Business & Economy

NFL to LA: Moving to LA won't be easy choice for Kroenke

If he stays in St Louis, Stan Kroenke may only have to come up with $450 million for a $985 million new riverfront stadium, a fraction of what he would have to spend in L.A. About half his share could even be financed with loans from the NFL.
If he stays in St Louis, Stan Kroenke may only have to come up with $450 million for a $985 million new riverfront stadium, a fraction of what he would have to spend in L.A. About half his share could even be financed with loans from the NFL.
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Construction is set to begin at the end of the year on a new $1.8 billion 80,000 seat NFL stadium in Inglewood. Sometime around then, if not before, St. Louis Rams owner Stan Kroenke will have to decide whether he wants the team to move to Inglewood, or stay in St. Louis.

On its surface it appears to be an easy decision; More than 13 million people live in greater Los Angeles, compared to 2,801,056 in St. Louis. Put another way, if you take just the Inland Empire area of Southern California, about a million and a half more people live there than in greater St. Louis.

But in the NFL, bigger is not necessarily better, as Green Bay can attest. Forbes ranks the Packers as the 13th most valuable NFL franchise out of a total of 32 teams, even though they play in the tiniest market.

“It’s actually surprisingly profitable to host an NFL team in small cities,” said 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 merchandizing 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 Lakers and Dodgers are the first and second most valuable franchises in their leagues, respectively, 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.

A big exception to revenue-sharing

But there's no revenue sharing when it comes to premium seats and luxury boxes. That is where L.A. has a huge advantage, according to Scott Spencer, President of Suite Experience Group, a suite 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,” said 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.”

Spencer estimates the Rams could easily double the price of each box to $30,000 in L.A., and they would have twice as many boxes to sell.

Fans who want the best tickets would have to first purchase personal seat licenses in advance, which other teams have sold for amounts in the six-figures. These PSLs have become a popular way of financing new construction – such as the San Francisco 49ers new Levi’s Stadium in Santa Clara.

John Vrooman, an economist at Vanderbilt University, believes the Rams could earn $400 million from licenses in Inglewood, twice as much as they would get in a new stadium in St. Louis. 

"Bottom line, The Rams would be worth $1.5 billion with a new venue in St. Louis compared to about $2.4 billion in L.A." said Vrooman. Here's how he came to that figure:

Neil deMause, who edits the sports business site, Field of Schemes, is skeptical of how well such licenses would sell in L.A.

“The 49ers had the advantage that they were selling personal seat licenses to fans right after they went to the Super Bowl, and they had a huge fan base there," said deMause. "The Rams have some fan base in L.A., but it’s not the same thing.”

Leaving St. Louis could be expensive for Kroenke

"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,” said deMause.

Developers of the $1.8 billion Inglewood stadium have promised no public money will be used to build it. No financing details have been released, but deMause says even after PSLs, naming rights, and other income, it’s hard to imagine a scenario where Kroenke is spending much less than a billion out of pocket, and that’s not including the NFL’s relocation fee, which could cost him another billion. It adds up, even for someone as rich as Kroenke, who is the eighth-biggest landowner in the country.

“He’s not the kind of guy who seems like he’s so attracted to the Hollywood lifestyle, and that he’s dying to go there even if it’s going to cost him a ton of money," said deMause. "He’s not a Steve Ballmer.”

If he stays in St Louis, Kroenke may only have to come up with $450 million for a $985 million new riverfront stadium, a fraction of what he would have to spend in L.A. About half his share could even be financed with loans from the NFL.

Missouri’s governor, Jay Nixon, has proposed much of the rest of the $985 million – $350 million –  would come from extending existing bonds, $200 million of which were originally intended to finance a state hospital for the severely mentally ill. 

“If Missouri comes up and says hey, 'we’ll kick in half the cost,' that’s going to be awfully tempting, I would think," said deMause. 

But it’s unclear if Nixon can come up with the money. He didn't respond to multiple requests for comment. Jim Woodcock, a spokesman for Missouri's stadium task force declined to make anyone available for comment.

The St. Louis Post-Dispatch reported Tuesday that St. Louis County, which could have contributed $6 million, will not be part of a financing plan.

Last week, Missouri's senate approved a measure barring the governor from extending bonds without a public or legislative vote.

In cash-strapped cities and states around the U.S., public financing of stadiums is increasingly unpopular, and St. Louis is, after all, a baseball town.

“If the Cardinals were leaving, it would probably be much more cataclysmic,” said Jason Rosenbaum, a reporter at St. Louis Public Radio covering the Rams possible move. 

If Missouri doesn’t come up with a substantial amount of public financing, Kroenke’s choice becomes much easier.