NFL Los Angeles: How LA Move Benefits Franchises, League

When the NFL regular season returns in 2016, football fans in Los Angeles will pile into a stadium under sunny skies, cheering on at least one franchise newly their own. Playing in a temporary venue, the team and its fans will dream about the first game at a shining new stadium and the years to come.

After years of false starts, the news came Tuesday evening that the St. Louis Rams would move to L.A. in a stadium in Inglewood, California, and the Chargers would have a one-year option to join. Should the Chargers not relocate to L.A., the Oakland Raiders could then go to the city. The decision came after NFL owners met in Houston and talked over proposals — one from the St. Louis Rams, a joint San Diego Chargers-Raiders effort, and the Rams-Chargers option that had not been initially proposed by either team — for NFL franchises to relocate to L.A.

On Dec. 24, 1994, Los Angeles saw its last NFL football games, the L.A. Raiders and L.A. Rams each losing in front of sparse crowds at outdated venues, the Coliseum and Anaheim Stadium. Soon, amid dejected goodbyes from fans (especially for the Rams), the teams would ship out of the city. Those same struggles with a home market made it likely that football would come back to the city, as the Chargers and the two prior defectors worked to find a way to L.A.

The trio of franchises with Southern California roots was wagering that a potentially costly move to L.A. will be worth the price tag, betting that a sparkling new stadium will draw big spenders and the larger market will provide persistent stability. After years of serving as a leverage tool for the NFL, helping to get hometown markets to finance stadiums, professional football will now be a reality in L.A. Although the NFL-in-L.A. flopped the first time around, and despite the associated costs with a relocation, at least one owner, and perhaps another, want out of a smaller market in favor of the glamour of a Hollywood move.

"You have three teams in real problem markets … all with the ability to relocate at the same time," said David Carter, executive director of the University of Southern California's Marshall Sports Business Institute, before the official announcement that the Rams were moving. "They believe long-term there's greater financial upside than their home markets."

Greener Pastures

The NFL sent a strong message to Oakland, San Diego and St. Louis the weekend before the owners' meetings when Commissioner Roger Goodell sent a report to the league Saturday, saying the home markets failed to produce viable stadium plans. Meanwhile, Goodell noted that market research indicated L.A. was capable of being a two-team market. Moving at least one, and perhaps two teams, to a gleaming new facility could be a swift solution for two problems. The thought is it would be, "removing a team from a troubled location and at least in theory swapping that out for one with more upside," Carter said.

There's downside as well. The ambitious stadium proposed by the Rams in Inglewood was estimated to cost $1.86 billion, but officials have noted the true cost would be more than $2 billion, making it the most expensive venue in U.S. history, the Los Angeles Times reported. The rejected Carson project for the Raiders and Chargers would have cost well north of $1 billion as well. Further adding to the cost, the NFL was expected to charge a $550 million relocation fee.

Those new stadiums, while costly, are also perhaps the reason three franchises believed they could make it work in L.A. The team would likely be able to sell personal seat licenses to a "big, rich pool of season-ticket buyers," said Victor Matheson, an economics professor who focuses on sports at the College of the Holy Cross in Worcester, Massachusetts, prior to the final announcement. Those agreements simply allow buyers to purchase tickets, and funded a large part of the San Francisco 49ers' recently built Levi's Stadium.

An L.A. team would also hope to sell luxury boxes in a new stadium to both wealthy buyers and corporations. Bloomberg ranked L.A. as one of the 20 richest cities in the U.S. and a study by American city Business Journals found the city was the most attractive landing spot in the country to bring in an NFL team. The potential is there.

Luxury box seats are where the real money is made because franchises keep a large portion of the high ticket price, compared with the high percentage of regular tickets' haul that is forked over to the NFL, Matheson said. There are more possible buyers for those seats in a new venue in a massive city than in outdated facilities in smaller towns like St. Louis or San Diego. That's in contrast with the situation in 1995, when L.A. saw middling on-field play coupled with poor facilities.

"The stadiums that they had in LA [in the '90s] were designed to accommodate lots of people buying regular tickets, that wasn’t great because it was hard to attract those super-high-buck [buyers]," Matheson said.

L.A.'s Value

The simple size and allure of L.A. can boost the value of a franchise, which would benefit the league, its owners and, of course, the relocated team. Forbes, for instance, valued both L.A. NBA franchises — the Clippers and Lakers — to be among the top five in the league. Matheson said the common prediction among economists is that the Chargers, Rams or Raiders would see their valuation jump at least $500 million by moving.

"The net gain in franchise value from L.A. relocation for each of the [three] candidates would probably be in the range of $800 million to $1 billion," John Vrooman, a sports economics professor at Vanderbilt University in Nashville, Tennessee, wrote in an email Tuesday afternoon. That would represent a sharp uptick for three franchises valued toward the bottom of the NFL.

Overall, the league has grown rapidly. Over the past 11 years, factoring for inflation, the revenue shared among NFL teams has grown 120 percent, largely on the back of lucrative national television rights deals. The league could see a slight uptick in its television deals by having L.A. in its fold, although the deals are already massive and ratings incredibly high.

The NFL and its owners have long used a potential Los Angeles move as a tool to convince cities to build new stadiums that often cost taxpayers but boost the worth of the league. More than half the NFL's franchises have been linked to L.A. over the past two decades, either out of real interest or as a threat to gain leverage, ESPN reported. But this year the situation was different as Rams owner Stan Kroenke spurred other owners to take real action toward making stadium proposals by announcing his plan to build in L.A. last year.

And while there have always been questions if the sunny city is conducive to breeding extremely dedicated fans, the overall potential of the city is relatively high. Two decades later, the NFL will again court the dollars of millions of Angelenos, leaving behind at least one smaller market.

"You can make a team work in a small market," said Andrew Zimbalist, a sports economics professor at Smith College in Northampton, Massachusetts. Everyone makes money in the NFL, he said, but sometimes making it work isn't enough. More is always better.

"If you have a larger market and a new stadium you can make more money," Zimbalist said.