Court rules St. Louis Rams PSL contracts still valid, could cost Kroenke $150m+ in payouts (UPDATE: probably not that much)

Well, ain’t that a kick in the head:

A federal judge in St. Louis ruled Wednesday that the Rams must refund deposits to some fans who purchased personal seat licenses during the franchise’s two decades in that city and offer others the opportunity to buy season tickets to games in Los Angeles.

I was dimly aware that St. Louis Rams PSL holders were suing over the season-ticket rights they’d purchased in perpetuity suddenly being worth nothing since there were no St. Louis Rams season tickets to buy anymore (see my brief note here), but I never thought they’d actually win. Nor, presumably, did Rams owner Stan Kroenke, because he is now seriously hosed, to a degree that we’ll attempt to figure out in a second.

First, a primer on PSLs: Initially created as a bonus for fans who bought inaugural Charlotte Hornets season tickets (not only do you get the tickets, but if you don’t want them anymore you can sell your spot on line to someone who does!), they quickly turned into a lucrative way for team owners to raise cash: Instead of first-come-first-serve tickets, offer fans the chance to buy the right to first dibs, with the carrot that they can then re-sell that right down the road to recoup at least some of what they laid out. In some cases with popular teams in cities with lots of fans with money to burn, it’s been lucrative indeed: The San Francisco 49ers managed to bring in more than $500 million from their PSL sales, which is a sizable chunk of change. And Kroenke has been hoping for similar revenue from PSL sales to help pay for his new $2.5-billion-ish stadium in L.A., though he can’t start selling them until next February as part of his relocation deal with the NFL.

So how much will this court decision, assuming it holds up on appeal, cost Kroenke? Of the 46,000 Rams PSL holders, there were two classes being represented — those whose PSLs were initially bought through a broker and those whose PSLs were bought directly from the team — and thanks to differences in the two contracts (whee lawyers!), each group now gets a slightly windfall: Broker purchasers get a refund of their PSL “deposit” (the judge declined to define what that means for now), while direct buyers get to actually transfer their PSL rights to the Rams’ new stadium. And while that may not sound so great — do any St. Louis Rams fans really want to fly to L.A. to see their former team play? — remember, the whole point of PSL rights is that they’re transferrable, so this is now a hugely valuable asset that they can sell, and more important, that Kroenke now can’t.

How much actual money would that cost Kroenke? Now we’re deep into speculation, since we don’t know how many direct vs. broker buyers there were, nor how much Kroenke was planning on selling L.A. PSLs for. Deadspin reported that the ruling will “likely cost the team millions of dollars in returned deposits and foregone profit,” but that’s almost certainly way too low: If there are 23,000 direct buyers and 23,000 broker buyers, say, then refunding 23,000 fans for their St. Louis purchases at $250 each would cost $5 million, while handing over free L.A. PSLs to another 23,000 fans could cost — let’s see, it’s a 70,000-seat stadium, so if Kroenke was shooting for $500 million in PSL sales, then scrapping 23,000 of those would lose him … $160 million, something like that, depending on which seats the judge says he has to set aside for St. Louis PSL holders?

It’s hardly a deal-breaker when you’re spending over $2 billion on a new facility, sure, but still, unexpected nine-digit losses are never fun. However all this turns out, it’s likely to be at least a moderate-sized headache for Kroenke and his accountants, as well as a cautionary tale for both teams writing up PSL contracts and fans buying them: Read the damn fine print, because it could end up being worth a hell of a lot of money.

UPDATES: As a couple of commenters have pointed out, the cost to Kroenke probably won’t be as much as I’d guesstimated: First off, more than 90% of the PSLs were sold by the broker, not the Rams, so that pushes most of the PSL holders into the less-lucrative “you get your deposit back” category. Second, the St. Louis PSLs were set to expire after the 2024 season (the Rams lawyers did something smart, anyway), so even for the L.A. PSLs Kroenke has to now pull off the market, he’ll get to resell them again in a few years. So we’re down in the $15-25 million cost range for Kroenke, which while it’s going to sting, is more of a rounding error for a guy playing in this spending stratosphere.

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19 comments on “Court rules St. Louis Rams PSL contracts still valid, could cost Kroenke $150m+ in payouts (UPDATE: probably not that much)

  1. Greedy fucks need to have this shoved up their asses every chance they get. Just another case of corporate welfare, trying to play both ends against the middle (class, that is). I don’t know why people waste so much of their hard earned money on this BS. The love and appreciation is not reciprocated.

