Posted by John Vrooman on Tuesday, January 12, 2016 in National Football League.

Interview International Business Times.

(See the xl attachments for all images)

-Why does it seem teams want to go to LA in 2016, compared with recent years and two decades ago? What are the major selling points?

-What are the economic benefits or drawbacks of a move to LA for the three franchises and the NFL? Are there specific figures for the gain a franchise or the league might see?

-Do television contracts play into this at all, since there aren’t local contracts? Does the inclusion of LA boost the value of future TV rights contracts for the league? Would you expect a ratings increase on the already ridiculous ratings if LA were involved in the league?

-Would you expect the fan base to be there for an LA team? Is that fact that it would likely be a far more wealthy fan base come into play?

-What would the factors be for a franchise to be successful in LA, to make the move a positive one?

The City of Angels is obviously valuable as the second largest TV market in North America, but TV ratings and viewership for sporting events is typically lower in LA compared to other mega-markets even if an LA team is involved in the game.

When the Raiders and Rams both occupied LA/Anaheim before 1996, their home games were rarely sold out and were therefore blacked out on local TV. So the size of the blacked-out LA mega-media market was irrelevant before the moves if not detrimental to national TV ratings.

Ironically the empty LA market has probably been more valuable to the NFL as the 3^rd leg in a public stadium funding extortion triangle over the last 20 years than would have been the case if it had been occupied since the Rams and Raiders both bolted  Tinsel Town in 1995.

Monopoly cartel sports leagues almost always prefer single-team monopoly markets to 2-team or multiple team markets, This is because two monopoly markets are always more valuable than one duopoly market regardless of market size or either team’s market share. As a result multiple team markets are always a negative sum move for the League overall. Both of the existing two-team markets (NY and SF-OAK) are vestiges of the AFL-NFL rival league mergers in 1970.

NFL cartel membership is artificially limited to internally maximize franchise value and enhance the credibility of franchise relocation extortion threats. As a result internal league profit-max size is considerably smaller than the external social welfare optimum, which could easily be enhanced if the NFL simply expanded into LA and probably a half-dozen other viable but unoccupied NA markets.

In the minds of the NFL cartel owners the relocation rights of an empty LA market still belong to them, even if the LA market is was twice abandoned two decades ago. Given the major differences between the values of the franchises under alternative scenarios playing in a variety of stadium configurations in different markets, the appropriate relocation fee for the other NFL owners would tax away almost, but not all of the potential gains from relocation.

If the relocation fee is higher than relocation value gains then the Chargers/Rams/Raiders would not make the move and if the fee is lower, then the difference would disproportionately accrue to the relocating club.

According to my estimates (see attached profile), the net gain in franchise value from LA relocation for each of the 3 candidates would probably be in the range of $800 million to $1 billion.

If these gains were split evenly between the relocating club and the League then the relocation fee could approach $400 million to $500 million. A reported fee of $650 million reportedly being entertained by the rest of the NFL owners would capture 65 percent to 80 percent of the potential gains .  

Attached is an analysis of the hypothetical scenarios for all 3 clubs comparing their current status with a new stadium in their current home and LA.

The actualization of the proposed Raiders-Chargers joint venture in Carson ultimately depends on the pretzel logic of the wider NFL venue extortion game being simultaneously played out in Oakland, San Diego, St . Louis and LA (Carson and Inglewood/Hollywood Park).

It is very unlikely that the other NFL owners will allow a double/joint relocation of 2 franchises to the LA market, regardless of how well connected the Carson venture is to Disney (ABC/ESPN).  This is because the League always prefers several monopoly markets to one duopoly (two-team) market regardless of market size.

Ironically the potential cost savings from two clubs splitting a $1.8 billion stadium in Carson (LA) would almost completely be negated by the reduction in present value of net cash flow from two competing clubs in one market. This is why the league cartel avoids two team markets and  leads to the obvious conclusion that only one team will relocate to LA.

Existing duplicate team markets like SF 49ers and Oakland Raiders the Bay area are vestiges of rival league mergers in the past like the AFL and NFL merger in 1970. Following the reverse cartel monopoly logic the League would also prefer the relocation of an existing  dual market team like the Raiders to that of a single market monopoly team like the Chargers or Rams, because it would simultaneously increase the values of both the Raiders in LA and the 49ers in Santa Clara.

This leads to the theoretical economic conclusion that the League would prefer the single relocation of the Oakland Raiders to LA instead of either the San Diego Chargers or St. Louis Rams. This would simultaneously create monopoly markets in the Bay area (Santa Clara) and LA, while leaving the Chargers alone in San Diego and the Rams in St. Louis.

In the relocation-extortion end game all four clubs (including the 49ers) would then monopolize their respective single-team markets in state of the art luxury venues like Levis Stadium where half of the fans are effectively being charged twice as much.

So by process of elimination, the relocation odds still probably favor Stan Kroenke paying the fee and moving the Rams to a $1.8 billion luxury Hollywood Park stadium that synergistically anchors his wider economic development project in Inglewood.

In the end there is just not enough economic pop in the Carson joint venture to justify the coexistence of two competing clubs. The private cost of the $1.8 billion venue in LA should tilt the odds in favor of the only owner who can use the stadium as an anchor for a more comprehensive project.  So the pragmatic economic odds probably favor Stan Kroenke’s Rambling Rams, especially after his negative relocation proposal has blown up all of his bridges back to St. Louis.

Ironically St. Louis currently has the most fully developed City/State stadium plan of the three markets now being pressured by the League threats of relocation, followed by San Diego with Oakland not even out of the gate. St. Louis could then become the relocation target of another footloose NFL club, even the Raiders.

The Raiders solo spinoff relocation would be a secondary longshot, but this is exactly what happened in the 1995 expansion relocation extortion derby..  As the musical chairs game played out, the 4 frustrated finalists in the Carolina Panthers/Jacksonville Jaguars expansion of 1995 were St. Louis, Baltimore, Oakland and Memphis/Nashville. Each immediately became the relocation target of opportunistic NFL franchises in Houston, Cleveland and LA (I’m not making this stuff up).

The NFL then retro-expanded into Cleveland 1999 and Houston 2002 leaving, the LA market as an empty example of what happens when a major city ends up on the short end of the shell game of the NFL cartel.

Almost every mid-market NFL stadium funding discussion in the last two decades since the 1995 expansion has involved a not so veiled “build-it-or-we-will-leave” threat for opportunistic clubs to relocate to the City of Angels.

All 10 of the stadiums associated with the 1995 expansion receive major if not total public subsidy…notable exception was Carolina who went private with all PSLs. Total public money $2.15 billion…the estimated value of the LA relocation club. Indy, Phoenix and Minneapolis each threatened LA. Total public money $1.4 billion…

This is what I mean by LA being more valuable empty as a bargaining chip than occupied with a team for the last 20 years.

In the final analysis however, abstract economic theories don’t always work in the often counterintuitive world of the NFL. In the real and sometimes antagonistic world of the NFL cartel there is a complex overlay of insider political coalitions and cronyism among the owners that will probably influence, if not completely  determine the outcome.

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