The owners of the San Diego Chargers, St. Louis Rams, and Oakland Raiders all formally applied to relocate to Los Angeles yesterday, something that got reported on by pretty much every news outlet on the planet. Of course, this is just a formality — even if they get approval, it doesn’t mean they have to move — and something we’ve known for more than two months they were going to do, so calm down, people, okay?
Way more interesting is the report — by “NFL Media Insider” Ian Rapoport on the NFL’s own NFL Network, which is as close to an official leak as you’re likely to get — that the NFL has set its relocation fee at $550 million per team that moves to L.A. That’s in line with what was reported a couple of months ago too, but it was crazy-high even then, considering that this would come on top of having to spend close to $2 billion on stadium construction before selling your first ticket.
I can currently think of at least seven possible reasons why the NFL picked this price point:
- Los Angeles is such an incredible cash cow for anybody who plays there, despite the NFL not offering the change to cash in on local cable deals and L.A. not being a real hotbed for high-ticket PSL buyers or anything, that the other owners figure this is a reasonable price.
- None of the competing owners see what’s in it for them if any of these other guys get to move to L.A. — national TV ratings probably won’t budge much if people in L.A. are watching local teams instead of the best national games — so they’re figuring, “Hell, if we’re going to go through all the trouble of figuring out who gets to move, at least we can make sure we get paid.”
- Nobody really wants anybody to move to L.A., so they’ve set a price so ridiculously high that no one will bite.
- Somebody realized that the easiest way to determine a winner when three people are fighting for two spots is to see who’s willing to pay the most to bribe the judges.
- They need extra money to pay off whoever doesn’t get to move to shut him up.
- They need extra money to help fund a stadium for whoever doesn’t get to move.
- It won’t really be $550 million, once they invent some special revenue-sharing credit for teams that play within 50 miles of a major tar pit or something.
There are probably more, but I’ll leave those as an exercise for readers. Meantime, I just finished a longer writeup of all the possible outcomes of next week’s NFL owners meetings (including the rapidly rising dark horse candidate “nothing”) for Vice Sports — point your browser there and keep refreshing for the next few hours if you want to hear more from me on this.
[UPDATE: You can quit refreshing now, the article is up here.]
So if you’re Mark Davis, aren’t you kind of f*cked? The Raiders are the source of his wealth (from what I understand), so it’s not like he’s got a bank with a billion in it. He can’t afford to build his own stadium, isn’t getting money from the local pols, and now, if he wants to move, he’s got to come up with a multiple of what would have likely been his ‘private’ contribution’ towards a new stadium in Oakland.
My guess is that there really is something to your last item. That this amount is designed to test how much Kroenke wants to get out of St. Louis, and there will be some back-adjusted rebate for teams who didn’t get an acceptable new stadium deal from the market they were leaving.
So who gets the money?
If two teams move to LA and both pay $550M, the kitty is $1.1B. Do the other 30 teams each get $36.7M (two years’ salary for a star player)?
KT: Maybe, or it could go into the G-4 fund. No details yet.
Also no details on whether the $550m can be paid out over time, which would make things easier on Davis, obviously, since he could take it out of his new L.A. revenues. If he were getting to move to L.A., which he almost certainly isn’t, since he has the fewest friends in that room.
(2) and (4).
Stan Kroenke has the money while the other two owners don’t. Guess who is going to be the first team back in LA?
There are these things called “banks.”
Even if they made you cut a check for $550M, yeah, with an NFL franchise sure to generate a ton of revenue in your portfolio, banks would be happy to do business with you.
And what will they use for collateral? $550 million has to be repaid. I don’t know if the Chargers or Raiders can produce that much on their own, coupled with their share of the stadium construction costs.
jcparnell: For collateral? Perhaps a football team?
Say what you want but NFL franchises have value and come with guaranteed TV revenue streams. You think the same folks who were moving securities backed by the third tranche of the home loans of migrant workers in Fresno would struggle to move a loan backed by the value of an NFL franchise?
The issue isn’t getting the money. It’s paying it back. If, say, Mark Davis can’t find an incremental revenue stream from being in LA he gets to be a penniless 60 year old graduate of Chico State that has never held a job and the former owner of the Goldman Sachs Raiders. That’s a problem for Mark Davis. It isn’t a problem for Goldman Sachs.
Are those revenue streams significant enough to pay back $550 million and another $500 million in loans to pay for a new stadium? According to your theory, the Raiders should then have enough money to build a new stadium on their own in Oakland.
jcpardell: You’re confusing several things.
