Sources: NFL unhappy with downtown L.A. plan
Despite significant political momentum throughout California for a downtown Los Angeles stadium that would house an NFL team, the league had a recent message for people involved with the project:
Right now, no thanks.
During a Sept. 6 meeting at the NFL offices in New York, commissioner Roger Goodell told Los Angeles Councilwoman Jan Perry and political aide Bernard Parks, Jr. that neither the league nor any team interested in moving there would agree to the business proposal set forth by Anschutz Entertainment Group, according to three sources with knowledge of the conversation. AEG is the private company that has offered to build and operate a retractable-roof stadium, which would be named Farmers Field, on the site that is currently part of the Los Angeles Convention Center.
While one source said that Goodell was optimistic about many parts of the proposal, it was clear that significant changes must occur before the league would be interested.
“He was very complimentary of a lot of the project, so it wasn’t all negative,” a second source said. “But he laid out the problems the league sees.”
Both Perry, who is the chair of the city’s committee on the proposed stadium, and Parks, the chief of staff for his father and L.A. Councilman Bernard Parks, Sr., confirmed that they met with Goodell last month. Neither of them would discuss what Goodell said about the proposal from AEG.
“I wouldn’t want to share the details of the conversation,” Perry said Wednesday. “We had a good, get-acquainted session and I discussed with him the MOU [Memorandum of Understanding] we had passed in the city.”
“It was mostly about updating the league of the situation within the city and everything concerning the project to that point,” said Parks, whose father worked for almost five years to get the NFL to return to the Los Angeles Coliseum and now supports the project at the nearby convention center.
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An NFL official acknowledged the meeting occurred, but declined to discuss the specifics.
AEG spokesman Michael Roth also declined to comment about the meeting between Goodell, Perry and Parks. The company also declined to have a financial officer discuss further specifics about the deal. Roth, however, did say AEG is still committed to paying in the area of $1.3 billion for construction of the new stadium, parking structures and other costs associated with the project. AEG has also made wide-ranging promises on covering other expenses related to the project, which will include expansion of the Los Angeles Convention Center.
Since last month’s meeting, the California legislature has passed SB 292, a measure subsequently signed by Gov. Jerry Brown that eases many of the legal burdens to getting the stadium done. The developments have been impressive, but the NFL and team officials have been focused on how the plan would work for a franchise that relocates to L.A.
“I give the politicians in California a lot of credit for what they’ve been able to do so far,” said an NFC team executive with extensive knowledge of the state and particularly Los Angeles. “What they’ve done is tee it up for the NFL and the private sector to get something done and that’s no small feat … but the hard work is still left to do. Making the numbers work is going to be really hard.”
Next Tuesday, the NFL will hold its annual fall meeting in Houston. Although Goodell has said several times in the past two years that getting a team in Los Angeles is a league priority, the owners are expected to spend little time talking about the downtown project or a competing proposal from Los Angeles developer Ed Roski. In fact, only about 30 minutes of the agenda is expected to be spent discussing new stadiums. There are roughly six stadium situations throughout the league to discuss and no one from Los Angeles will be there to officially talk to the owners.
One underlying question regarding the NFL’s stance on the downtown site is whether this is simply part of negotiations. Another question is whether the NFL has pushed the downtown idea completely aside in favor of Roski’s project in the City of Industry (that project has been renamed the Los Angeles Stadium at Grand Crossing).
“If Roski were to put together a favorable package, I think this thing could get done there pretty fast,” a league source said. Last Sunday, CBS NFL insider Charley Casserly hinted that Roski’s site could be pulling ahead.
“What’s interesting about that site is that it’s a 600-acre site which would be totally devoted to football,” Casserly said. “In other words, you’ll have plenty of room for the stadium, parking, entertainment, the ‘NFL experience.’ Sounds like a Super Bowl site to me.”
Still, anyone who understands the emotional side of returning a team to Los Angeles knows the attachment to the downtown site over Roski’s, which is approximately 20 miles east of the AEG site. While that seems reasonably close, traditional Los Angelenos often look down their nose at places such as the City of Industry, as if they are little more than the butt of some old Johnny Carson joke.
That said, finances usually trump emotions, particularly as the NFL tries to decipher the economic realities and the billions of dollars at stake. Moreover, the change in demographics in Southern California over the past 20 years has made other sites more feasible.
What AEG is proposing is a landlord-tenant relationship it has successfully developed with the Los Angeles Lakers, Clippers and Kings. All of those teams play at the Staples Center, which is across the street from the proposed stadium. In essence, AEG sells the tickets, advertising and sponsorship deals for those teams, takes a cut and then pays the teams. The deal works well because none of the teams had the capital to build a Staples-style arena.
The NFL, however, is a different beast. Five NFL team executives have said over the past two months that what AEG is asking for is not acceptable for an NFL team.
“You’re talking about a team being disconnected from season ticketholders and rights holders,” another NFC team executive said. “There’s no team that will do that and I don’t think you can get approval from the rest of the owners for an arrangement like that.”
Moreover, there is a simpler issue: NFL teams don’t need to cut such deals to give part of the profit to another entity, let alone watch some of the money go to a third entity. As part of the MOU, Los Angeles would be paid a “market-value” lease by AEG for the property the stadium sits on. Perry noted that the lease, which runs for 55 years, includes “escalators.” In short, the city is also seeking to make money on the stadium.