    1. True, Joe, but no-one is forcing people to buy.
      For whatever reason (love, stupidity, marketing, fluoridation of municipal water supplies etc), fans line up to lob their wallets over the fence to greedy team owners. And they’ll do this despite the fact that their own tax dollars paid for both the stadium on the other side and the fence that is keeping them out.

      The old adage about leading horses to water seems appropriate. Or maybe a Yogi Berra quote, like “if people don’t wanna come out to the ballpark, you can’t stop ’em”…. only in reverse.

      1. Well, as to why people buy PSLs, it’s for the right to purchase season tickets at face value. Have you seen the alternative? Average 2015 StubHub/eBay/etc. ticket resale price (average face value):

        1. Seattle Seahawks: $397 ($85)
        2. Denver Broncos: $370 ($88)
        3. New England Patriots: $292 ($122)
        4. Dallas Cowboys: $284 ($110)
        5. San Francisco 49ers: $265 ($117)
        6. Chicago Bears: $260 ($108)
        7. New York Giants: $250 ($123)
        8. Philadelphia Eagles: $223 ($99)
        9. Green Bay Packers: $222 ($89)
        10. Baltimore Ravens: $200 ($100)

        Note the markup, 100%-350%+. In other words, for these ten teams, resellers (many/most of whom are rank-and-file season ticket holders, not professional scalpers) are making more money than the “greedy owner”; three or four times as much in some cases.

  2. I’m sure PSL contracts will have fine print that will say, in so many words “if we move you are screwed.”

    1. Sounds like the fine print offering refunds was put in to protect the fans if no NFL team moved to st.louis and sounds like that same print is still valid refunds if no team.

    2. That was a major point in this suit because the contracts actually didn’t say a thing about the agreement ending or changing if the team moves. You would have thought there’d be a clause on that buried in the fine print but there was not.

      1. The ~44,000 sold by the CVC did. “Licensee acknowledges that this Agreement remains valid only as long as NFL football is played at the Stadium by the Rams, up to a maximum of thirty (30) years. Licensee acknowledges that Licensee has no claim against the Rams with respect to this [PSL] and/or its termination whatsoever. Licensee understands and acknowledges the possibility that the Rams may not play its games in the Stadium or St. Louis for the entire term contemplated by this License. Licensee expressly agrees not to sue the Rams for damages or injunctive relief related to this [PSL], including without limitation should the Rams not play its home games in the Stadium or in St. Louis for any reason.”

        The ~2,000 sold directly by the Rams apparently did not contain this language (or at least, not all of it).

  3. The article must have been updated as now it says, “It’s believed that fewer than 2,000 licenses were sold by the team rather than FANS Inc.” So looks like if this ruling holds most fans will get the refund option.

    1. That would make a huge difference, yes, though Kroenke would still be on the hook for about $25 million.

      1. You’re a Simpsons fan, Neil. Kroenke paying $25 mil reminds me of the Inciting Incident of the Monorail episode.

  4. Geez, Neal, this is a pretty janky effort for a stadium finance expert. The St. Louis PSLs expire in 2024. The Inglewood stadium doesn’t even open until 2019. Your math assumes these people will get the equivalent of new 30-year PSLs at the new stadium. At best, they’ll have the right to buy tickets for a few years, after which new PSLs can be sold for however many thousands of dollars each. (And in reality, this will either go nowhere, or settle quietly for far less, and the lawyers will get most of it.)

    And where are you getting this 50/50 FANS/Rams estimate? FANS Inc. was the CVC’s corporation set up to sell PSLs back in 1995. Five seconds of Googling would have told you that the FANS sold out their entire allotment 46,000 seats before the first game. The ones sold directly by the Rams were some tiny subset: PSLs re-sold after people simply relinquished them rather than transfer or re-sell them.

    But hey, your “$150 million” figure is sure to make a splash with Deadspin and the rest of the garbage clickbait sites, so … congratulations?

  5. I had not seen that the PSLs were capped at 30 years — that makes a big difference, agreed. And as I noted above, 50/50 was just a “for example,” since at that point there was no reporting on the split between FANS and the Rams. (I did Google for more than five seconds, but didn’t turn up the number you did.)

