Wizards owner: High arena rent makes it hard to compete

Ball Don't Lie
Ted Leonsis, owner and CEO of Monumental Sports & Entertainment. (Getty Images)
Ted Leonsis, owner and CEO of Monumental Sports & Entertainment. (Getty Images)

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.

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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:

“My inclination right now would be — it’s pretty awesome where we are,” Leonsis said Wednesday, the morning of the Wizards’ 2016-17 home opener. “And I love what’s happened to [downtown] D.C. But I don’t know what’s going to happen five, six, seven years from now. . . . I will be a free agent. I mean, that hasn’t been lost on me.” […]

Leonsis also spoke about his business challenges — including a mortgage on Verizon Center that costs him an estimated $36 million annually, which he called “the worst building deal in professional sports” — and acknowledged the possibilities, among them a potential move, that will open up once that mortgage is paid off in seven years.

Leonsis insists that there have “been no discussions of would we look to move” out of downtown D.C. to nearby Virginia or Maryland, and that his “goal would be [to] stay where we are or stay within the city.” And yet, he emphasized the “unfavorable mortgage” he has to pay as a significant hardship for both him and his teams. More from the Post’s Dave Sheinin:

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 an Arena 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.

Leonsis is spending nine figures on the Wizards roster because he can, and because he wants to, and because there is nothing stopping him from doing so. The Wizards’ problem, as it stands, is not that financial hardship related to footing the bill for their own gym prevents them from competing. It’s that the dudes they’re spending money on haven’t been playing all that well, or at all.

Center Ian Mahinmi, imported on a four-year, $62 million deal this summer, has yet to suit up after undergoing surgery to repair a torn meniscus in his left knee last month. Combo guard Tomas Satoransky, a 2012 second-round draft pick finally brought over from Europe this offseason, has seen just 16 minutes in three games.

Andrew Nicholson has played better than Jason Smith, but neither former Orlando Magic big man has made a major-league impact in the early going. It’s hard to find a descriptor even that charitable for backcourt acquisitions Trey Burke and Marcus Thornton. The cherry on top: the highest-paid player on the team, oft-injured shooting guard Bradley Beal, has gotten off to a cold start to a season he and the Wiz hoped would vault him into the All-Star conversation.

Each of these players is being paid, several of them handsomely, and none are performing to the expectations that Wizards general manager Ernie Grunfeld had when he signed them … which, really, is the crux of the problem, as Deadspin’s Albert Burneko sees it:

In particular, the Wizards’ s***tiness throughout Leonsis’s time as owner needs no economic hardship to explain it: They’ve signed bad players (often for lots and lots of money!); they’ve pissed away draft picks; they’ve buried and neglected young players who then failed to develop; they’ve put their eggs in stupid baskets. All of this can be explained by Leonsis’s repeatedly renewed decision to employ Ernie Grunfeld, the incompetent general manager and NBA lifer he inherited from the team’s previous owner, Abe Pollin. Grunfeld is not working for free! He is drawing a salary that could just as easily go to someone, y’know, good at the job of running an NBA team. Or at least to someone who has not shown, incontrovertibly, over the course of a decade on the job, that he is bad at it.

Economic disadvantage has not forced Leonsis to keep Grunfeld. It did not force him to give bad head coach Randy Wittman a contract extension after the 2013-14 season. It did not force the Wizards to draft extremely useless Czech goober Jan Veselý over Kawhi Leonard and Klay Thompson in 2011, or to trade away, repeatedly, second-round draft choices—the kinds of assets a purportedly cash-strapped front office would be expected to prize for their cheapness—for nothing at all, or worse. It did not force the Wizards to stunt their own forward progress by skimping on a supporting cast full of bad players on one-year deals last season; they did that to clear cap space for a foolish, embarrassing, dead-on-arrival free-agency pitch to Kevin Durant.

Grunfeld’s continued presence atop the Wizards’ basketball operations flow chart has been a persistent source of angst for Washington fans for years. The calls for his head waned briefly when the John Wall-led squad made the second round of the playoffs for two straight seasons, but after missing the postseason last year — with no draft picks to show for it, owing to past Grunfeld deals aimed at augmenting the roster in the here and now — and getting off to a dispiriting 0-3 start to the 2016-17 campaign, they’re back.

Leonsis acknowledged to the Post that he hears the grumbling, but remains committed to sticking to “the plan” the franchise has had in place. Wizards fans will have to wait and see to find out whether he’s willing to make a similar commitment to keeping the team downtown without demanding a massive public subsidy to do so.

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Dan Devine is an editor for Ball Don’t Lie on Yahoo Sports. Have a tip? Email him at devine@yahoo-inc.com or follow him on Twitter!

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