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http://www.nytimes.com/2016/01/16/sport ... -rams.html



Sports Business

By JOE NOCERA JAN. 15, 2016
Photo
The Rams are leaving the Edward Jones Dome in St. Louis to return to the Los Angeles area. Credit Laurie Skrivan/St. Louis Post-Dispatch, via Associated Press

Don’t cry for St. Louis, sports fans.

The departure of the Rams to Los Angeles, from whence they came two decades ago, is something for the city’s residents to cheer, not bemoan. St. Louis got lucky.

Sure, professional football fans in St. Louis are going to miss the Rams. Though they have been lousy in recent years, they had some great seasons in St. Louis. From 1998 to 2003, Kurt Warner — one of the greatest undrafted players in N.F.L. history — set the city on its ear, winning two M.V.P. titles as the Rams quarterback and leading the team to a Super Bowl victory after the 1999 season.

But the economics underpinning the recent deal St. Louis and the state of Missouri tried to put together to keep the Rams would have been financially ruinous. Let’s not be coy about this: St. Louis, a city of fewer than 320,000 people, with a shrinking tax base, simply couldn’t afford to help finance the $1 billion stadium the Rams’ billionaire owner, E. Stanley Kroenke, was seeking. Its mistake was in trying.

Stadium financing has always been a struggle for St. Louis. In 1995, hoping to attract an N.F.L. franchise, the city, the state and the county built what was essentially a spec stadium, originally called the Trans World Dome. (The naming rights later shifted to Edward Jones, the financial services company.) The facility was paid for entirely with public funds, with the three entities agreeing to repay $258 million in bonds. The city’s share of that was $6 million a year, which it expected to generate from so-called game-day taxes — that is, taxes on everything sold inside the stadium during a game.

In recent years, those game-day taxes have consistently fallen short, amounting to around $4.8 million a year, according to Andrew Arkills, a financial analyst who dissected the numbers for stadium opponents. The difference was being paid out of the city’s coffers, meaning that those were tax dollars not going to the police or teachers or city services.

In 2002, angered by the prospect of large public subsidies for a new baseball stadium being planned for the Cardinals, the voters in the city and the far wealthier and more populous county passed referendums that required voter approval to use taxpayer funds for a St. Louis sports facility.

But professional sports owners are constantly agitating for bigger, better, more profitable stadiums, and that was hardly going to change with the passage of a mere referendum or two. Indeed, the essential professional sports business model is to push governments to use public subsidies to cover as much of the cost as possible. Just as with any big company, threatening to leave for another city is a time-honored way for sports franchises to extract such monies. (Although, unlike General Electric, which just announced its relocation to Boston, there is little evidence that professional sports franchises offer lasting economic benefits. They do however, add value in terms of civic pride and in-person entertainment.)

You can argue until you’re blue in the face that billionaires shouldn’t seek public handouts to build sports stadiums. But using other people’s money is precisely why they’re billionaires. (Kroenke, I should note, is a somewhat different case; his considerable net worth is bolstered by his marriage to a Walmart heiress.)

Kroenke and the Rams had a clause in their lease allowing them to leave for another city if the Edward Jones Dome dropped below the top tier of N.F.L. arenas. This clause gave them the leverage to demand public assistance for a planned new stadium, as new arenas like “Jerry’s World,” Jerry Jones’s $1.15 billion AT&T Stadium for the Dallas Cowboys, dwarfed the Dome, financially and aesthetically.

Kroenke also had the threat of Los Angeles, which is the nation’s second largest television market, and which has lacked a team since the Rams and Raiders left 20 years ago. It is also a city that any number of N.F.L. owners have threatened to leave for in their (mostly successful) efforts to extract public financing for new stadiums.

Kroenke’s threat was different, though: A realtor as well as a professional sports owner, he had bought a large tract of land in the Los Angeles suburb of Inglewood. At the same time, the San Diego Chargers and the Oakland Raiders, both of which were also unhappy with their stadiums, were publicly eying Los Angeles.

The contortions St. Louis and the state of Missouri put themselves through to keep the Rams would be comical if they weren’t so sad. The city went to court and got a ruling that voided the law calling for voters to have a say in the granting of public subsidies, which infuriated taxpayers. The county, rather than calling for a vote of its citizens, dropped out. The governor, Jay Nixon, put together a task force to save the Rams.

