Do the financial numbers justify an NFL move to L.A.? Sorta

I’ve been threatening for a while to do a deep dive into the numbers behind moving an NFL team to Los Angeles — in short, does market size still not matter much in the NFL because everyone shares the same national TV money, or have the economics changed to where L.A. is now a potential goldmine? Thanks to Vice Sports, I finally had time to do so, and the answer is: a little of both. The short version:

  • NFL revenues may still be fairly flat across franchises compared to other leagues, but they’re up overall — and even if owning a big-market franchise is only worth 30% more than a small-market one, if the actual value of that 30% has risen, it means building an L.A. stadium is a better investment for owners than it was just five years ago.
  • Personal seat licenses have potentially changed the game, since now that the 49ers paid for a stadium essentially by crowdfunding, everyone else thinks they can, too, if the market is good enough.
  • It’s still not enough to explain why St. Louis Rams owner Stan Kroenke would want to spend $1.8 billion on an L.A. stadium. Says Roger Noll, dean of sports economists: “Yes, it’s worth something. It’s not billions of dollars.” But Kroenke may have other reasons for wanting in to L.A. — and even if he doesn’t, the gamesmanship behind the fight to move to L.A. may be making his decision to take on the risk, as well as that of the San Diego Chargers and Oakland Raiders owners, unstoppable.

Anyway, go read it for yourself and then we can always debate the numbers in comments below. It’s not quite a definitive answer to whether all the L.A. move talk is serious, a bluff, or somewhere in between, but it’s at least an attempt to establish some basis for discussing it.

 


37 comments on “Do the financial numbers justify an NFL move to L.A.? Sorta

  1. I think that is right. I would point out though that I think Noll is underplaying the uses that Jones, in particular, is getting out of his taj-ma-hal. To the extent to which his revenues from things like the college bowl series championship and final four are gravy on top of the collective bargaining agreement (and actually show a profit on the bottom line after one accounts for operational expenses) than I think that is a pretty cogent reason to be in LA – because it is pretty easy to believe that it is an attractive possibility to host in LA those events (and doubly true with the ingress and egress to them from LAX’s global connections as opposed to SD in particular where air connections stink).

  2. Great to see Neil coming around on this one. And it’s also a big reason why the Flames need to suck it up and build their own arena. Calgary as a hockey market may be even more attractive than LA as a NFL market.

  3. Hey, swat me upside the head with facts and figures enough times and I’m willing to change my mind. Though my original analysis wasn’t wrong — L.A. really wasn’t worth much more as an NFL market when we started talking about this five years ago, but things changed. Somewhat.

    Anyway, I still think Kroenke is taking a huge gamble if he goes through with Inglewood, but hey, it’s his money.

  4. Agreed about the gamble. It isn’t at all clear (look at Lakers Season tix demand as they have hit a rough patch) that PSL market will actually emerge in LA. Huge population, RELATIVELY low medium incomes and isn’t clear that football “fits” the industry. Remember, BB works because glamor shots of Bill Crystal court side help build his brand/bankability. I can’t think of the last time there was a similar shot at a football game. Baseball works as well because of how much “down time” there can be between batters or even pitchers. Just not the case for Football but perhaps in sunny LA and with the “stars out” there will be incentives.

  5. Perhaps the bigger concern about a team moving to LA is…where’s the extortion city for the other 30/31 teams?

  6. I’m a bit confused the the article.

    You cite the Texans as one of the teams that jumped ahead of the pack from 2010 to 2015. Then you go into PSLs, new stadiums, etc. The Texans built their stadium in 2002. What happened between 2010 and 2015?

    As for PSLs, correct me if I’m wrong but those are a one-time sale. Therefore, yes, it will cause a spike in revenue…for one year. It won’t impact revenue at all thereafter.

    You’ve brought up an interesting question but I don’t think you answered it. What caused a divergence in team annual revenues between 2010 and 2015?

    Even on PSLs and some other things, you equated size and wealth. The Bay Area is only the 5th largest metro area in the country but it is the wealthiest per capita. If size was the factor why didn’t the Bears, who own the 3rd largest market jump instead of the 49ers who share the 5th or the Texans who own the 9th? Why the Texans rather than the Eagles, who have a larger market, more fans and opened their stadium one year after the Texans?