As a team with an operating income of $40M a year, the Raiders do have enough future income to take a loan and build a stadium in Oakland, LA or Timbuktu. Any bank would be happy to make that loan with the team as collateral.
However, the cost of loan repayments would eat much or all of that operating income. Again, happy Goldman, sad Mark.
The question regardless is “does the incremental revenue of being in LA, in present value terms, exceed the cost of a stadium.” The answer is: Almost certainly not.
That’s why no one is moving, with one caveat: If Stan Kroenke suddenly at his advanced age decided he wanted to lose money on an investment, he could. It would be out of character, but he could.
The idea is that the additional revenue in L.A. that isn’t there in Oakland would be enough to repay the $1.05 billion, yes. If it isn’t, then moving to L.A. is a money-losing proposition.
But that’s a *revenue* problem, not a *cash* problem. If L.A. is worth $100m a year more in revenue than Oakland, then you or I or Mark Davis could happily get a bank to finance our stadium. If not, then even Scrooge McDuck wouldn’t touch it with a ten-foot pole.
The NFL is thinking, “if the NBA can get two billion for the Clippers, we can get like twenty-five times, that. Wait, is a billion more than a million? Where’s my accountant? There’s no time for that. Just send out the leak.”
Stay tuned for the part where we announce that we need more time to study the matter and no one will move this year.
“Study the matter” is a euphemism for “keep working all the angles we can come up with to finagle the public stadium cash we crave, baby!”
I’m not stating there are significant revenue streams generated by the Raiders franchise. As you stated, the issue of loan repayments cannibalizing the operating income cannot be understated. Without a substantial annual net income, the Raiders cannot sign great coaches and players. Thus, the greater likelihood of not being able to produce a winning team on the field, which translates into lost revenue streams. Something tells me even Mark Davis won’t be willing to leverage the Raiders to the point he can lose the entire franchise.
jcpardell: Did you confuse football with baseball?
The NFL has both a salary cap and a salary floor. The top line of the team impacts bottom line profitability. It has zero impact on whether they can sign great coaches and players. In your hypothetical scenario, an owner would run afoul of the CBA and be hauled into court long before finances caused them to “not produce a winning team.”
Expenses are nearly entirely fixed. Of course, with most of the revenues coming from TV, revenues are largely fixed too. In fact, one could argue an NFL team is the world’s most glamorous annuity. Which again would make lending an NFL franchise money a banker’s wet dream but at the same time makes relocation a silly sideshow.
Granted, each franchise if part of that monopoly we know as the NFL. However, are you stating the business model is such where the on field performance of the team is irrelevant and there is no correlation to the financial performance of the franchise? There are other revenues streams aside from TV revenues.
Perhaps lending money to an NFL franchise is a bankers wet dream. I doubt if you will find an NFL franchise owner willing to leverage their entity to the point of entirely losing it. Which brings us back to my original point:Stan Kroenke has the money to pay the relocation fee. The other two NFL owners don’t.
Yes, Stan Kroenke can afford to lose $1 billion on an investment, where Spanos and Davis can’t.
I have no idea what relevance this has to anything, since none of them, presumably, would choose to make that investment.
We don’t know if Stan Kroenke will lose money on his Inglewood investment. However, he is the the party with the financial resources to assume the amount of risk involved for relocating to Los Angeles.
jcpardell: Yes, I am saying on-field performance is almost entirely divorced from financials. Otherwise the Washington Redacted wouldn’t be consistently be one of the top 3 most valuable franchises over the last 20 years. More money won’t make your team better with the cap and more wins won’t get you any more money in a league where most revenue is shared.
As for Kroenke, there’s no local revenue stream except PSLs that could possibly make the numbers work and the demographics of LA today don’t make PSLs a slam dunk by a long shot. There’s just not enough local revenue in the NFL to make it worthwhile.
Neil: My point is there is no evidence any of these owners would be willing to lose $1B. That doesn’t mean no one could. Remember Eli Broad was in a previous LA NFL scheme. He’s given $800M to various LA museums. His net worth is similar to Kroenke.
Could a very rich civic backer who is willing to drop $1B of his money on art also be willing to drop a billion to bring an NFL team to LA? Sure, it’s less out there than the whole league moving to Qatar. If you told me Eli Broad bought the Rams, I’d say “ok”. Stan Kroenke? Not so much. However, pontificating on personalities aside, could it happen? Heck, why not.
