Posted by John Vrooman on Tuesday, July 19, 2016 in National Football League.

Interview with San Antonio Biz Journal.

I have been covering for more than two years the Oakland Raiders’ interest in San Antonio, which has waned of late because of Mark Davis’ infatuation with Las Vegas. I have included other sports economists in previous reporting and wanted to get your insight for my next story.

The Raiders have politically become the redheaded stepchild of the NFL but they could be allowed to move to Vegas if they increased their value by leveraging public money for a new stadium in the middle of the desert and simply got out of the way of the 49ers potential monopoly in the South Bay.

The next question is of course how crowded it would become in the desert southwest with the Rams in LA, the Bolts in SD and the Raiders in LV. If those markets intersect to a significant degree (which they probably do) then the triangulation of the Southwestern US would become a negative sum move and the cartel revenue pie would not grow overall. 

The same would possibly be true if the Raiders moved to San Antonio and split the market of the Cowboys and Texans, the border of which runs right between San Antonio and Austin. The football crazy fans in Central Texas would be better off but so would the fans of the Texans and Pokes.

This is because of the rivalries and competition on the field but also because of lower priced ducats and cable fees from 3 NFL clubs fighting over the Texas market. Unfortunately that is not likely to happen, because the NFL bases its internal decisions on what is best for League and not football fans in Texas.

This is probably true regardless of the fact that the TV market size of San Antonio and Austin combined is about 1.65 million TV HHLDS, which is about the same size as Miami-Ft. Lauderdale. By comparison Las Vegas is about the same market size as Austin alone (750K TV HHLDS).

The unfortunate aspect of all of this relocation theory is the that external welfare of the NFL fans runs almost diametrically opposed to the internal profit max decisions of the NFL cartel. That is after all why a cartel is against the law (Sherman Act Section 1) and that is why the League as a cartel lost the Raiders case that started all of this relocation extortion derby back in 1982.

All things considered (including the NHL in Vegas) the superior move for the league-cartel may still be for the Raiders to stay in Oakland, but because of extensive revenue sharing in the NFL it really doesn’t matter where you play as long as you are the only show in town and you are playing in a new luxury seat cash-cow venue, even in the middle of the desert.

The value of an NFL franchise generally increases about 30 percent just by moving into a shiny new venue—even on Mars or in the case of Sin City, in the middle of the desert. Given the lopsided economic structure of Vegas and relative size of the TV market (45^th) Vegas does not appear to have the critical economic mass to support the NFL over the ups and downs of the long professional football cycle. This is true even in a shiny new stadium and regardless of a NFL revenue sharing mailbox money for over two-thirds of its total revenue.

The NFL Vegas relocation case is similar to the Jacksonville 1995 expansion. Jacksonville was selected because of the advance sellout of club seats and its geographical location in the media grid.

The Jaguars are now roughly equal in value to the Oakland Raiders at about $1.5 billion stuck at the bottom of the NFL food chain. This is largely because the Jags are trapped in a small media market, land-locked and surrounded by established long-term markets of other competing NFL clubs like the Dolphins, Falcons. There is just no place for the Jags to go except maybe to sail across the Atlantic to London.

The Raiders would be desert-locked in a small economically isolated and lopsided Vegas. The Broncos rule the Mountain West, the Cards now rule the Southwest desert, the 49ers have got NoCal locked down and that leaves the Rams and Bolts to split SoCal. There is just no economic room for the Raiders and the Vegas market doesn’t have the size or depth to carry the club.

Normally the Raiders in a new venue would increase in value to about the NFL average of $2 billion, but probably not in Vegas. The Raiders would be back in the bottom NFL economic quartile before the new was gone from the shiny silver and black Vegas stadium.

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Followup.

Out of curiosity, did you engage in/provide any analysis relative to the decision-making which ultimately resulted in the Houston Oilers deciding to relocate to Tennessee?

Actually I was still at Rice in Houston at the time so I watched and studied from the Houston angle. In some respects its very much the same scenario as now among Oakland, San Antonio and Las Vegas.  Houston was ready for Bud to go and the Mayor explained that Houston had more pressing public/social issues to deal with that Bud’s next stadium.

In an urban economic way it actually makes sense that the intermediate sized fast growing markets like San Antonio/Austin or Nashville are better relocation targets than larger mega-tropolises like Houston or San Francisco-Oakland. This is called the zoo effect.

The larger cities like Dallas and Houston serve as economic overhead anchors that  provide almost all of the social services for the larger economic region (like a zoo) and the intermediate sized cities like San Antonio and Austin (or Arlington) that live under that umbrella are free to spend public money for sports venues that are used by private monopoly teams and leagues.

It is also easier to politically manipulate smaller satellite cities like Arlington and East Rutherford to sell-out and subsidize the private sports business.