  7. The Texans are an outlier I can’t explain without more research. The other teams to jump ahead of the pack in recent years were the 49ers, Jets, and Giants, all of whom built new stadiums. So the divergence appears to be part new revenues from new stadiums, part overall inflation of revenues that makes a similar percentage advantage be worth more in actual dollars, and maybe part something else, sure.

    PSLs are a separate issue that wouldn’t show up in the Forbes revenue figures, but do change the economics of whether to build a new stadium, since you can use them to pay off a chunk of the up-front costs.

  8. Hi Neil,
    So PSL’s are just a ‘quiet’ one time source of revenue that reduces a team’s debt service? So doesn’t that in effect reduce overall expenses for a team which in turn has positive impact on operating income?

  9. The Forbes numbers I’m using are total revenue, not operating income. But yes, it’s easier to turn a profit if you pay for a stadium out of PSLs instead of out of ticket sales. (Though still easier if someone else entirely pays for it.)

  10. What new revenues? Other than PSLs every straw man theory you put up you knock down. I’d like to understand where those revenues are.

    As I thought about it I wondered “what do New York, Houston and the Bay Area have in common between 2010 and 2015 that are different than other regions?” My first thought “it’s the economy, stupid.” Wall Street, oil and gas and tech all did well over 2010-2015 whereas the local economy in, say, Chicago or Philadelphia was pretty awful. More money floating around leads to more demand and less price sensitivity which leads to higher ticket prices, parking fees, whatever.

    Of course, consider that a straw man, and I’m not sure I believe it, but it is at least as plausible as “stadium revenues, but I don’t know what revenues.” For the LA context, while big in population, LA’s economy right now is middling–it’s no New York or Bay Area, but it is stronger than St Louis.

  11. Oh, there are some new revenues that come from a new stadium — naming rights, steakhouse receipts, etc. They’re not usually enough to offset construction costs by themselves, but they might show up in the Forbes figures.

  12. Sure, but are those substantial enough to account for $100M a year on an ongoing basis? I mean I’ve know enough guys who work on Wall Street to know they have a large steak budget, but $100M in 8 days is a lot of steak especially when it’s just the team’s cut. If not where is the rest of the $100M coming from?

    Furthermore, the article indicates something changed between 2010 and 2015. People named stadiums before 2010 and people have been eating cows for longer still. What changed? Did the Eagles see a similar difference when their stadium opened in 2003 in a large market, naming rights were sold and new restaurants opened? (Last brand new stadium in a large market I could think of–Indy isn’t large, Chicago isn’t new). If so, how long did it last? If not, why not? Did everyone decide to get a sandwich from Paesano’s instead of going for the steak? Why now and not before?

  13. No, but the spread was already $60m in 2010. Add in more demand for steakhouses in bigger markets and just the general inflation of NFL revenues, and is that worth another $40m? Very probably.

    The upshot here is that moving from St. Louis to L.A. was probably worth a couple hundred million dollars in 2010, and now it’s worth maybe double that, counting both annual revenues and PSLs. Is that enough to justify a $1.8 billion stadium? Not by itself, but if you add in development rights … probably still not, but it’s maybe moved from “ridiculous” to “if you squint, kinda,” which may be enough to get Kroenke to bite. I still think he’d be foolish to turn down the kind of cash it looks like St. Louis is ready to hand him, but it’s a closer call than it would have been a few years ago.

  14. Hey, I think we’d all be thrilled if somehow private financing for stadiums worked out or at least came close to working out. Well maybe not all of us…some people live in Buffalo.

    However, the evidence seems thin. You’re relying pretty heavily on one outlier example, the 49ers. As you mentioned, they got good, sold their wares, and then got bad. In addition, they got lucky. They hit a tech boom and/or bubble–the valuation of Uber as one example went from $200k to $40B in that time. Yes, ticket revenues went up but so did house prices, the number of Teslas plying 101, and demand for tables at State Bird Provisions. Before everything went totally nuts in the Bay Area (again) they were relying on public funding.

