Why NFL teams should think twice about coming to LA
The city of Carson, California approved plans Tuesday night for a $1.7 billion NFL stadium to be shared by the Raiders and Chargers, the second NFL facility green-lit in as many months in Southern California. In February, Inglewood approved a $1.8 billion stadium for the St. Louis Rams to be built near Los Angeles International Airport.
Almost four million people live in Los Angeles, compared to 1.3 million in San Diego, or 318,416 in St. Louis — but in the NFL, bigger is not necessarily better.
Just ask the Green Bay Packers. Forbes ranks the Packers as the 13th most valuable NFL franchise out of 32 teams, even though they play in the tiniest market.
“It’s actually surprisingly profitable to host an NFL team in small cities,” says Victor Matheson, a sports economist at College of the Holy Cross. “Most of the revenue streams that an NFL team gets are shared equally among all teams in the league, which means a team operating in Los Angeles or New York City gets exactly the same share of the TV rights and merchandising as a team in Jacksonville or St. Louis.”
Tickets are split 60-40 between the home and away team, and all the revenues from jerseys and hats are pooled.
The NFL brings in enormous television rights fees of upwards of $6 billion a year, but all teams get the same cut: an estimated $187.7 million a year. By contrast, the Los Angeles Lakers and Los Angeles Dodgers are the first and second most valuable franchises in their respective leagues, according to Forbes. That’s due, in part, to their lucrative local cable contracts: $122 million a year for the Lakers and $210 million for the Dodgers.
“In other sports, you go to a major market and you can get untold cable riches from having a local cable deal,” says Neil deMause, who edits the sports business site Field of Schemes. “That’s just not an issue in the NFL.”
What is a big issue is public financing, which smaller markets tend to be more generous with. Politicians in San Diego and Oakland are scrambling to come up with plans to keep the Chargers and Raiders in town, and Missouri Governor Jay Nixon has proposed extending state and local bonds to provide hundreds of millions in financing to keep the St. Louis Rams from returning to Los Angeles.
“If Missouri comes up and says ‘Hey, we’ll kick in half the cost,’ that’s going to be awfully tempting,” deMause says.
Los Angeles is not offering public financing, which helps explain why an NFL team hasn’t played here for two decades.
Moving West
In the case of Rams owner Stan Kroenke, moving West could get very expensive. The financing details are murky, but deMause says it’s hard to imagine a scenario where Kroenke would be spending much less than a billion out of pocket — and that’s not even including a relocation fee the NFL charges, which could tack on another billion.
“I’m not saying that Kroenke is absolutely bluffing, but I think it’s safe to assume that when any owner in the NFL says, ‘I’m going to move to L.A., and I don’t care if I have to spend my own money,’ it’s safer to assume bluff until proven otherwise,” deMause says.
So why would any NFL owner want to come to LA then? For one, there’s nice weather, but more important is the ability to sell premium seats and luxury boxes. They’re exempt from revenue sharing and have become an important tool to finance stadiums. There, L.A does have a big advantage, says Scott Spencer, President of the Suite Experience Group, a luxury box reseller.
“While the Rams and St. Louis have done a good job selling their suites, you’re going to see it go to a whole new level if they move to Los Angeles,” says Spencer. “Individuals – especially in Hollywood – they want to be in the ‘in spots.’ They want to be seen on the floor at Staples Center and so they’re going to be in suites in an NFL venue. In St. Louis, it’s frankly a different mindset, and businesses there just don’t have the funds to spend on luxury suites.”
Scott says that means the Rams could double the price of each luxury box if they were in LA, and have twice as many boxes. A nice stadium is important for keeping suites full, but the most important thing? Just win, baby.
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