The Los Angeles Times’ Tim Logan, who has been doing excellent work on St. Louis Rams owner Stan Kroenke’s Inglewood stadium plan (and I don’t just say that because he usually seems to interview me), had a long story yesterday headlined “Stadium economics: How building a venue in Inglewood makes financial sense.” So how does it make sense, exactly?
- Sports economist Rod Fort says it’s a good deal for Kroenke if he can make enough money on the associated non-stadium development: “It’s more like a real estate development than a stadium.”
- Sports economist John Vrooman says the Rams could bring in an extra $100 million a year in “sponsorships, marketing and premium seating” in L.A. as compared to St. Louis, calling a move “an economic no-brainer.”
- Sports economist Victor Matheson says Kroenke could rent out and Inglewood stadium for concerts and the like, but “there’s just not that many 60,000-plus person events.”
- I call spending $1.86 billion just to get uncertain revenues “a huge, huge risk.”
Fort’s and Vrooman’s points are the most viable arguments for a privately funded Inglewood stadium making sense for Kroenke, so let’s take them one at a time. First off, the real estate development at Hollywood Park might well bring in enough revenue to make a stadium-plus-development deal turn a profit — but then, why saddle it with a potentially money-losing stadium when the rest of the development was already approved and ready to go? Kroenke had to pay his development partners (no one knows how much) to buy into the bigger plan, and it doesn’t make sense that they’d voluntarily give him a lot more in revenues than he’s paying them to buy in, since a stadium doesn’t especially help them any.
As for the extra $100 million a year from being in Los Angeles, that is the big question: Precisely how much value does the L.A. market have to an NFL owner? We’ve heard that number before, on the San Francisco 49ers‘ move to Santa Clara, but we’ll have to wait till the new Forbes numbers come out this summer to see if they agree. We can use the Forbes numbers another way, though, to see how reasonable this is: What are the Rams revenues right now, and what would adding $100 million a year mean?
According to Forbes, the Rams were dead last in the NFL in revenue in 2013, at $250 million. (Being dead last in the NFL in revenue is still a pretty lucrative gig.) Adding $100 million would mean they’d have to jump to 5th in the league in revenue, behind only the Dallas Cowboys, New England Patriots, Washington Unmentionables, and New York Giants. That’s conceivable, I suppose, but I’d still call it a huge risk, even if maybe the Forbes figures might make me willing to lop off one “huge.”
And then, would even $100 million a year be enough to make a $1.86 billion stadium a good investment? Kroenke could presumably knock off some of that price tag with PSL sales (figure $300-400 million), naming rights (about $200 million in present value), and possibly NFL G-4 money ($200 million max). That leaves only a little over a billion dollars to pay off, which $100 million a year would cover, but without much left over for a return on investment. At best, then, Kroenke would be putting up more than a billion dollars out of pocket, plus whatever he’s spending on stadium land and a share of the associated development, for a return that he could get by putting his money in a decent stock index fund. (Okay, and increasing the value of his asset, which admittedly could come to a bunch — the Giants are worth about a billion dollars more than the Rams right now, according to Forbes, though the Giants also aren’t saddled with $1.86 billion in stadium debt.) And if there’s any significant relocation fee required by the NFL, then forget it.
Add it all up, and I would just suggest that the Times’ headline writers should have made one tense change: “How building a stadium in Inglewood could make economic sense.” We’re talking hypotheticals here, and everything would have to go Kroenke’s way for a $1.86 billion stadium to pay off for him. Or to put it another way: It’s a huge, huge risk.