    It’s worth noting the Warriors are also privately financing a stadium (with PSLs going on the market now and the arena going up just in time for them to suck again) and the dot-com bubble left the privately financed AT&T Park. In the wake of the Giants, nothing much changed in MLB stadiums, and we’ve already seen the NBA saga in Milwaukee speak to how the NBA has not changed in the wake of the Warriors. Don’t extrapolate from crazy math that only works when Silicon Valley gets drunk.

    Earlier you described Houston as an outlier you can’t explain. I’d dare say the Bay Area is an outlier. There’s no evidence that LA looks much like the Bay Area (very high income, boom-and-bust cycles, etc.). It’s big but middle of the pack in terms of the economics, like a Houston or a Philadelphia or a Chicago.

    If you are going to extrapolate from the Bay Area the more interesting piece is implications for the Raiders (and/or A’s). Mayor Schaaf’s NFL pitch, as reported by the media, basically boiled down to “we’re not going to publicly finance a stadium, but a new stadium will be much closer to San Francisco and its money than Santa Clara is. There’s a business case for a PSL-driven stadium financing plan.” If that pitch doesn’t hold water, either does the case for LA.

  15. Let the losers in their Halloween outfits fly Southwest to LA. Maybe the Dutch Boy will give’em some of his frequent flyer miles.

  16. I think we’re getting into two different areas when it comes to the NFL in LA.

    First, is the ratings angle. Quite bluntly, the NFL would be absolutely bat-shyte crazy to put a team in LA with the must-carry rule in place, and even doubly so to bring two in…especially if the two teams turn out to be the craptastic Chargers and the even more craptastic Raiders. Given the hypothetical choice between a must-carry Chargers game and a Seahawks-Patriots or Cowboys-Broncos matchup, which game do you think the networks would prefer the LA Market carry?

    Now, as to the stadium itself, that’s another kettle of fish. The NFL is jonesing for a primo facility in glitz-happy LA in which to have special events like the Super Bowl. While the Coliseum is venerable, and the geographic setting of the Rose Bowl is without compare, both of those facilities are ancient and cannot handle the new-new-new demands of the modern NFL.

    So yes, things have changed. The TV networks would be a net loser if there were teams in LA, but the league itself would probably come out for the better.

    The question now, going forward, is whether or not the TV Ratings bean counters can manage to keep it to only one team (presumably the Rams), or whether they’ll allow two teams into the market and totally tank the ratings for that area.

  17. “Hey, I think we’d all be thrilled if somehow private financing for stadiums worked out or at least came close to working out.”

    Well, PSL’s may or may not work, but private financing of stadiums isn’t really a problem. “Real world” businesses don’t look at their infrastructure as a separate business entity. Having a place to work or sell – or play – is just a cost of doing business. If pro sports teams had to build their facilities with their own money, they would. They have plenty with which to do it.

  18. Or more likely, most wouldn’t build them, and would stay in the old stadiums because it was more profitable.

  19. Neil, the numbers behind the Texans growth is explained away as the Texans being a good team as far as the NFL is concerned. That is pretty much it with J.J. Watt also managing to sustain growth by being an attraction for the team. The only difference is that the Texans have not been winning recently.

    As for Erik’s “Stars in the seats” comment, it doesn’t actually work in the NFL. The reason for that is because the sidelines and end zones are in a position where they are not that close to the field even in a football friendly stadium. Even though baseball is the same way, much of the action is concentrated within the diamond and would allow for star sightings at Angels and Dodgers games. Therefore, it is possible to catch Jimmy Fallon watching the 2004 World Series down the 1st or 3rd baseline, Billy Crystal at a Yankees game, or Jerry Seinfeld watching his Mets.

  20. Between revenue sharing and the fact that there are only eight games a year, game-day ticket sales aren’t that big a variable for NFL teams.

