The lessons I learned from my grandfather have stuck with me. One in particular came to mind when I read the announcement by San Diego Chargers owner Dean Spanos that the team would dessert a loyal fan base in San Diego for Los Angeles.
Maine was once home to a number of smelly, toxic-spewing paper mills. One day as my grandfather and I were traveling through a mill town I made an unflattering comment about the putrid stench. My grandfather opined that the workers in the mill were able to support their families with their hard-earned paychecks and to them, the money didn’t smell. He counseled me that money is money, regardless of where it comes from, a fact that also applies to the Chargers’ move.
Spanos has spent the past 15 years trying to convince the citizens of San Diego to build him a new stadium with taxpayer funds. After voters soundly rejected his most recent proposal, Spanos made good on a threat he made in advance of the vote: He was reluctantly exercising his option to become a tenant in the Los Angeles Rams’ new stadium in Hollywood Park.
So why does an owner who doesn’t want to move relocate to a city that doesn’t want his team, where he will play in a stadium being built by an owner who doesn’t want to share it?
In the short term, the move will cost Spanos money, gobs of it. He will pay the NFL a $550 million relocation fee over ten years. In addition, the next two years will see a substantial decline in operating revenue. The team will play in 30,000 seat StubHub Center, by far the smallest stadium in the league and less than half the capacity of the team’s current home, Qualcomm Stadium. Although the Chargers will be able to increase ticket prices in LA, that won’t offset the lost revenue from the live gate.
However, in today’s NFL, ticket revenue makes up an ever-decreasing percentage of a team’s revenue. The lion’s share of revenue comes from the league’s Central Fund - mostly national media rights - which is shared equally among the 32 teams. As an example, the Green Bay Packers, playing in the smallest market in the league, receive as much from media rights as the teams playing in the largest markets, New York and LA.
If he really wanted to stay in San Diego, Spanos, who is a multi-billionaire, could dig deep into his own pocket to come up with stadium construction funds. But that isn’t how sports business is played at the professional level, the Rams being an exception. Owner Stan Kroenke is funding his team’s palace because the real estate upside will more than cover the cost.
The Chargers are about to embark on a marketing nightmare. They are moving to an area that until last year hadn’t had an NFL team for over two decades. Now, what few NFL fans there are in the area will have two teams to root for, neither of which has been very good of late. Throw in the fact that the LA sports market is over-saturated and it’s difficult to see how this move pays off for Spanos, until you fast forward to his end game.
From a financial perspective, winning in professional sports no longer matters. When the Rams moved to LA last year, Forbes estimated that the franchise value doubled, from $1.45 billion to $2.9 billion. The move also inflated franchise values around the league, with the Chargers’ value rising 53% to $1.53 billion. If that figure doubles next year, when Spanos decides to sell the team he will recoup his relocation fee and the loss of game day revenue by at least threefold.
The lesson here is a fancy new stadium in a much larger market trumps loyal fans in the seats. As my grandfather knew, at the end of the day money is money, no matter how it’s earned.
Jordan Kobritz is a former attorney, CPA, Minor League Baseball team owner and current investor in MiLB teams. He is a Professor in and Chair of the Sport Management Department at SUNY Cortland and maintains the blog: http://sportsbeyondthelines.com The opinions contained in this column are the author’s. Jordan can be reached at firstname.lastname@example.org.