Is the NFL Really About to Move Back to LA? Yes, No, and Maybe

With the San Diego Chargers, the St. Louis Rams, and the Oakland Raiders seeking to pick up and move to Los Angeles, and with representatives from those three cities set to present the NFL with stadium proposals to keep their respective teams today—behind closed doors, so don't go looking for webcasts—there are two things that everyone agrees we know for sure:

• Unlike other sports leagues, the NFL's heavy reliance on national TV contracts for revenue means that being in a big market just doesn't matter that much—which is why the Raiders and the Rams left LA in the first place and haven't been replaced in the twenty years since.
• LA is such a lucrative market that NFL owners are falling over themselves in the race to be the first to move there, even though building a new stadium would cost close to $2 billion and local governments aren't offering up much money to help.

Clearly, one of these conclusions is wrong (or both—we'll get to that in a minute). With few public details about how the owners of the Rams, the Raiders, and the Chargers plan to make their LA stadium plans pay, it's been tough to figure out which threats to move are real and which are merely bluffs to shake loose some cash from local governments back at home—something we saw with the Minnesota Vikings' empty moving-to-LA threat, and the Miami Dolphins' empty moving-to-LA threat, and so on.

(Yes, granted, none of those threats got to the point we're at now, with teams actually petitioning the league for relocation approval. Like I said, we'll get to it.)

Fortunately, we do have some ways to determine the value of a given market, starting with the Forbes magazine estimates of team finances. These are far from perfect; in particular, the estimates of franchise values tend to miss on actual sale prices, though it's tough when those tend to be crazy money-laundering schemes as much as anything else. On occasions when team revenue figures have been leaked to the press, though, they have been pretty much on target. So, armed with the Forbes revenue figures and the phone numbers of some sports economists whose guesses are at least a bit more educated than the average person's, let's dive into the question of what, exactly, a team owner such as the Rams' Stan Kroenke would have to gain by trading in barbecue for tacos.

Back in 2010, the sports and concert giant AEG was pushing its notion for a LA stadium, and getting a massive yawn from the NFL. A look at the Forbes figures for that year shows why: aside from three top-earning teams—Dallas, Washington, and New England—revenue for the rest of the league was almost flat, ranging from $210 million for the Detroit Lions to $272 million for the Houston Texans. With most of a franchise's revenue guaranteed in the form of national TV checks before their players ever take the field, it would have been crazy for any owner to take on the hundreds of millions of dollars that AEG would have needed to pay off its stadium construction costs. After all, the city of Los Angeles hasn't been too interested in subsidizing an NFL stadium, partly because it's California and getting public approval is tough, and partly because, by all accounts, LA football fans are happy enough just watching the best national games on TV.

Fast-forward to today, and the picture looks somewhat different. NFL revenues are up across the board, thanks in large part to new, more lucrative TV contracts. How much? According to figures released by the publicly traded Green Bay Packers, every team in the NFL started last season with a $226.4 million check from the league for TV rights and other shared sundries, a figure more than 50 percent higher than most teams' player payrolls. (Think about that for a minute, and also about why the NFL is so adamant that the Packers be the last publicly traded team ever.)

As the numbers have inflated, so has the spread between rich and poor teams. The upper echelon now not only includes the three teams from 2010 (led by the Cowboys at a ridiculous $620 million a year) but also the 49ers, the Giants, the Jets, and the Texans, each of which brought in at least $100 million a year more than "poor" teams like the Bengals and the Raiders, who almost had to actually open their doors and sell tickets in order to turn a profit.

This is a significant development: if you can earn an extra $100 million a year by moving to a new stadium in a bigger market, dropping, say, $1 billion on construction costs suddenly isn't that bad of an investment. Which in turn raises a key question: In league where almost all money is shared among owners, and the players effectively get a fixed cut of revenues, what could have changed so dramatically since 2010 to make the Forbes numbers shift?

University of Michigan economist Rod Fort offers one possible explanation, which is that Forbes's definition of "revenue" isn't the same as the NFL's. "This is the old 'Defined Gross Revenue' debate in NFL labor negotiations," says Fort. "During collective bargaining, sides sit down and decide two things. First, how much of the revenue observed accruing to owners is due to NFL football? The result is DGR. Second, what share of DGR do the players get? Then divide by the number of teams and that sets the payroll cap."

The trick comes when teams start earning revenue that's not due to football. "Jerry Jones has a new stadium almost surely due to his NFL franchise," says Fort. "But then college football and basketball championships are held at his stadium and he gets the money. But he couldn't get the money without 'NFL football,' so does some share of his college revenue actually belong in the pot shared with players? The answer so far is no."

OK, then: Los Angeles is worth more as an NFL market than it was five years ago because of all the non-football events an owner can book there, resulting in revenue that won't have to be shared with players. That makes sense, and—sorry, what's that, you in the back?

"That's pretty minor," Stanford economist Roger Noll says of non-football events. "There's almost nothing on the planet that wants to be in a football stadium aside from a football game. Occasionally you have a pop music star that can fill up a football stadium, but that's extremely rare."