The leagues (particularly the NFL) also create an artificial scarcity that allows them to use their monopoly power to pit intermediate sized markets against each other (Las Vegas v. San Antonio v. Oakland or LA v. San Diego v. Oakland v. St. Louis)) in a bidding war over who can award the highest public stadium subsidy. This is a classic stadium extortion game played by one unregulated monopoly cartel against several competing mid-markets

I know you are a busy man, but in terms of follow up: I want to be especially careful in what I include from you as quotes so I don’t tread on USA Today coverage. With that in mind, it would be helpful to know if there anything in the red text (perhaps the first three graphs?) that I can consider in response to my questions and therefore not a re-reporting.

Here’s the quote used by USAToday.

Vanderbilt sports economist John Vrooman sees it differently.

“The Raiders would be desert-locked in a small economically isolated and lopsided Vegas,” he told USA TODAY Sports. “The (Denver) Broncos rule the Mountain West. The (Arizona) Cards now rule the Southwest desert. The (San Francisco) 49ers have got NoCal locked down, and that leaves the Rams and Bolts to split SoCal. There is no … economic room for the Raiders and the Vegas market doesn’t have the size or depth to carry the club.”

Which was rereported by CBS Sports:

Although Raiders owner Mark Davis seems convinced that moving his team to Las Vegas makes sense, not everyone feels the same way.

John Vrooman, a sports economist at Vanderbilt University, says that it would be a horrible idea for the Raiders to move to Vegas.

“The Raiders would be desert-locked in a small economically isolated and lopsided Vegas,” Vrooman recently told USA Today. “The Broncos rule the Mountain West. The [Cardinals] now rule the Southwest desert. The 49ers have got [Northern California] locked down, and that leaves the Rams and Bolts to split SoCal. There is no … economic room for the Raiders and the Vegas market doesn’t have the size or depth to carry the club.”

And again by Silver and Black Pride

Vanderbilt University sports economics professor John Vrooman recently went on the record stating that the Raiders possible move to Las Vegas won’t work.

“The Raiders would be desert-locked in a small economically isolated and lopsided Vegas,” Vrooman recently told USA Today. “The Broncos rule the Mountain West. The [Cardinals] now rule the Southwest desert. The 49ers have got [Northern California] locked down, and that leaves the Rams and Bolts to split SoCal. There is no … economic room for the Raiders and the Vegas market doesn’t have the size or depth to carry the club.”

Also these two questions:

1. If for whatever reason the Raiders are left with the decision of Las Vegas or San Antonio, which market would provide the more stable long-term home in your opinion?

San Antonio/Austin is almost three time the TV market size as Sin City (TV market size is used in the sports industry as a more accurate measure of revenue potential. SA/A is a fully developed metropolitan system with economic depth in a portfolio of industries. By comparison Vegas has a shallow economic development grid that is is heavily dependent on the gaming and tourism industries.

I have said before that because the NFL is so dependent on national media revenues (two-thirds of NFL revenues) that it really doesn’t matter where a team plays as long as it’s in a new venue. I have also said that an NFL club can increase its value by 32% to 30% just by moving into a new venue–even on Mars.

Both of these statements remain true but there is a minimum economic structure necessary to pack the luxury stadium and provide long-term risk free cash flow from season-tickets, luxury suites and premium club seats.

2. I would be interested in your thoughts on why there is a perception Texas can’t accommodate as many teams as California, Florida and New York, or, more importantly, why Texas and its large population and proximity to Mexico doesn’t warrant more NFL teams than states like Ohio, Pennsylvania and previously Missouri?

First I should disclose that I am a proud Texan from Dallas who has taught at UT in Austin and at Rice in Houston.

Given its diverse football culture and economic power, the State of Texas could easily support more than two teams. Unfortunately the League cartel doesn’t make decisions based on external welfare of football fans. Instead the league bases its expansion and relocation decisions on what is best for the league cartel.

It is not usually in the best internal interest of the league to duplicate markets (even in Texas) because the value added by the new club is less than the reduction in value of the old club(s).  This is called a negative sum move and the League is always looking for positive sum moves. This league-think philosophy is the source of the phenomenal overall growth in the NFL since 1960.

Ironically the relocation of the Raiders from Oakland to SA/A could be considered a positive sum move, because it would increase the market power of both the 49ers and the Raiders, but that would come at the expense of the Texans and them Cowboys.

To his credit Cowboys owner Jerry Jones doesn’t seem outwardly bothered by the prospects of a Raiders relocation to San Antonio, but truth be told the San Antonio Raiders would capture most of the Cowboys fan base in Central, South and West Texas, not to mention the Cowboy controlled market of Mexico.  

But in the end the gain for the SA Raiders would still not exceed the financial loss for the Cowboys. What makes it so frustrating is that all of the football fans in Texas would be unambiguously better off and how bout them Cowboys might actually have start winning again in competition with the Texans and SAA Raiders.

Most of the duplicated markets in the NFL (and other leagues) have come as the result of the merger of rival leagues like the AFL-NFL merger treaty in 1967. When the 2 leagues merged only the SF 49ers and NY Giants received $9 million each for being duplicated by the Oakland Raiders and NY Jets (Titans).

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