The Inglewood city council voted unanimously yesterday to approve an NFL stadium near the old Hollywood Park racetrack site, bypassing both the usual environmental review and the public referendum that would normally be required to bypass the environmental review. The project, spearheaded by St. Louis Rams owner Stan Kroenke, can now move ahead just as soon as—
An economic impact report commissioned by the city estimated the privately funded stadium with open-air sides and a clear retractable roof could be the most expensive in U.S. sports history: $1.86 billion.
Okay, so to paraphrase things Everett Dirksen never said, this Inglewood project is starting to get into some real money. I’m already on record as being skeptical of Kroenke being able to make an Inglewood stadium pencil out when we were talking about $1.5 billion; at $1.86 billion, which is more than half a billion more than the 49ers spent on their stadium in Santa Clara without needing to worry about any NFL relocation fees, it seems like madness. (Or leverage to extract more money from St. Louis.) But I guess we’re one step closer to finding out whether Kroenke is super-smart, super-crazy, or super-smart about appearing to be super-crazy.
There is still one other possible way the Inglewood stadium, even if it doesn’t collapse of its own weight could be blocked, which is that a petition drive could be launched for a referendum to block the deal from going through without a referendum. No word yet of anyone launching such a campaign, but I’m sure someone will do so eventually, because California.
“There is still one other possible way the Inglewood stadium, even if it doesn’t collapse of its own weight could be blocked, which is that a petition drive could be launched for a referendum to block the deal from going through without a referendum. No word yet of anyone launching such a campaign, but I’m sure someone will do so eventually, because California.”
I would not be surprised if the NFL, Davis or Spanos funds a referendum because of their ‘civic’ concern for Inglewood. This, of course, would not slow down Davis or Spanos from pulling the same maneuver in Carson.
So figure:
$400M PSLs
$400M G4
$400M naming rights.
That still leaves about $600M. We sure there isn’t nine-figure giveaway somewhere in the footnotes of the deal?
The Rams and the big-time developers pay a “campaign contribution” to Inglewood council members, who then proceed to skip over no less than two steps of the approval process, while preventing locals from having any say in a project which could cost upwards of $2 billion.
How is this not a political scandal?
Kei – probably because the 2 billion isn’t coming from their pockets?
What is more likely is the Inglewood stadium gets scaled back and a lot of the bells and whistles are not going to be built, who needs a translucent retractable dome in SoCal?
These guys aren’t going to let a little thing like madness stop them.
I tell you, this is exactly like the stock market; eventually, the P/E ratios will get so horrendous, people will bail out. When it gets to a point that the amount invested is $3B and the annual profits are $50M, we’re just about to the point where prices have to go down.
When this bubble bursts, Cities are going to be in deep trouble.
@Key, “How is this not a political scandal?”
I don’t know, ask Kevin Johnson.
By the way, getting around the public referendum “requirement” doesn’t come as a surprise to me, at all.
I’ve learned this so-called “requirement” is VERY soft in California.
This has been in the works for quite some time now and you better believe the NFL is secretly behind Kroenke on this. If they were against it, it would have never got this far.
There is no way they get $400M for naming rights. They would be very lucky to get $100M in present value and more likely half of that.
@MikeM When this bubble bursts, Cities are going to be in deep trouble.”
How long have we been saying this? It’s like the cable TV bubble, everyone keeps saying it will burst, but people keep subscribing to all these bundles and the providers keep raking in the dough.
Cable TV isn’t the best example for a counterargument, if you ask me. People are bailing on cable seemingly as fast as they’re bailing on land-lines.
Eventually, all markets get saturated. That’s just the way of the world. There’s no longer a huge demand for VHS recorders; once upon a time, those cost about 1 month’s wages.
@ Floormaster Squeeze You might want to look at comparable recent deals.
Jerry Jones got between $17-19M per year for his place. By your (low end reckoning), that would have been a 2.5 years deal. LA being a bigger media market puts it in line for a deal at least as large (the Cowboys probably carry a premium by themselves). Don’t know the length of the Jones deal, but MetLife (Giants/Jets) is $17M for 25 years.
Present value of that is going to be well under the $425 simple multiplication value (that’s for MetLife’s 25×17), but we’re much closer to $400M than to your $100M (or $50M).
The present value of $17m a year for 25 years at a 5% discount rate is $239.5m.
I did (an admittedly slightly optimistic) 20 for 20 at 4% (which seems more in line with recent historical inflation rates: http://www.usinflationcalculator.com/inflation/historical-inflation-rates/), which is $272M.
Still, much much more money than $100M or $50M.
My point is still not “$400M in naming rights is a LOCK” but “there is a sizable gap in what we can pencil in for construction funds versus what it looks like it’s going to cost.” Unless as someone suggested the $1.8M is to cause sticker shock on purpose, so that when it comes in at $1.2B it feels like a ‘deal.’
Not really surprised that the Inglewood city council decided to bypass the referendum. And now I would fully expect Carson to do the same. And I don’t see any potential counter-referendum as having a good chance at succeeding in Inglewood. The signature drive there got overwhelming support and voters aren’t active or critical enough thinkers (for the most part) to be willing to slow down or hinder their own preferences just on principle. I maintain that this is a race to see who breaks ground first and the advantage there is clearly tipped towards Inglewood.
