’s prospects, could affect the stability of the deal. Ben Clark, an associate professor of planning, public policy and management at the University of Oregon, also notes that minor league teams “will move at earliest convenience if they think they can get a better deal elsewhere,” and that could leave the county in a bind.
“It’s not like building an office park, where you can find another business to fit into a warehouse or an office space,” Clark said.
But Nohe said the county is well aware of those risks, and believes the one-year reserve fund they’ve included in the deal could help “protect the county and the bond holders” in the event of some catastrophic scenario like the team leaving or going out of business. He also believes that Prince William could prove to be a “very attractive” destination for some other team if the stadium should ever come open.
“Many other minor league teams are in places that are smaller in population, have a lower average household income, and are growing less than we are,” Nohe said.
Neil DeMause — the editor of “Field of Schemes,” an online outlet analyzing stadium financing deals — said that the county could indeed prove to be a sought-after destination for another team, provided that the new franchise is “interested in paying the same rent as the Nationals,” and any move would necessarily “require some haggling.”
Yet even with all these contingencies built into the proposed deal, Nohe urges that there is still nothing final about these negotiations. Even if the county signs a letter of intent with the team and JBG, he notes that “all that does is provide a framework for further negotiations.”
And he stresses that no deal will go into effect without “robust public input.”
“For folks that are uncertain about this, there will be plenty of opportunities for people to tell us what they think once it becomes public,” Nohe said.