Maybe the leak misinterpreted “m” to mean million instead of thousand?
It’s comforting, in a strange way, to see the NFL playing musical chairs-extortion with it’s own franchisees as well as current/potential host cities.
Three into Two won’t go… so the NFL, tragically, has no choice but to keep adding zeroes to the relocation fee. As a side bonus, this allows them to disadvantage the Davis family in a big way (and, to a lesser extent, the Spanos’). Checkbooks at dawn, etc. Just another milestone in the NFL’s virtual abandonment of it’s legacy owners in favour of the New God: Multibillionaire owners.
So… let me ask this:
Assuming neither of the other two owners is willing to follow through with the $550m fee (leaving just one present relocation candidate), does it make a difference for Mr. Kroenke if he is able to convince the others that for $550m he should get ALL of LA (or perhaps be awarded half the expansion fee for the second LA franchise, should it ever come)?
It still leaves him with a huge bill for stadium financing, but if he can do it and get the entire LA market for the $550m price, would he see it as a good value or still too expensive?
Would the NFL balk and say “Two or nothing”?
Or would the vision of sugar plums (and Stl & TBN expansion/stadium cash down the road) be enough for them?
Michael:
Yes, I think you are correct. Mr. Davis may not have had much of a chance of being an LA owner in the first place, but this price certainly leaves him out in the cold. Arguably, it might do the same to the Spanos family.
While any NFL franchise is a money maker (most are profitable before they sell a single game ticket) and can be used as collateral for a loan large enough to choke a horse, we really do need to look at the ‘total cost’ of any team relocating to Los Angeles.
Whether we are talking about Mr. Kroenke or any of the others, the cost for a stadium (or to rent the stadium from the owner/builder in the event you are not Mr. Kroenke and the Inglewood plan proceeds) and the $550m in relocation fee almost certainly means that getting to LA will cost more than your generic NFL franchise is presently worth. You could pick any number from $1.5Bn-2.5Bn in total cost and be in the ballpark.
It’s not impossible to borrow that from banks given how franchise values have appreciated since Mr. Jones paid a then ridiculous $200m for the Cowboys in 1989, but it may not be as easy as some are suggesting – particularly if you are an owner that has no non-football significant sources of income (as you suggested).
Many of us were talking about Kroenke having the inside track months ago. It remains to be seen whether that was correct or not, but it does appear that the NFL has set an entry bar that he might be the only one capable of clearing.
Now it’s just a matter of seeing whether he will choose to do so, or whether Stl will be allowed more time to create a Cincinnati type deal (and direct taxpayer funding toward the immediate invention of holographic displays while they are at it already…)
The Bills sold for $1.4 billion a year ago. So its pretty reasonable to assume that the would be the new floor. The Cowboys are probably up around $3 billion. I have a hard time believing the Rams could surpass the Cowboys. They would need to in order to justify almost $2.5 billion in stadium and relo costs. The Chargers/Raiders would “only” be spending about $900 million each on the stadium since there are two of them so the numbers can actually point to Chargers/Raiders.
One thing that just occurred to me is that the sky-high relocation fee somewhat reduces the benefits of having two teams share a stadium — if before this Kroenke was looking at double the costs of each of the Raiders/Chargers partners (and somewhat higher, though not double, revenues as a result of not having to split naming rights, etc.), adding $550m to the Inglewood cost and $1.1b to the Carson cost suddenly looks Carson look less like a bargain. And also makes the Chargers and Raiders sharing Inglewood less of a bargain, for that matter.
The more I think about this fee, the weirder it gets. Unless, as Ty and John suggest, it’s just all about shaking down fellow owners for any cash you can.
Btw, my Vice piece went up late yesterday afternoon:
https://sports.vice.com/en_us/article/which-nfl-teams-will-move-to-la-a-bettors-guide
(Sorry, tweeted but forgot to update here.)
The way it appears, I’d say the NFL is leaning towards giving the Rams autonomy over the Los Angeles area. I base my theory on the fact they are requesting a relocation fee that not every owner can afford without leveraging their franchise. I believe the league knows Stan Kroenke is the only one of the three purporting a move who is able to pay for it. Most likely, they’re trying to generate an amount significant enough to assist the owners of the Chargers and Raiders with new stadiums in their current markets. Honestly, I don’t think two teams in the LA area will work and perhaps the NFL believes the same thing.
