The National Football League could reportedly charge Rams owner Stan Kroenke $650 million to move his team from St. Louis to Los Angeles. While rents in glitzy L.A. are undoubtedly higher than in staid St. Louis, that seems a tad steep, especially considering how much benefit the league should reap from having a team in one of the country's largest markets for the first time since 1995, when the Rams and Oakland Raiders left.
The number seems especially high when you contrast it with the $29 million Kroenke paid to move the team to St. Louis in the first place and the $29 million the Cleveland Browns paid to relocate to Baltimore, also in 1995. Even considering that the league is projected to bring in over $12 billion this season, a huge increase from the $1.62 billion it generated in 1995, it seems like the enormous relocation fee was picked at random.
Does the NFL have a plan, or is it simply a group of 32 rich guys making it up as they go along?
The charge to Kroenke is likely to be spread over a number of years and likely encompasses a variety of factors, including difference in team value in St. Louis vs. L.A., the increase in season ticket sales expected from a new arena and the increase in media revenues from having a team in the country's second largest market, among other things, according to Sports Value Consulting's Michael Rapkoch, who works with the major sports leagues in doing valuation work.
But with the NFL's cryptic and tight-nit nature, the particulars of how the league came up with the potential fee remain unknown. Neither the league nor specific teams returned requests for comment.
Rapkoch explains that the league's 2011, $28 billion national media contract could be renegotiated to higher levels with a team in L.A. He said the league could also take into account an increase in revenue share that would result from a team in the nation's second largest media market. The fact that Kroenke has said that he would be willing to fund the majority of a new L.A. stadium's $1.8 billion in estimated costs also sweetens the deal.
John Vrooman, a professor of sports economics at Vanderbilt has his own theory about where the NFL may have come up with its number.
According to data provided by Vrooman and Vanderbilt, the Rams in Los Angeles would be worth about $2.55 billion. In St. Louis, the team would carry a valuation of about $1.47 billion in its current home (a number that rises to $1.75 billion in a proposed new stadium).
The data show that the team projected about $300 million in revenue per year in St. Louis ($100 million in local revenue and $200 million in national revenue and visiting ticket gates revenues) compared to $500 million in LA. The increase would be mainly due to an expected spike in suite sales and local sponsorships, according to Vrooman. Operating profits would increase to about $222 million, from $75 million.
"If these gains were split evenly between the relocating club and the League, then the relocation fee could approach $400 million to $500 million," said Vrooman. "A fee of $650 million reportedly being entertained by the rest of the NFL owners at the time the relocation was approved would capture 65%-to-80% of the potential gains."
According to a lawyer who has worked with the league on various transactions and team sales, the task of deciding the relocation fee gets even more cloudy if the Rams are not the only team to move to L.A. Alex Spanos, long time owner of the San Diego Chargers, and Mark Davis, the Oakland Raiders' owner, are also vying for a spot in L.A.
"If Kroenke has to share the market, the team is simply not as valuable," said the lawyer, who didn't want to be named because it might jeopardize his relationships. "The one team markets are typically better suited to capture season ticket sales, sponsors. Would Kroenke share the fee with Spanos or Davis? would there be a separate fee? Would they share in the costs of the stadium? There would have to be more discussions around the fee if that were the case."
The truth is, the NFL can probably command any fee it wants, for pretty much any reason.
"If the league wants to get $500 million, they can justify it," the lawyer said. "If they want to get more, they can likely justify it as long as its not a punitive fee. Getting a team back to L.A. has been a goal of the league for 21 years. Getting a team in the second largest market benefits everyone, even if there's a fee."
"The NFL will probably defy all pretzel logic and set the fee at $620 million or $20 million easy money-for-nothing for each non-Kroenke member of the monopoly cartel -- just because they can," Vrooman said.
Choosing a nice, round number has a precedent.
Kroenke is proposing to move his team back to where it came from. At that time, the league came up with a $27 million fee by taking the visiting teams' share (34%) of the $80 million in season ticket licenses sold by the St. Louis Convention & Visitors Commission (SLCVC). Vrooman suggests the 34% was an arbitrary number that made a nice round number (about $1 million for each of the remaining 29 clubs at the time).
After paying $1 million per own to move to St. Louis from L.A., having to pay $20 million per owner to move back, one wonders if Kroenke wishes he never left.