“The NFL is in a position to demand what it wants, not take what it gets,” an AFC team executive said. “When you look at the analysis of the revenue that could be made, it looks great. You’re talking about some of the highest revenues in the league. The problem is that when you start to look at the expenses and how much has to be divided among all the competing interests, you have to wonder how much is going to be there for a team.”
That point is backed up by the independent analysis done by Conventions, Sports & Leisure, International (CSL). The report, which was commissioned by the city and was completed in July, points out that the debt service for building the structure could impact what the team ultimately makes.
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“The projected combined net income from operations between the Stadium and the Team would equal more than $107 million in 2016 dollars. This would be among the highest in the NFL,” CSL wrote. “However, this does not take into account any debt service payments on the stadium, acquisition of the team or any relocation fee that would be required to move an existing franchise to Los Angeles.”
For instance, a “relocation fee” that would have to be paid to the other owners could be as much as $250 million, according to numerous sources. CSL mentioned that it could be as much as $500 million, but one source said that was too high.
“Understand that the league is motivated to get a team back there, not punish it for moving the way we used to,” the first NFC team executive said. “But there will be some fees and $250 million sounds about right … of course, you would probably ask the city or, in this case, AEG to pay that fee.”
Another potential problem is that cost overruns for the stadium could have a huge negative impact. CSL called the cost estimates for the stadium “conservative” and one high-end builder said this week that the estimates “are simply unrealistic.” The builder said the project could easily hit $2 billion, particularly once traffic and other environmental issues were solved.
While that is still AEG’s money to spend, the ripple effect is a concern to NFL teams.
“What kind of stadium are you really going to end up with and how does that impact the cash flow?” the builder said. “Unless somebody is building something out of the goodness of their heart – and that doesn’t happen a lot in these circumstances – then there’s going to be a lot of red ink at the end to deal with and that’s not good for anybody in this kind of project.”
Aside from decreasing how much a team can make year over year, there is the macro impact on the value of the team. That is perhaps the key component in the entire process, as the first NFC executive pointed out.
“The way the NFL is now economically, teams don’t move just to get a better deal,” the executive said. “It’s not just about whether you can make another $10 million a year because teams are already doing well. Teams don’t move for better deals anymore … if a team is going to move it’s because the value of the team is going to jump and jump significantly.”
In short, as the average team value has moved past $1 billion per year, teams such as the Jacksonville Jaguars, Buffalo Bills, Oakland Raiders and Minnesota Vikings are still looking for ways to improve value, if for no other reason than to improve resale value.
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That second part leads to another issue that NFL owners have recoiled at: The effort by AEG to buy equity in a team at a perceived discounted price. Part of the deal AEG, which is owned by multi-billionaire Phil Anschutz, has proposed is that Anschutz gets to buy a part of a team that moves there. This is similar to what Roski had initially proposed in 2007 and 2008.
Like Roski’s initial concept (from which he has backed off), Anschutz has offered teams such as the San Diego Chargers roughly $250 million to buy approximately 50 percent of a team, two NFL sources said. In an earlier conversation, Roth confirmed that AEG is seeking to be a “minority” owner in whichever team moved to Los Angeles, but declined to discuss the specifics and took issue with the notion of the term “discounted.”
“I think that’s something to be decided between Mr. Anschutz and the owner of whatever team decides it wants to come to Los Angeles,” Roth said.
The gamble by Anschutz is that his $250 million investment could quickly be worth much more.
For instance, Jacksonville, often mentioned as a potential suitor for Los Angeles, is currently valued at $725 million, according to Forbes magazine. Off the top, Anschutz investment of $250 million would be worth $362.5 million if he bought part of the Jaguars. Once the team moved to Los Angeles, the belief by many is that it could be worth $1.3 billion or more. Dallas Cowboys owner Jerry Jones, who is a business partner of AEG, has said in the past that a Los Angeles franchise could be worth upwards of $2 billion.
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If the franchise were worth merely $1.3 billion, Anschutz’s share would be worth nearly $650 million. That’s approaching triple the initial investment. If the team were to be worth what Jones estimates, $250 million quickly becomes worth $1 billion. That means that Anschutz’s investment in the stadium could be offset by the increase in his investment in the team.
Conversely, the NFL anticipates that Anschutz’s L.A. Live development, which includes the Staples Center, Nokia Theatre, a JW Marriott hotel, a Ritz Carlton condominium complex and numerous high-end restaurants and clubs in the area adjoining where the stadium would go, would increase exponentially.
“The question [Anschutz] has to ask himself is how much is he willing to invest for the payoff he’s going to get on L.A. Live,” the league executive said.
That makes it even less likely that some team owner would be willing to sell part of his team to Anschutz, or at least any significant portion. The problem is that those numbers don’t work for the NFL. It makes no sense for an owner to move to Los Angeles if it has to sell half the team at a discounted rate while the value of the team does not increase dramatically.
“If I were advising a team, I would be hard pressed to tell them to sell a significant portion of equity in their team,” said Marc Ganis, the president of SportsCorp, a sports consulting group. “With the collective bargaining agreement that was just signed and the certainty in cost that exist now, you’re really going to see team values increase drastically without having to do something like moving the team and taking that kind of risk.
“Unless you’re going to see the team immediately jump in value to $1.5, $1.6 or $1.7 billion, there’s no reason to go to Los Angeles. It’s very hard to envision that with the kind of deal that it sounds like is out there. Really, unless that’s the case [where the team value goes], if an owner really wants to go to Los Angeles, I would tell him … “
As Ganis paused, a reporter sarcastically said, “Buy a ticket.”
“Sometimes the best advice is the obvious advice,” he said.
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