Crunching the Inglewood numbers: Rams stadium would bring new revenues, but getting to $1.86B is tough

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.


21 comments on “Crunching the Inglewood numbers: Rams stadium would bring new revenues, but getting to $1.86B is tough

  1. Neil, wouldn’t there be some value in moving the Rams from the Central Time Zone to the Pacific Time Zone?

    Given the other NFC West cities, from a television / revenue point of view that might make the various network contracts slightly more appealing by avoiding at least three CST game starts annually.

  2. There is absolutely no risk for someone worth $11 billion (including wife) to invest $1.86 billion. Whether Kroenke fully recovers the cost of the stadium or turns a profit on the stadium, he is already turning a profit in St. Louis on current revenues, including $200 million per year attributable to TV. So it is just a question of whether or not Kroenke’s joint fortune grows to $12 billion or $15 billion or whatever and how fast. If his goal is not to pass Paul Allen as the richest owner, then all systems are go.

  3. State Farm was willing to pay $700 million for Farmers Field in downtown L.A., so why would Kroenke’s Taj Mahal only bring in $200 million for naming rights? Moreover, how was the $1.86 billion figure determined? I know it’s expensive in L.A., but that’s just a crazy number and seems like a bluff to clear the field in both St. Louis (can’t compete, don’t even try) and Carson (I spit on your $1.2 billion).

  4. How accurate are the Forbes valuations? What did they have the Clippers at the year before they were sold. I will defer to the experts in the room, but if the Clippers were worth $2 Billion than a Los Angeles NFL would be worth Scrooge McDuck, or possibly even Oprah money.

    One issue Mr. Kroenke may have is that I believe he was given an extension on the sale of his other sports teams (NHL Denver team). If the Chargers do not want the Rams in LA, they might play hardball and make him sell that team ASAP.

  5. Jonathan: if the networks care about time zones, they don’t care that much.

    Scott: Kroenke can afford to buy 10 million FoS memberships, too, but that doesn’t mean he’s going to do it.

    Todd: that was $700m over 30 years, which in present value is more like $300m.

    Elkhnd: Forbes franchise value numbers tend to be low, but their revenue numbers have been remarkably good time and time again. (See how well they matched with the leaked Deadspin MLB documenta, for example.)

  6. @ Todd

    Here’s the problem with the Farmers Ins naming rights. “Farmers has been promised at least 50 events per year, with an attendance of at least 40,000 per event.”

    latimesblogs.latimes.com/lanow/2011/02/aeg-unveils-700-million-stadium-naming-rights-deal-farmers-football-stadium.html

    The reported amount was conditional and that 50 events @ 40K per event is a difficult threshold.

    Quick PV tip. A 30 year annuity at 5.25% is almost exactly half the total.

  7. Kroenke owns the Avalanche, Nuggets, Rapids, and some pro-lacrosse team in CO (plus Arsenal in London, he’s addicted to buying sports franchises) under his KSE co. Supposedly he can gift controlling interest in those CO teams to his Son and solve the cross ownership rule.

    The top rate for gift/estate tax is 40%, up from 35% for 2010-2012, but still at a very low historical amount – lowest since pre FDR. Rates are only going up from here.

  8. P.S. It’s amusing to me that Cap Gains, Estate/Gift, and Income tax rates (for most americans) were all at 80+ year lows while the TEA (taxed enough already) goons were running rampant. Bread and circuses and $1.5+ billion NFL stadiums.

  9. I gotta say that given the valuation placed on the Clippers, just south of $2B for this stadium seems like a go to me.

    I’m running out of arguments here. I think St Louis must be as well.

  10. @MikeM

    The Clippers control their own local TV revenue, the Rams do not. An LA team will earn the same amount from TV as the Green Bay Packers or Jacksonville Jaguars.

  11. If Kroenke wants to pour billions of his billions into this deal and not put taxpayers on the hook, then let him. I agree with Neil that its a huge risk, but its his to take.

    Maybe he should entertain the Chargers or Raiders coming along to help fill up dates on the Stadium calendar, or maybe St. Louis would like to have either of them when all of the chips have fallen.

  12. Any way you slice it, there’s going to be a stadium built in either Inglewood or Carson(even though the NFL would prefer two teams, my money is on Inglewood right now). Usually, I would believe the “leverage play” argument and as much as I want to believe that this is just another ploy to extract more money from their present markets(cities), the situation this time is entirely different. When the Cardinals, Saints, Colts, or Vikings threatened to leave their respective cities, “none” of them ever invested a nickel in stadium-sized area real estate in the L.A area! That to me, speaks volumes! Even the most ardent believer in this being a bluff deep down has to know that if this is a ploy, it’s one helluva an elaborate, highly expensive bluff(ploy)! I will say though, that of the 3 teams currently threatening to leave, the Chargers seem like the only team that doesn’t really want to exit their current city. They’ve had much more time to actually leave & for whatever reason, they’re legitimately trying to make it work in San Diego. But the Rams and the Raiders are as good as gone……….

  13. Neil, the Washington NFL team is called the Redskins! and have been since what 1933. I appreciate and enjoy your work on here. I am sure deep down you know that the name was selected as at tribute. Only a tiny percentage of Americans have a problem with the name. Mainly Democratic Politicians and Journalists. Just didn’t want to let that get by this morning…Thanks I would be against a New Redskins Stadium though!

  14. Neil is fully within his rights and the practice of good taste to choose not to use a word that has been dictionary defined as a slur.

  15. Click the link above to see the other news sites and journalists who have a problem with the name. It’s a good bit more than a tiny percentage.

  16. “or maybe St. Louis would like to have either of them when all of the chips have fallen.”

    When the Rams move back to Los Angeles, I think that St. Louis is done as an NFL market. The city & St. Louis county CANNOT afford a new stadium. Also, when residents of both the city & county must vote on a new stadium proposal by referendum, there’s a good probability that the public will reject the measure.

    missourifreedom.com/press/poll-st-louis-likely-voters-overwhelmingly-oppose-rams-stadium-bailout

  17. If the Clippers are worth $2B then any NFL team in the Los Angeles market has to be worth $4B. He doubles the value of his team and his revenue increases offset any building costs. The GOLD RUSH for Los Angeles is happening. The NFL will try and stop it by declaring no moves and they will buy off the rest of the owners with expansion of 4 more teams and 2 in Los Angeles at $3B. The rest of the owners will say $12B for us and will say no moves and lets split the pie.

  18. By the way hasnt AEG filed a referendum to slow down Inglewood stadium? Referendums in Inglewood It would require a vote and that would delay any movement on that Inglewood stadium until after a November vote.

  19. After reading all these great comments i have a stupid question. If Kroenke and his wife are worth 11b why in the WORLD would any city build him a stadium?