“Nobody really wants anybody to move to L.A., so they’ve set a price so ridiculously high that no one will bite.”
This might also make sense. Back to Davis… if he has to come up with $550M anyway, why not just come up with another $200M and build the stadium yourself in Oakland? I mean between naming rights and PSLs and whatever G4/5 money the league disburses, he could probably make that happen, no?
I realize some of this is self-defeating. if the the rest of the owners want to keep LA empty so they always have a threat when they want a new stadium, but in so doing they create a model for cities to not have to put up any money, then that is shooting yourself in the foot. Also I’m not sure what the current policy on G4/5 (can’t remember which # we’re at now) money is. Originally it was tied to a certain level of public money before that kicked in, but didn’t the Eagles get it without meeting the threshold?
Anyway, if Davis is going to have to finance $550M, why not just put that towards new digs in Oakland? While I imagine he wants a $1.2B plaything, I’m sure he could get by with something more than adequate in the $750M range.
“Also I’m not sure what the current policy on G4/5 (can’t remember which # we’re at now) money is. Originally it was tied to a certain level of public money before that kicked in, but didn’t the Eagles get it without meeting the threshold?”
Yep. Also it was originally not supposed to be available to relocating teams, but the NFL has indicated that it will be available to Inglewood/Carson. They really are just making this stuff up as they go along.
I really need to stop being surprised when reality outstrips satire. Wasn’t there a Simpsons episode, years back, in which Springfield suddenly invented a “Leaving Town Tax” to soak somebody-or-other?
Good memory!
https://www.youtube.com/watch?v=TVo38a46zdc
Looks like it was when they were filming the Radioactive Man movie in Springfield.
Ok, for those folks , like me, attempting to keep score at home…
Assuming that the Chargers and Raiders would share a new stadium in LA, then:
cost to Rams
• to go to LA – $1.86 billion + $550 million relocation fee = $2.41 billion
• to stay in St. Louis and build a new $1 billion stadium = $600 million
• to stay in St. Louis and continue to play in current stadium = $0
cost to Chargers
• to go to LA – $875 million + $550 million relocation fee = $1.425 billion
• to stay in San Diego and build a new $1.1 billion stadium = $750 million
• to stay in San Diego and continue to play in current stadium = $0
cost to Raiders
• to go to LA – $875 million + $550 million relocation fee = $1.425 billion
• to stay in Oakland and build a new $1 billion stadium = $1 billion
• to stay in Oakland and continue to play in current stadium = $0
So even considering that some of the relocation costs can be somewhat reduced/deferred via G-4 money and PSLs, there does not appear to be any economic justification for any one of these teams moving.
One other “Why it Might not Happen” for “Chargers and Raiders to Carson, Rams stay put”
The Chargers and the Raiders are both in the AFC West; ergo sharing a stadium would effectively give each team one extra home game every year.
This might be a competitive advantage against KC & Denver.
The Giants / Jets shared stadium situation is not exactly the same, as they are in different conferences and play each other once every four year. That works out to one “extra” home game every eight years for the Giants / Jets.
The Raiders & Chargers would be the equivalent of having two teams within one division playing a schedule of 9 home / 7 road games. Not sure if it is that big of a deal.
Spanos and Davis have already said one team will switch divisions if they both move to L.A.:
http://www.cbssports.com/nfl/eye-on-football/25272862/raiders-and-chargers-willing-to-switch-divisions-if-co-tenants-in-los-angeles
@Roscoe: I recall there was a “Bear Tax” instituted in one Simpsons episode to pay for “bear protection” measures after Homer found one (that I recall wasn’t native–it had escaped/fell out of a truck when being transported) rummaging through his garbage. After seeing how high the tax was to pay for the measures, townfolks revolted (again) and blamed the excessive taxes on the “immigints” (Moe’s words) like bears and folks like Apu. Riots and hilarity ensued and then, eventually, all is resolved.
At that’s your Simpson’s episode recap for the day.
@Neil: Great article and summary (I particularly liked the parts where you mentioned or alluded to the fact that nobody likes Davis. Poor guy.). Couple of thoughts/questions:
1) Given their current attitudes, what, in your opinion, is the likely hood that St. Louis, San Diego and Oakland become viable relocation threats if their teams leave? My opinion is that there would be less than zero in Oaktown (they want the A’s and the parking lots for development), zero appetite in SD, and very little in St. Louis. I can’t imagine St Louis would want the Raiders and that brand. Maybe either city would entertain the other team, but would be less inclined to get held over a barrel and would point at the Dome/Jack Murphy and say “Your’re welcome to move in. Enjoy.”