  21. This is a very interesting article and Scott raises some excellent points on the other end.

    My suggestion would be to look at this as question of strategy. To this point, we’ve looked at the “owners” as a generally monolithic entity united by TV revenues and labor negotiations. Neil’s points raise another possibility–that some of the owners are seeing a post-harmony era and are taking steps to position themselves for what they see as likely developments in the sports market. Some of the developments could deal with cable television, marketing, and the general attractiveness of football in an era where head injuries are all that is talked about (other than inflation of footballs).

    Indeed–many of the urban areas cited are “outliers”–but this status is what makes them lucrative and interesting to owners. Only in these areas is it possible for the same population to pay a large part of the team’s share of a luxurious stadium and buy the tickets in the newly built premium seating shielded from the overall revenue sharing.

    Lots of entertainment sectors are doing all they can to appeal to the top 1-5 percent of consumers. If there are major changes in the NFL’s funding model, older, poorer cities like Cincinnati, Tampa, and Jacksonville are never going to keep up. Which makes it even more cynical that the NFL would advertise new, publicly-funded stadiums as a means to “stay competitive.” It is possible that they won’t.

    As an aside–does anyone see Jerry Jones as a person who loses a wink of sleep at night wondering if Jacksonville or Kansas City can keep up its team so that Dallas gets part of the gate revenue? I don’t.

  22. They brought back the dreaded tie, with their new overtime rules. They should keep the overtime rules the way they are, but get rid of the clock.

    You can’t sack the quarterback, you can’t block, some team is going to lose a cold weather playoff game on a missed 70 yard extra point. They are playing games in Timbuktu and threatening to put a team in London permanently.

    I’m gonna start watching PBS on Sunday. That said, go Broncos!

  23. Regarding Jessy S. = Precisely. An argument made by the sports knuckleheads is to compare movie stars at Lakers games and say “well that will be the same at Carson/Inglewood” and why “the studios” (which is about 40 year old thinking) will buy up boxes and PSLs at ridiculously inflated prices.

    To understand PSL markets I think you have to start with data from the census on households with income greater than $100,000. That helps put the markets in perspective. It tracks fairly closely to total population but not entirely. A more precise analysis would do it with GIS and examine 1 hour drive time.

    An important addition raised by NPR’s marketplace is that one thing that may be also driving this is the importance the league is placing on being in the largest hispanic media market in the country. Not sure I buy this but probably worth something.

    The data that has been missing (if anyone has a source PLEASE post) is to actually look at week to week TV ratings in the LA market so we can compare those with the national numbers/other markets. I think only the shield and the networks know a critical question – are they leaving eyeballs on the table by not having a team in the nation’s second biggest media market. But Neilson keeps its data closely held and behind a VERY expensive paywall. That would be the critical data – which would really help explore how important (if at all) getting a team into LA is for future TV contracts.

  24. “That would be the critical data – which would really help explore how important (if at all) getting a team into LA is for future TV contracts.”

    Agreed on the NFL’s interest in putting a team in L.A. But there are two separate calculations going on here: One by the league as a whole on whether this helps the overall bottom line, and another by individual teams on whether it means the most profit for them. And we could well be in a situation where what’s good for Kroenke isn’t necessarily also good for the NFL. (Which would be the opposite of, say, London, where I’m sure the league would love to get a foothold, while no owner in his right mind wants to be the guinea pig.)

  25. I’m tired of going to Raider games in Oakland where nobody knows anything about the team, and wear these goblin outfits, as if it has anything to do with football, they just put on the logo and it think it makes them superior, there are dog fights and heavy drug use and dealing by people who don’t care about football in the lot, it is an embarrassment to the NFL, and fans who love the game, the place smells like sewer. I’m hoping for a move with a new venue, San Antonio would be great, because Texas loves football or L.A.

  26. If I recall correctly Forbes does its valuations by a multiple of revenues not net cash flow. If that’s still the case it overvalues bigger markets where teams paid more towards the cost of the stadium. So while the Jets can charge more for tickets than the Rams, the Rams paid $0 for the dome while the Jets paid $800 million towards the cost of their stadium, even if you back out PSLs there is still a decent amount of debt services. The costs of pretty much everything outside of salaries are also higher in the bigger markets. I’d bet the training facility in Florham Park probably cost a good bit more than teams in cheaper areas have to spend.
    As far as all the development that Kroenke could do, I would think there are a lot of things you can do with that much contiguous land in SoCal.