The city, which originally put up $70 million, ultimately agreed to pay nearly $150 million — money it didn’t really have. Remember that game-day tax? Instead of using it to pay off the bonds on the Dome — $100 million of which is still owed — it cravenly agreed to turn it all over to the Rams. The state cut a naming-rights deal with National Rental Car for $158 million — money it was going to turn over to the team. Jerry Jones, who wanted the Rams back in Los Angeles, sniffed that $158 million wouldn’t buy a lobby in L.A.

The N.F.L. claims that St. Louis always had a real shot at retaining the Rams, but that’s hard to believe. Kroenke had devised plans not just to build a stadium in Inglewood but a huge N.F.L. complex, which would include retail, hotels, the whole bit. It was a real estate play as much as a football stadium play.

And in their application to the N.F.L. to relocate to Inglewood, the Rams sneered at the St. Louis proposal.

“The public contribution is only $355 million — less than the $400 million” the Rams had been promised, it said.

“All of the costs of stadium operations and Capital Expenditures funding have been shifted” to the Rams for the next 30 years.

“The rent and operating structure are 20 times what the Rams pay now.”

The heart bleeds.

The truth is, whatever the deficiencies of the city and state’s proposal, it was more than the city, especially, could bear. It would have broken St. Louis’s back, and quite likely forced cutbacks in service that the city badly needs. And it raises the question of whether cities should really be in the business of subsidizing sports facilities. Is keeping a football team more important that putting police on the street? More important than giving teachers raises?

Of course not. But mayors and governors can’t bring themselves to tell a team good riddance when it threatens to leave. Instead, they move heaven and earth to keep the team — even if, as in the case of St. Louis, they can’t afford it. That’s why the pro sports business model works so well. It relies on the expectation that government officials will panic at the thought of losing a team.

Two final notes.

First, in case you’re wondering, Kroenke and the Rams are not getting a penny in public money from Inglewood, Los Angeles, or California, even though the stadium they are building is quite likely to exceed $2 billion. This may seem astounding, given their demands in St. Louis, but it’s not. The Inglewood stadium has the potential to be far more profitable than any new stadium in St. Louis. And St. Louis never had the real estate possibilities that Inglewood does. In St. Louis, Kroenke was the owner of the Rams. In Inglewood, Kroenke will be the owner of the Rams plus the developer of a retail and entertainment complex that Jerry Jones has described as Disneyland for professional football. Kroenke is putting up $800 million in equity. That’s what developers do. Not that he’s going to go broke if it turns out he made a bad bet.

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Second, there is the question of what is going to happen to the other two teams vying for Los Angeles, the Chargers and the Raiders. The two teams jointly put their chips on a different site near Los Angeles, in nearby Carson. They lost. One of them will almost surely become a tenant of Kroenke’s in Inglewood; Kroenke envisions having two teams play in his new $2 billion sandbox.

It is not likely to be a pleasant prospect. Kroenke is a tough negotiator, and he will also be able to maximize the value of his stadium in a way that his tenant will not. Dean Spanos, the San Diego Chargers owner, in particular, finds himself in a terrible spot. For some 14 years, he has been trying to get a new stadium built in San Diego. He’s gotten nowhere, and his constant agitation over the issue has made him a pariah in San Diego.

In the same meeting in which the N.F.L. owners voted for the Kroenke-Inglewood proposal, they also agreed to give Spanos up to a year to decide whether he would join Kroenke in Inglewood. The word is that Spanos doesn’t want that; given the Rams’ long history as a Los Angeles team, the Chargers would always play second fiddle. And Kroenke would be his landlord.

His best bet, really, would be to use that year to put together a financing package for San Diego, where the Chargers have played since 1961. Last summer, the city and county said they would put up $350 million, money that they were going to have to spend (over decades) refurbishing Qualcomm Stadium, where the team currently plays. The voters would have to approve it, however, and it might also have to get through a difficult environmental review. Spanos, believing the offer was a delaying tactic meant to keep the Chargers out of L.A., ignored it.

He still has the leverage that Los Angeles affords, but that leverage runs both ways. Everyone in San Diego can see that he’s in a pickle. And voter sentiment is such that a stadium proposal is an uphill battle. Whatever Spanos does next will make for fine grist for a sports business columnist. Who knows? Maybe he’ll move the Chargers to London.

As for St. Louis, after the N.F.L. agreed to let Kroenke move the Rams to Los Angeles, a disgusted Francis G. Slay, the mayor of St. Louis, wrote a blog post, which he ended by saying, “I have no real interest in the N.F.L.”

Better late than never.