Tuesday, Feb. 10, 2009 | In the Chargers’ ongoing search for a new stadium, timing could be everything.
If the team leaves San Diego before its contract ends, the team is required to pay the city a termination fee, which numbers $54.6 million in 2010 but drops to less than half of that in 2011.
At the same time, NFL owners and players are wrangling over a contract that now calls for the 2010 season to be played without a salary cap, a financial ceiling that is credited with creating a relatively even playing field for teams in markets large and small. Without a cap, the Chargers’ argument that they need a new stadium to be competitive in the league could be bolstered, and the economics of football could be shifted closer to that of baseball, where stadium revenues play a larger role in a team’s win-loss record.
“We already view this as an important situation to resolve,” said Mark Fabiani, the Chargers’ special counsel, of the stadium search. If there was no salary cap, he said, “it would become an urgent situation.”
Fabiani declined to say whether that would make the team take a harder look at the Los Angeles area, where a friend of the Chargers’ owner is planning to build an $800 million stadium complex in the City of Industry.
“I can’t speculate about that,” he said, noting that the salary cap issue is still up in the air.
To be sure, the prospect of an uncapped league is not likely to be a major consideration in a potential move, compared to factors such as the feasibility of the Industry stadium proposal and the attractiveness of the Los Angeles market as a whole. But it could add an intriguing undercurrent to the stadium search, where local efforts have mostly focused on Chula Vista.
The salary cap stems from the NFL’s 1993 collective bargaining agreement. In return for loosening the restrictions on players’ ability to sign with other clubs once their contracts expired, players agreed to a salary cap limiting how much each team could spend on player salaries. Teams must also spend a minimum amount on player salaries based on a percentage of the league’s total revenues.
There have long been two lines of reasoning behind the push for a new Chargers stadium: that the team needed a new stadium to remain competitive in the league, or that the team simply wanted a new stadium or it would seek greener pastures. The former argument has always been less compelling, in large part because of the cap.
“You almost have to sit back a little bit and smile,” said Mark Rosentraub, a professor of urban studies at Cleveland State University.
He noted that the Chargers have fared well, making it to the second round of the playoffs this year. “This is a good team,” he said. “This is a well-run organization now. I give them a lot of credit.”
There are two basic types of revenue that NFL owners receive: shared revenue from the television contract, ticket sales and league-licensed merchandise that is split evenly among the 32 teams, and local revenue from things like luxury seating and concessions.
The Chargers said the revenues that would result from a new stadium — from luxury suites, club seating, stadium naming rights and ads on electronic signs — would help pay for things like signing bonuses, which are paid upfront. (For the purposes of calculating whether a team falls under the salary cap, bonuses are typically spread out over the life of a contract.)
In the current system, Fabiani said new stadiums coming online for the Cowboys, Jets and Giants generate revenue that raises the salary cap for all teams. That’s because revenues from items like luxury boxes are included in the calculation for the salary cap, though that revenue isn’t shared among teams.
That means teams with stadiums built in the last decade or so will have more money, and teams like the Chargers will be at a competitive disadvantage, Fabiani said.
Others agree that even with the salary cap, the NFL’s playing field isn’t as even as it might appear. Dean Baim, professor of economics and finance at Pepperdine University, said teams with smaller revenues are limited in building state-of-the-art training facilities or hiring highly paid coaches, whose salaries are not counted under the cap.
He also said the cap still allows for big-revenue teams to outspend their smaller counterparts through the way they structure their contracts.
“You can wiggle around it,” Baim said. “It’s the hardest salary cap in professional sports, but if you’re halfway creative, it isn’t all that binding.”
Rosentraub said that while the Chargers could spend use new stadium revenues to, among other things, deepen their backup roster, those are “marginal differences” with the cap in place. “It’s not like in baseball where the gaps are large,” he said. “In the NFL, the difference is much more modest.”
While a team must have enough money to assemble a good team, Rosentraub said, more spending on top of that doesn’t necessarily equal a winning team. “If that was the case,” he said, “the Dallas Cowboys and Jerry Jones would be champions every year.”
By contrast, he said, there are always low-spending teams that do well, like the New York Giants, who won the Super Bowl last year despite having the lowest payroll that year, according to USA Today. Furthermore, Rosentraub said, even if a team does make more money, there’s nothing that requires an owner to spend it on players, as opposed to pocketing it.
The calculus about whether a mid-market team can compete with larger clubs clearly changes if the salary cap is abolished — a potential outcome of the fractious negotiations between the NFL players and owners.
Last year, the owners opted out of the agreement, saying they believe the current calculation forced them to fork over too much money to the players. The contract calls for the 2010 football season to be played without a salary cap if the two sides can’t reach an agreement before then.
The players have said that if the 2010 season goes on uncapped, they’ll never agree to a cap again. The owners, meanwhile, say they’ll shut down football rather than play without a cap.
Andrew Brandt, a former players representative and sports executive who is president of the National Football Post, said in an e-mail that a year or two without a cap wouldn’t cause competitive disadvantages. But over the long term, he said, teams that bring in more revenue would have “more resources to attract top players and football could look more like baseball.”
Without a salary cap, some big-city baseball teams such as the New York Yankees, are able to turn themselves into perennial powerhouses. The lack of a cap in football could bolster the Chargers’ argument for a new stadium, said Leslie Girard, a former San Diego assistant city attorney who worked on stadium issues.
“I’m not saying it makes it a winning argument or not, but it absolutely strengthens it,” he said.
But NFL-watchers believe that football without a salary cap is only likely to be a temporary situation, if it happens at all.
“There’s enough owners who are committed to a cap that they would shut down the season,” Rosentraub said. “And you have to remember that a cap hurts players more because players age and it doesn’t matter if owners get older.”
In an uncapped 2010 season, players would also need six NFL seasons under their belts to be eligible for free agency instead of four. While Rosentraub said there may be a fair amount of “theater” involved in negotiations, he thinks NFL Commissioner Roger Goodell will be able to broker a compromise. “At the end of the day, no one wants to run the risk of the season being canceled,” Rosentraub said.
As for the Chargers’ payout to the city if the team leaves Qualcomm Stadium before its contract ends after the 2020 season, the fact that payouts drop in 2011 isn’t expected to factor much into the team’s decision. Team officials have said the Chargers won’t leave during this year’s window, which runs from Feb. 1 to May 1. If the Chargers were to depart next year, they would pay $54.6 million. The payout would fall to $23.8 million in 2011.
Baim said a city gaining a team might be willing to pay the termination fee for the Chargers, reasoning that it would be cheaper than an expansion franchise. “If you could get an existing franchise for $50 million, you’d do that in a heartbeat,” he said.
Instead, such calculations about when the Chargers will leave Qualcomm will likely be based on talks with port and Chula Vista officials about placing a stadium in that city, as well as the logistics of developer Ed Roski’s plans to build a stadium in the city of Industry, where voters approved an infrastructure bond that would pave the way for the complex.
Rosentraub said team officials probably will consider things like whether Roski is set on owning a franchise and the competitiveness of other teams that could be moving to the stadium if it gets built — namely the Minnesota Vikings, who are looking for state help in getting a new stadium built at the current site.
Realistically, Rosentraub said, a new stadium won’t be ready until 2011 at the earliest — by which time the payout is going to be relatively minor.
“It’s going to be chump change,” he said.