Posted by John Vrooman on Saturday, February 4, 2017 in National Football League.

Interview with Bisnow / Noll & Zim

What role does the league franchise system play in NFL team relocation?

The important legal and economic question about the NFL ultimately reduces to whether the League is the single entity firm with teams as operational franchises or the teams are instead several and separate competing firms. The Supreme Court in the American Needle case (2010) basically punted the economic football by “deciding” that the answer is probably both, depending on the “rule of reason.”

 In the case of franchise location and relocation the NFL has unsuccessfully argued in the past that the clubs are franchises and the League is the umbrella firm that could therefore independently control the location of its franchises.  If the NFL was the firm and the clubs were simply franchises as the League argued, then the League could not conspire against itself as an unlawful cartel. The Federal Court in the Raiders relocation case (1984) ruled otherwise and found that the League was instead a cartel that was comprised of several and separate firms that conspired in violation of the Sherman Act Section 1 (cartel section).

 The interesting aspect of the original Raiders case was that the decision actually as a very limited precedence for future relocations (after 1984), because it only applies to the NFL trying to stop the relocation of one team (Oakland Raiders) to a market (LA) that is already occupied (by the Rams). The SoCal Court decided that the League would damage the welfare of the LA fans if it denied the relocation of the Raiders to LA, because it was trying perpetuate the monopoly power of the original LA Rams (1984).

 The irony in all of this is that this Raiders decision did not apply to any of the franchise relocations in the NFL from the Raiders case until the San Diego Chargers recently exercised their option to join the Rams in LA. This was déjà vu all over again for the League cartel and it may have played a minor role in allowing the Chargers move to Inglewood. Because of the extensive revenue sharing in the NFL it doesn’t really matter where you play as long as the club is playing in a shiny new luxury seat stadium.

 The League could have legally stopped any of the franchise relocations even after they lost the Raiders case, but it was simply not in the best economic interest of the League to do so. The NFL was busy leveraging in public subsidies for over half of the $15 billion in stadium costs since the relocation derby began after the 1995 expansion into Charlotte and Jacksonville.

How does the league franchise system effect how cities compete for teams?

Membership in the closed NFL is artificially restricted so as to maximize membership and relocation fees ($1.3 billion for both the LA Rams and Chargers combined).  

The NFL has strategically excluded many potentially profitable mid-markets in order to create a monoply auction among the many frustrated applicants. This monopoly cartel exclusion has created the fluid relocation of NFL franchises to also maximize inflated public stadium subsidies that are simply not justified by the negigible external positive impact of the relocating teams. The new opulent luxury seat stadiums are economically designed to capture all potential gains for the NFL within the stadium.

 This classic monopoly exclusion that characterizes closed NA leagues can also be seen in the previous absence of 2-team dual markets. The move of the Chargers to LA is the first voluntary dual market relocation by the NFL cartel in the recent history. The San Francisco 49ers and NY Giants were duplicated by the Oakland Raiders and New York Jets in the AFL-NFL merger in 1967. The Oakland Raiders were later allowed to relocate to the LA market originally occupied by the Rams in 1982 because of an adverse Federal Court ruling that found the NFL’s non-duplication rule in violation of antitrust law: LA Memorial Coliseum Commission v. NFL, 1984.)

Does the threat of relocation leverage public funds?

Over the last two decades since the Rams (to St. Louis) and Raiders (back to Oakland) both abandoned LA in 1995, the City of Angels had been used as the empty market third leg relocation threat in a public subsidy extortion triangle. Over $4 billion in public stadium subsidies were leveraged from the credible threat of NFL teams relocating to LA. At least $1 billion of the NFL’s $13 billion in current annual revenues is derived from public government subsidy of the world’s most powerful sports-league cartel.

Do you have any idea what percent of fans support a relocated team?

No, but maybe you can ask all of the Houston Oilers/Tennessee Titans fans that you know who are still in Houston. The one exception of NFL fans without borders may have been the continued popularity of the Oakland/LA/Oakland Raiders in SoCal after they bolted back to Oakland in 1995.

For instance, how many fans in St Louis still support the Rams?

Each of these franchise relocations is like a custody battle in a messy divorce.

 In the case of the Rams the local blame was clearly placed on the opportunistic owner Stan Kroenke who refused to bargain in good faith with the city of St. Louis after the expiration of the lease at the Edward Jones Dome.  The general feeling was that Kroenke’s plans were set when he bought complete control of the club in 2010 along with a stadium lease with a soon to be exercised escape clause. In the relocation case of the Rams Kroenke became the opportunistic villain that stole the Rams from St. Louis and blew out of town headed for the fools gold on the west coast.

How important is stadium development to keeping an NFL team in the city?

Stadium development has become critical even in the larger critical metro markets like DFW, where opportunistic owners like the Cowboys Jerry Jones game the system. The Cowboys had no intention of ever leaving Northeast Texas but Jones played the relocation-extortion gambit among smaller satellite city governments before moving from Irving to Arlington, a small metro-locked government that subsidized 30 percent of $1.2 billion Jerry World in 2009. The economic architecture of AT&T Stadium is designed to hermetically capture all economic gains within the venue, there is nothing left for the host City of Arlington but congestion.

 The Carolina Panthers even threatened relocation out of Charlotte in 2013 before leveraging $75 million for renovation of Bank of America Stadium As part of the deal, the team agreed to be “tethered” to the city for at least six more years.

With the threat of moving to LA or Las Vegas off the table, do you think NFL owners will change their stadium development strategy?

There is a noticeable trend toward privatization of venues in the US is real partially because of a fiscally more conservative electorate but probably more because of three improved sources of private revenues: the NFL’s G-3/G-4 loan program, luxury suites and club seats and the price discrimination technique of personal seat licenses (PSLs).

 G-3/G-4 loans basically grants that are made to by the NFL that match a clubs private contribution up to $150 million for G-3 and $200 million for G-4. Since 2001 the NFL cartel will have funded about 15 percent of the $11.2 billion in total stadium costs through G-3/G-4. The loans are repaid from the NFL’s 34 percent visting team share of club seat revneues.

 PSLs are essentially an up-front payment by season-ticket holders that is equal to present value of season ticket discounts over time. For example a $5000 PSL for a $500 ticket is roughly equivalent to a $1000 season ticket. Since 2001 PSLs will have funded about 20 percent of the total stadium cost in the NFL.

 Since 1995, 28 NFL stadiums have been built or renovated for 29 teams for a total cost of about $15 billion and the private/public split was roughly 50/50. During the relocation derby between 1995 and 2000, the private share of stadium cost was a meager 25 percent. After 2001 the private share of stadium cost was improved to about 60 percent because of the other clubs in the NFL (G-3/G-4) and its actual fan base (PSLs) paying their symmetrical share of the cost.

 The planned economic obsolescence of a NFL luxury smart venue is about 20 years and the stadium revolution that began in 1995 has now come full circle. In spite of the Raiders clumsy negotiations between Oakland and Vegas, Vegas is still a player at the extortion table along with the just-jilted markets of St. Louis, San Diego and even San Antonio/Austin, which lies smack on the economic border between the Texans and Cowboys. The markets in the extortion triangles will change, but franchise relocation-stadium extortion game will remain the same.

 Over the last two decades of the venue revolution the value of NFL clubs has incresed at an exponential rate of 11.5 percent, more than twice the growth rate of the S&P 500.

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