The higher revenue figures in Forbes are due to a different factor entirely, according to Noll. The NFL salary cap "has got a lag in it," he says, both because each year's payrolls are based on the previous year's revenues, and also because the new collective bargaining agreement, signed in 2011, cut the percentage of revenues that players get—but only on in-stadium revenues, not the faster-growing licensing part of the business. As a result, he predicts, "payrolls will go up dramatically over the next few years," bringing NFL profit figures down somewhat from the stratosphere.

Fine. Even if team profits as a whole are artificially inflated right now, the difference between team revenues is still on the rise, and that's what determines whether LA's freeways have been repaved with gold. Has anything changed recently in how NFL teams make real money, the unshared kind?

The answer is yes. If you look at that list of nouveaux riches teams above, you'll note that they all play in new stadiums that they funded without much in the way of public subsidies. They also brought in unprecedented amounts of capital through the sale of personal seat licenses, or PSLs, those deals where fans are effectively asked to reserve a spot on the season-ticket list by putting up a big wad of cash. The 49ers, in particular, brought in a staggering $531.5 million from PSL sales, thanks largely to a super-wealthy market (their new home in Santa Clara is in the heart of Silicon Valley) and a team that, at the time, was an annual Super Bowl contender.

"That is the big payoff to a big city," says Noll. "The big difference between St. Louis and LA is how much they'll pay for PSLs." And PSLs, unlike ticket sales, are honeymoon-proof.

So there's our answer: the invention of PSLs and the rise of one-percenters who can afford to invest tens of thousands of dollars in season-ticket futures have changed football economics to the point where—oh, what now, Mr. Noll?

"I think the answer to that question is 'Yes, it's worth something.' It's not billions of dollars."

Replicating the 49ers stadium miracle, it turns out, isn't all that easy. First, none of the teams rumored to be headed to LA have the same built-in fan base as the 49ers in the Bay Area. Even if the Rams and the Raiders have two-decade-old connections to the place, and the Chargers have the most LA Twitter followers, that's not quite a guarantee that fans will put up whatever it takes to buy tickets. Besides, the 49ers ownership engineered a perfect scenario for maximizing their PSL riches, as Noll notes: "They hired [Jim] Harbaugh, created a championship-caliber team, sold the PSLs, then dumped everything. It's exactly what happens when you put MBAs in charge of a football team."

Holy Cross professor Victor Matheson is yet another economist who follows NFL numbers. His "gut" tells him that "somewhere around $400 million to $500 million is the difference" between the value of a team in Los Angeles and one in a smaller market, factoring in both increased PSL sales and things like higher naming-rights deals. That's real money, certainly, but it's also not nearly enough, you'd think, for a billionaire NFL owner to risk shouldering $1.86 billion in stadium debt.

Not unless there's something else in it for him, that is. Noll notes that Kroenke's preferred stadium site, at the old Hollywood Park racetrack, includes room not just for an NFL team but for acres and acres of other development as well. While that alone doesn't necessarily make a stadium pencil out—Kroenke still had to buy the land himself, so if he was really in it just for the rest of the development, he could always have built that and saved himself $1.86 billion by skipping the stadium entirely—it does sweeten the pot a bit, especially if you're hoping that the lure of a new team will help grease the skids for approval of a broader development, as happened with Bruce Ratner's move of the Nets to the Brooklyn site now being slowly covered with condo towers.

At this point, knowing what we do about the timeline of LA relocation rumors, a possible scenario emerges. Kroenke, seeing the 49ers' success in financing their stadium in Santa Clara and seeking to scare St. Louis into jump-starting its own stadium plans, puts out a press release declaring his intent to build a stadium in Los Angeles. A few weeks later, the owners of the Chargers and the Raiders, afraid of being left out of the LA talk and thus losing their best leverage over their own cities, announce plans for a joint stadium in Carson. (Those teams' owners insist that negotiations already have been going on for months, but as Matheson notes, "'Negotiations' could mean 'I talked to a guy once at a party.'")

Now, as a result, all three owners simultaneously can't risk not pursuing LA at full speed, even while they may not know whether they can risk grabbing the brass ring should it become available to them.

The most likely scenario at this point, all three economists agree, is for Kroenke to move the Rams to Los Angeles, with the NFL eventually issuing an expansion team to St. Louis for some ungodly sum—once that city agrees to $400 million in stadium subsidies on top of kicking back all sales and income taxes to the team owner, because, in the immortal words of league VP Eric Grubman, those taxes are "an NFL asset in the way we view the world." Then again, the proposed Carson stadium has a slightly lower price tag—only $1.6 billion, cheap!—which might make it more affordable, even though Raiders owner Mark Davis and Chargers owner Dean Spanos would have to split things like naming-rights revenue and wouldn't have the advantage of Kroenke's development deal, and, and, and …

Come to think of it, the most likely scenario is really that none of the owners have any better handle on the known unknowns than we do, and that the final decision will rest less on economics than on whether Kroenke, Spanos, or Davis has the most friends at the NFL owners' meetings. It sounds like a crazy way to decide the fate of sports franchises, sure, but you've got to have respect for tradition.