The Morning Report
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Wednesday, Nov. 4, 2009 | The eyes of professional football watchers across the country were upon Gov. Arnold Schwarzenegger earlier this month. The governor held a press conference fronting the hilly vistas of the small city of Industry, 15 miles east of Los Angeles.
Schwarzenegger announced his support for billionaire developer Ed Roski’s $800 million plan to bring the NFL back to Los Angeles by building a shining 75,000-seat stadium on a hill, one whose potential allure for the Chargers has caught the eyes of the city of San Diego among others.
“It won’t cost the taxpayers a dime because the money comes directly from private money,” the governor said. “It’s privately financed, which is a great thing because in California we don’t build stadiums with public money.”
Wittingly or not, Schwarzenegger pointed out a challenge that dulls some of the shine from Roski’s hillside stadium. How do you pay for a project that could cost $1 billion?
That question is familiar to the Spanos family, owners of the San Diego Chargers, and team special counsel Mark Fabiani. They’ve been trying to answer it during the team’s seven-year search for a new stadium in San Diego County. Proposals in the city of San Diego, National City, Chula Vista, Oceanside and others all have had their individual roadblocks, but the common denominator for their failures has been the inability for anyone to develop a workable financial plan.
“No one should assume that [Roski’s] deal is going to be any easier than the deal we’re trying to do here,” Fabiani said.
Despite Roski’s immense wealth — Forbes estimated his net worth at $1.5 billion — Roski is unlikely to pay for the stadium himself. That means the financial questions become numerous and formidable for any team pondering a move to Los Angeles. And the Los Angeles Times and others have speculated that the Chargers are the team most likely to move.
Those questions include:
- How much of the stadium will Roski pay for and how much will a team owner have to contribute? “No one should be expecting Ed Roski to go out and build a stadium without a tenant, and it’s the tenant who’s going to pay for it,” said John Moag, a Baltimore-based sports investment banker.
- How much of a stake in a team will Roski demand? John Semcken, a Roski deputy, has said his boss was looking for 40 percent. Roski likely couldn’t take such a large chunk of the team from its owners and also force them to pay for a stadium, Moag said. “If the equation is that I’m going to need 40 percent of the team and the team pays for the stadium, that dog don’t hunt,” Moag said.
- How much will Roski pay for his stake in a team? Various reports have said Roski is willing to trade development rights in a large commercial project he’s planning around the stadium for his ownership stake, but doesn’t want to pay cash. That dog don’t hunt, either. “I think any NFL owner is going to expect to be paid for a share of the team that he would give up,” Fabiani said. “In dollars. I don’t think anyone in the NFL in their right mind would trade a share of an NFL team for development rights in this economy and maybe in any economy.”
- How much does it cost a team to buy out of its current lease and would Roski help pay? Any team would include the costs of breaking its current lease in penciling out the Los Angeles deal. The Chargers would owe the city of San Diego $54.7 million if they leave next year, $25.8 million if they opt out in 2011 and a decreasing amount each year that follows.
- How much will the NFL help or hurt financially? The league has contributed money to past new stadium efforts, but a major project shared by the New York Giants and Jets drained those reserves. The NFL also could force a team to pay a relocation penalty. Regardless, the league has indicated it would force Roski to sell his stake in a Las Vegas casino before it would allow him to own a team.
- How much will a lending market that Moag called “absolutely horrible” influence an attempt to privately finance $1 billion? That market affects billionaires, too.
Semcken, the Roski deputy, couldn’t be reached for comment, despite numerous attempts. But his optimism knows few bounds.
Last weekend, in a lengthy Washington Post feature, Semcken said building the stadium on a hill could save a couple of hundred million in steel and concrete costs. He laughed off a question about people’s willingness to invest in the project.
“Are you kidding me?” Semcken said. “In L.A.? We will have a bigger problem telling people no.”
Though a team owner will pay to move to Los Angeles, sports economists said doing so would open up access to the nation’s second-largest television market and bring a big jump in revenue. A team would expect a substantial increase in revenue from local sponsors, such as stadium naming and radio rights, ticket prices and luxury boxes. Also, the NFL could guarantee the new stadium a series of Super Bowls, which would result in gobs of money for the team.
The Chargers, which are valued 24th out of the 32 NFL teams by Forbes magazine, could conservatively expect a $40 million annual revenue increase from moving to Los Angeles, said Jim Kahler, executive director of Ohio University’s Center for Sports Administration and a former senior vice president with the NBA’s Cleveland Cavaliers.
“I think the numbers are so rich on the upside that it would certainly get me to the table,” Kahler said.
But Daniel Rascher, president of the Bay Area firm SportsEconomics and a University of San Francisco professor, said a deal would “break even” for the Spanoses if they gave Roski 20 percent of their team — not the 40 percent he wants. That analysis becomes more complicated if Roski wants the Spanoses to help pay for the stadium, Rascher said.
Fabiani said the team hasn’t done a market analysis showing how much it could make by moving to Los Angeles. Any targeted team would earn more money in the Los Angeles market, but would it outweigh its moving costs? Take debt service. A $600 million private loan could mean an annual payment of $60 million to $75 million depending on the interest rate, Fabiani said.
“That’s a pretty significant increase in revenue that you would have to have just to pay your debt service,” he said.
Fabiani and the Spanoses won’t have to wait long to see if Roski’s numbers make sense. Roski is planning to approach the seven teams he’s targeted with financial data after the Super Bowl in February.