  27. On total revenue figures, sure. But that’s the whole point of this exercise: To see whether an extra $1-2 billion in debt can be made up for by the increase in revenues that would result. If your revenues go up by ~$100m a year, then it’s at least in the ballpark. If not — and it sure looks like not, though it’s closer than it was five years ago — then either you have to bring in money some other way, you have to be ready to lose money, or you’re not going to do it.

  28. The appreciable asset value of the franchise is why the team owners are seeking a move to Los Angeles. Should the Rams move to Southern California, I project the net worth of the organization will immediately increase by $2 billion. One needs to look at recent history to understand the concept. The Los Angeles Clippers were purchased for $2 billion, while the Los Angeles Dodgers received an $8 billion, 25 year television contract from Time Warner.

  29. / / / I think that’s the “greater fools” concept at work. There is no way that the Clippers are worth $2 billion (or even half that) using any kind of expected-profit economic analysis. But there was a rich guy who wanted it as a status symbol. Now the thinking is that there will be other rich guys with plaything-envy to buy whichever NFL team(s) move to LA. Correct? Maybe, maybe not.

  30. What Brian said. Besides, an NFL team in L.A. isn’t going to be getting any kind of contract with Time-Warner.

  31. Agree with the “greater fool” syndrome of the Clippers. However, also worth noting, as Neil did in the article, that the NFL basically has little or no local TV revenue that goes to the team. NBA and MLB teams both derive a lot of revenue from local TV contracts, and you mention the Dodgers specifically. The economics of MLB in the 90s, pre-luxury tax, was a big reason why the Yankees were both so dominant and so consistently money-making whereas the poor Expos always got the shaft.

    Local market matters a lot in the NBA, MLB and NHL and not very much in the NFL. In theory you could put all 32 NFL teams in Iowa and they’d still do fine as long as the national contracts stayed in place.

  32. Perhaps. However, its an economic reality that a franchise will substantially increase its net worthy by moving into the second largest television market in the country.

  33. Is it possible that the NFL change of thinking on LA is purely strategic. In their fight against questioning of football safety by Hollywood influence. From what I’ve read there multiple anti football films on the drawing board. Hollywood decision makers can change society opinions !

  34. @ Neil

    As I’ve said from the beginning of this mess, LA only works with two teams sharing 1 stadium like the Carson project. It’s the “Metlife” stadium model of financing. Splitting the naming rights revenue, which would be larger for a 2 team stadium, is irrelevant because all of those funds would have to go towards paying off stadium construction debt in either LA stadium scenario.

    Have you read the Inglewood initiative the city council passed back in February? It changes the zoning for the existing residential and commercial development project to Major Mixed Use and very clearly defines the specifications for building a retail center including a Walmart.

    Can you tell us what Kroenke paid for his 60 acres? That data is available from the LA County recorders office. Not one report has told us what he paid or confirmed that he actually purchased the land, he may have only bought an option to purchase the land from Walmart who spent years trying to build a store there. Stan’s “stadium initiative” made it possible and suckered Inglewood out of $100s of millions.

  35. Also, I’m confused what you’re arguing: If Kroenke is getting a major rezoning, that makes up for having to foot the whole bill himself, no? (And there absolutely are advantages to not having to split revenues: No one is going to pay double the naming rights for a two-team stadium, you can’t sell the same concerts twice, etc.) Or are you saying that two teams in Inglewood makes the most sense, in terms of profit?

  36. The proposed stadium financing plan for Carson is similar to what occurred in Santa Clara, less one NFL team. However, no matter how much insulation for taxpayers they attempt to promote, the reality is if a public entity owns the stadium, the taxpayers are at risk. Levi’s Stadium has been in operations for two years. That amount of time insignificant in determining how well an investment will perform over its 30+ year expected life. Levi’s Stadium will never yield a positive return on investment for Santa Clara. I don’t expect an NFL stadium in Carson will yield a positive ROI for a town with even fewer resources.