2) I’ve heard local commentators (bay Area), talk about how Roger Goodell has blown how this whole thing is transpiring and the owners are happy with him. How do you see this?
IMO, this is really a factor of two things: a) circumstance—three teams just happen to not get what they want at the same point in time, which is related to…b) Greed and the NFL’s objective to extract as much from cities as possible (or in Kronke’s case, to just get the hell out of St. Louis).
It seems the owners would be blaming Goodell for something they have creative themselves (or all agreed to create).
But I guess if you are the guy at the top, you get fingers pointed to you regardless.
3) You mention it took years for the Jets and Giants to work things out. Have a quick link to a summary of that financial relationship? Also, in that case, those teams were native and had existing sponsorship/marketing relationship (and therefore revenue streams) similar to the Clippers/Lakers. If two *new* teams go to LA, isn’t there a great risk of competition for sponsors, PSLs, tickets, etc that would suppress pricing and therefore ROI?
1) I agree re: Oakland/San Diego, but I think St. Louis would still be willing to throw money at another team if the Rams left. Or the governor would, anyway.
2) I guess Goodell could have organized the blackmail a little better, a la Selig with the Expos. But as far as the league is concerned, they don’t really care who if anyone moves to L.A. If they end up pocketing $1.1b in relocation fees, I doubt anyone will be too mad at Goodell.
3) There’s competition whether it’s new teams or old. New York and L.A. are big enough, and the number of tickets available to be sold for an NFL season is small enough, that in theory you shouldn’t glut the market too much with two teams. But it’s an untested proposition. (And no, I don’t have a link handy to the Jets/Giants financial deal — I just remember that once the West Side Jets stadium plan collapsed, it was a while before the Jersey plans came together.)
Thanks Neil – I missed that.
But busting up those decades-old, AFL-era division rivalries would surely leave the NFL owners so distraught and choked up they would …
Oh, never mind, these are NFL owners.
It seems easier for the Raiders to move into the 49’ers new stadium. I don’t see why not both San Francisco and Oakland can’t both play in Santa Clara.
Triple negative there, sorry. I got distracted.
“It seems easier for the Raiders to move into the 49’ers new stadium. I don’t see why not both San Francisco and Oakland can’t both play in Santa Clara.”
It makes the most sense, but people around here really seem to hate the idea for reasons I can’t fathom. Also Mark Davis hates it, going against dad’s wishes and all.
guy: The only there are only two reasons I have heard. One is because Levi’s Stadium is thoroughly branded for the 49ers there’s no question the Raiders would be second fiddle. That said long before MetLife Stadium, the Jets moved into Giants Stadium and they mitigated some of that issue there. That said, the Jets always lagged the Giants in fan base and revenue from that point forward, though the new, more neutral stadium has leveled it out a bit.
The other were some form of “Santa Clara doesn’t want the Raiders there”. These range from traffic concerns (though it’s not clear why if that’s the reason they wanted a stadium in the first place) to the reputation of their fans. None of these are very compelling.
This all said, having attended games at both stadiums, I’d prefer the Coliseum. Is it a bit dated? Sure. However, it’s a heck of a lot easier to get to from almost all of the Bay Area and the sight lines in my experience are better than a lot of much newer NFL stadiums, though admittedly Levi’s isn’t too bad either. Getting to and from Santa Clara is a major hassle.
The Gangs of L.A. can’t wait for the return of the Raiders to L.A., Ice Cube Field at Carson will be a great venue to watch the L.A. Raiders.
Neil:
Do you really think that Stl would try to woo another team if the Rams leave (as it looks they will at the moment)?
Their local pols have said the right things and put up an insane amount of money, but part of me looks at what they have actually done and says “they’ve just submitted a qualifying offer to a free agent they know they are going to lose anyway to save face with the general public”.
This sort of thing is most common in Baseball, of course, but it can work in the stadium game too.
I’m not criticizing them for doing this, btw. I think not retaining the Rams is the right decision. But surely they had to know that the NFL wasn’t going to bid against itself by upping the G4 contribution (“hey, bidding against yourself? Nuh-uh, that’s your job”)
I would be surprised if they make any real effort to land another team should the Rams go…. if someone wants to take the “as is” offer they might agree, but I really don’t see another offer coming.