One of the more important sections appears to be 15.3 Reimbursement for Public Improvements. Basically, according to a 2009 Fiscal Analysis, the “original” development project at the site was going to estimated to stabilize at $14mil per year in gross new revenue to the general fund. The “Stadium Alternative Project” estimates to stabilize at $44mil per year to general fund. So, here’s what it appears they did:
During every fiscal year, they’re going to calculate these taxes:
(i) taxable construction materials sales on the Property that have the City and the Property designated as the point of sale;
(ii) ticket taxes;
(iii) parking taxes;
(iv) transient occupancy taxes;
(v) franchise fees;
(vi) property taxes;
(vii) utility users taxes; and
(viii) business license taxes; but
excluding any gaming and card club tax revenue from a casino
Any amount over $25mil will be rebated to the “Landowner” as Public Improvement Reimbursement. If they hit their $44mil projection, the landowner will get almost $20mil per year in tax kickbacks. But whoever negotiated this for the city was not asleep at the wheel. They inserted this clause: “PI Reimbursements may not be used to reimburse the construction costs for the Stadium or any other private improvements”
Stockbridge Capital and Kroenke appear to have incentives to build out the mixed-use part of the development instead of following in the tired footsteps of “build a stadium on promise of ancillary development then ditch everything but the stadium”.
Thomas: Huh, interesting. So what can they use the tax kickbacks for? Are maintenance and capital improvements excluded? If yes, great; if not, we could be looking at a Falcons-type deal, where the team would get a ton of public money on the back end after fronting construction costs. ($19m a year over 30 years would be close to $300m in present value.)
@Neil
Landowner shall be entitled to receive reimbursements (“PI Reimbursements”) of amounts advanced and spent for Public Improvements set forth on Exhibit C-1, as well as amounts advanced and spent for event day public safety costs of retaining City police, EMT, and other services and operating public shuttles from off-site public parking lots and other expenditures of a public nature, in each case together with interest accruing on such amounts from the date of expenditure at a rate equal to the then-applicable rate available to municipalities
Exhibit C-1 is pretty extensive and not an ideal candidate for copy/paste to comment. It’s essentially everything that isn’t the stadium.
The AT&T deal (that was also about more than naming rights and 5% goes to Arlington) was clearly an exception for the highest valued NFL franchise but it clearly was over $200M in present value.
I will say it makes my $50M present value argument look weak but makes the $100M guesstimate decent. San Francisco did get $11M a year but that works out to under $100M in present value. The point was and still is that is no way near a bankable $400M.
While we’re down here in the deep weeds, it’s probably worth noting that the entire site (both the Stockbridge and Kroenke parcels) are designated as a Community Facilities District authorized to levy up to a 1.85% special assessment. So there’s your bond mechanism.
Michael: I’d say that $200m-$250m in PV for naming rights seems like a decent guesstimate. But really, when you’re talking about a $600-800m funding gap, $100m either way isn’t the main issue.
@Neil: Which was why I asked the question originally (albeit in a roundabout way)… How is Kroenke going to fill that non-trivial $600-$800M gap.
Right, I’m agreeing with you!
@Michael
Kroenke is going to need a second team in that stadium. The issue seems to be that Stan wants a stadium tenant instead of a stadium partner. Next month’s NFL owners meeting should be interesting.
The other vital issue is that Stan will need to convince the city to “own” the stadium so he can avoid income taxes on PSLs and naming rights.
For PSLs, it’s that the city needs to be the one selling them, no? Doesn’t matter who owns the stadium.
Yeah, seeing how easily the Inglewood council rolled over to circumvent any kind of citizen vote, I can’t imagine there is a hurdle to clear in having them also set up a public authority to sell the PSLs for Kroenke.
PEOPLE IN SAINT LOUIS ARE YOU LISTENING??? get a referendum filed in inglewood to delay the project further. Sacramento did that to Anaheim to prevent them from moving there. Seattle did that to Sacramento, but the petition was tossed out and if it made on ballot they would have voted that petition and the Kings would have left
Well, I guess Tupac called it twenty years ago. Inglewood always up to no good. Admittedly, that bit about being untouchable like Eliot Ness is looking slightly less prescient.
@Neil
I believe a public entity needs to own the stadium to exempt the PSLs and naming rights from income taxes, that’s the case for all the examples that I’m sure about. You would have to do some digging, here’s what I found on Metlife.
“The Jets and Giants are paying for the stadium, which will cost an estimated $1.6 billion. Johnson(Jets owner Woody Johnson) said the Jets hope to make about $170 million, after taxes, from the PSL plan.”
sports.espn.go.com/nfl/news/story?id=3554139
I’ve also found that the New York Jets, LLC owns the Jets Stadium Development, LLC and the New York Football Giants, Inc. owns the Giants Stadium, LLC. The Jets Stadium Development, LLC and the Giants Stadium, LLC own the New Meadowlands Stadium Company, LLC which owns MetLife stadium. The land the stadium sits on is owned by the NJSEA per their annual report.
We have our answer if it’s true that Metlife stadium is privately owned and the Jets and Giants did pay taxes on their PSLs. I’m not a tax attorney nor do I have any connections to verify any of the above reports but these sources are better than those claiming the NJSEA owns Metlife stadium.