Posted by John Vrooman on Wednesday, February 17, 2016 in National Football League.

Interview with the Street. 

Can you explain some of the real economic factors the league SHOULD be looking at in determining how much to charge the Rams for moving to LA?

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 LA in 1995. Over $2 billion in public stadium subsidies have been leveraged by using LA as a bargaining chip, and this is about the same value the Rams now have in LA.

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 the 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 currently 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 was twice abandoned two decades ago. The appropriate relocation fee for the other 31 NFL owners would tax away almost, but not all of the potential gains from relocation. If the relocation fee is higher than relocation relative value gains then the Rams 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 the Rams 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 fee of $650 million reportedly being entertained by the rest of the NFL owners at the time the relocation was approved would capture 65 percent to 80 percent of the potential gains.  

 Here is my latest analysis of the hypothetical scenarios for the Rams comparing their current status in Edward Jones Stadium with a new Riverfront Stadium in St. Louis and the proposed luxury venue at Hollywood Park. The League would rationally tax some but not all of the $800 million difference between the best deals in St. Louis and Hollywood Park.

V