    Will update now, thanks. And I did hesitate about putting the dollar figure in the headline since it was speculative, but “could cost Kroenke tens or even hundreds of millions of dollars” wouldn’t fit in a tweet, which is unfortunately the limitation I’m working with.

  6. It’s really interesting that the PSL’s in St. Louis carried an expiry date that is some 8 years past the earliest (?) date at which the team could trigger it’s escape clause.

    There not being a FoS website in 1994, obviously, we can’t page back to find out why that might have been… The assumption would be that it was because the PSL’s were sold by the stadium authority (or designate) and not the team directly, as noted above. We should all have learned by now that sound long range planning and politicians negotiating stadium deals tend not to be linked…

    The “refundable deposit” holders do seem to be on the short end of this, while those who are able to transfer their licenses to the new facility might do quite well (though it’s not like they own 30 year PSL’s at the new facility). Of course, the devil is in the details, and we don’t know what other costs might be associated with this transfer (as any timeshare “owner” will attest).

    Interesting times, nonetheless… It’s tempting to think that the PSL holders at the new facility (for 5 years) won’t do very well on a prospective sale… but we should keep in mind that the “new stadium” bump should apply to the license holders from STL as well. Somebody might be willing to pay a significant premium to buy their license for the first few years at the Inglewood facility.

    If you are the seller, why woudn’t you try to charge the same as the 30yr licensees are asking? You are selling the first five years of a 30yr contract only, but those are clearly the most valuable years (witness the secondary market prices for PSLs being sold after 5-8 years of use). It’s all about demand, and not much seems to top a new stadium in that regard. They won’t get “new price” for the remaining years of their PSL, but I bet they will get several times what they would have for the remaining years of their extortion-dome licenses in St Louis.

    1. When the Raiders moved back to Oakland, their PSLs were only good for 10 years. That’s one of the reasons they sold like whatever the opposite of hotcakes are.

      1. True, but they weren’t moving back to a new stadium… just a new weird stand in an otherwise old building. The ability of the “market” to pay for PSLs (then a new thing) was much lower in Oakland than I would expect LA’s to be.

        It’s early days, but the Rams are clearly able to draw in LA (even in a truly ancient stadium) far better than the Raiders did on their return to Oakland.

        1. Ram season ticket holders didn’t have to buy PSL’s to get tickets for the 3 LA Coliseum years. The Raiders required PSL’s to get season tickets the first year, even though they didn’t announce the move until mid-June of 1995, giving their traditionally working-class fanbase all of two months to save up. Once the season started and they had to admit how many went unsold, the cat was out of the bag and there was no chance to sell any more.

          If they had made the first year just pay-for-the-tickets and not started the PSL program until the following year, they probably would’ve done better. Of course, basically everything about that move could’ve been done better.

    2. The Rams’ 1995 lease, and the PSLs, were for 30 years. The escape clauses were for after 10 and 20 years (2005 and 2015). The looming escape clause(s) have been widely reported on by the media since around early 1996, but the original 46,000 PSLs were sold during that brief period in 1995 after the lease was signed, but before the media noticed or reported on the implications of the “first tier” annex. It is pretty shady for the CVC to be selling 30-year PSLs to the fans after signing a (de facto) 10- or 20-year lease with the team. I’d argue that’s far worse than the Oakland Coliseum Commission selling 10-year PSLs.

      I think they’ll all get a partial refund, but realistically, these 2,000 people aren’t getting prime “real estate” in Kroenke’s new palace, no matter how satisfying that would be to many observers.

      Remember, the Rams have the right to “terminate” the PSL. Their stance was that no formal termination was required; the PSLs simply became null and void upon vacating the Dome. The judge ruled that the first group’s PSLs were “terminated” via relocation, and are owed a partial refund. However, he ruled that the second group’s PSL agreements are still in effect. So the Rams could simply accept that ruling, then terminate those PSLs, which would put Group 2 in with Group 1 seeking a partial refund.

      Short of that, there are other ways to make them go away. The Rams could make the transferred PSLs worthless by charging them more for tickets than they charge the new PSL holders. Why not? Different contracts, different benefits. NFL teams already charge different prices to different buyers, e.g. Rams season tickets are about 20% less than equivalent single game tickets. There’s no reason they can’t give greater discounts/benefits to a $5,000 PSL buyer than a $500 PSL buyer from 25 years ago. It would be crazy not to.

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