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D.C. United stadium project hints at future changes at the club

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D.C. United's owners are following an age-old script in their approach to the team.

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We know that Erick Thohir, D.C. United's primary owner, is a media magnate with plenty of different investments. He owns, among many other things, soccer teams, basketball teams, newspapers, TV stations, websites, and much more. His biography on dcunited.com calls him "an Indonesian entrepreneur and sports investor." And the way that he is acting throughout his ownership of D.C. United suggests a mindset typical of venture capitalists and private equity investors.

Which makes sense, because all three owners have backgrounds in investment in sports and other properties. Jason Levien, who bought into the club with Erick Thohir, is the founder of LSRI, "a firm specializing in investments in sports and media properties." And Will Chang, owner of D.C. United since 2007, is the chairman of Westlake International Group, a venture capital and private equity company; he also owns a hedge fund.

The world of venture capital and private equity is one that is naturally secretive and resistant to open valuation of assets. The cycle of private equity goes something like this:

  1. Invest in a company with some cash up-front
  2. Raise the company's value by restructuring, improvements paid for through loans, and slashing costs
  3. Sell the company, and all of the debt, once the value of the company has risen and you make a profit

This is a common investment cycle throughout business, and can result in firms doing exceptionally well or firms going bankrupt. And it is one possible explanation to what Thohir, Levien, and Chang are doing with D.C. United. In 2012, only two MLS teams were still looking for a permanent stadium: D.C. United and the New England Revolution. The Krafts were never selling the Revs, making D.C. the only possible situation in which an investor could buy in, build a stadium, and reap the financial benefit of flipping the team.

The stadium development agreement and ground lease makes it very difficult for the current owners to sell D.C. United until after the stadium is "substantially complete." And, to maximize their profit, they wouldn't want to anyways; any possibility of risks from the construction process would drive down a potential buyer's asking price. Their primary cost, the players, is mostly funded by Major League Soccer through their salary budget; the ownership is on the hook for the off-budget players and the other ancillary costs of running the team: rent at RFK Stadium, the front office, and the Academy, among others.

And, when viewed in this light, all of their decisions make them look like a group that is getting ready to flip the team the moment that they can, and cash in on a paycheck. They can't cut any of the money due in rent, really, but they have tried to get better terms from EventsDC. The team has been pretty open about not paying for a high-priced DP until they get the stadium built, and that money would be coming out of the owners' pockets. And there have been cutbacks in the front office, along with the rumors of reduced budgets in the Academy.

This mindset is not unique to the current ownership, they're just the ones who have been able to pull it off. Despite the fact that D.C. United, at a club and at a fan level, cherish the team's tradition and history, the ownership has always seen the team as an investment and have been attempting to make money off of a bet on soccer in America and in DC specifically; that bet has always required a stadium.

AEG bough the club in 2001 to save its own investment, Major League Soccer as a whole, from collapse. Will Chang and Victor MacFarlane bought the club in 2007 because they wanted to build a stadium at Poplar Point as a part of a larger investment opportunity; the financial collapse of 2008 onwards destroyed that possibility. MacFarlane didn't have the financial strength to play the long game on his investment in D.C. United, but Chang did.

New York City FC and Minnesota United both had an expansion fee of $100 million, and that was without a stadium for either team. An established brand, in a city more intriguing to investors than Minneapolis or St. Paul, and with a stadium already completed will be worth more than that. We will never know how much money it took for Thohir and Levien to buy into MLS in 2012, but a Forbes report at the time estimated it around $30 million. The team is now estimated to be worth around $140 million, and that is before the stadium has even broken ground.

We would all love a perfect world in which our favorite sports team is owned by a community member who operates it as a public service to that city. That can happen, usually in cases in which someone is so wealthy regardless of the sports team that they just don't care about its finances. However, except in those rare cases, owners operate a sports team just like any other business: as an investment to make them money. I have no animus against the current owners for this mindset, and they, unlike the four previous ownership groups, have actually been able to provide D.C. United a stadium. But it is helpful to attempt to look into their mindset, to understand from where their actions are coming; they aren't being cheap just to be cheap, they're in the middle act of of a timeless play.