At first glance, the city appears to have it all.
Lights, glamour, culture, and art. It is the hub of entertainment, and its influence as the creative capital of the world is unmatched. Two world class universities tether its western and southern boundaries, and a renaissance has turned its long dormant downtown into the hub of urban excitement and civic vitality. Once blessed with a world class public transit system, the sprawling metropolis has been steadily reconnected by an ever growing patchwork of new mass transit. Perpetually summer, the sun-kissed city by the sea has inspired insipid jealousies for decades. Yes, the city of Los Angeles seems to have it all.
And yet the one thing it most conspicuously lacks has been the hardest to recapture. The city that has hosted two Olympics, and two National Football League teams, has not had a team to call its own in over two decades. For a generation, this has been a constant source of amusement to all that love to hate the City of Angels.
It has also proven to be a lucrative tool in cajoling public-private cooperation in building new facilities for the NFL’s other franchises.
Metrodome got you down?
Kindly remind the denizens of the Twin Cities that the Vikings’ iconic color scheme matches the Lakers’ legendary stripe, and they wouldn’t look half-bad following in the footsteps of the former Minneapolis club. Can’t get enough folks to brave a wintery Buffalo to watch EJ Manuel throw interceptions? Make overt overtures that new management could move the team to the warmer climes of LA, a la Buffalo’s long lost Braves.
The examples are unending, and the answer is always the same. From Jacksonville to Oakland, teams have threatened, hinted, postured, bluffed, feinted, dodged, dipped, and dived, but none have moved to LA.
Recently however, the hopes of an eventual return must have taken an incredible leap forward. On September 30, 2014, the Federal Communications Commission, or FCC, eliminated all sports related blackouts in a unanimous 5-0 vote. The blackout, as it pertains to the NFL, is the practice of restricting television coverage in local markets when the home team fails to sell out the stadium three days before kickoff. While the NFL has argued that the blackout is necessary to ensure that fans attend games, many have felt the policy was unfair to local supporters.
The FCC’s seemingly innocuous move could have extraordinary consequences for the future of football in the Southland. Owners may finally have a winning combination of variables that changes the prospect of moving to LA from a risky proposition, to a “can’t miss” opportunity. Simply put, now is the best time to move a franchise to Los Angeles because the end of the blackout would create a more lucrative overall TV deal for the league, forge the partnerships needed to bring a stadium to Los Angeles, and drastically reduce the risk for potential owners concerned about attendance.
The End of the Blackout Means Massive New TV Deals.
Long gone are the days when gate receipts fueled the financials of franchises and TV money is everything for the modern day sports franchise. In an interview with the Florida Times- Union, University of Northern Florida sports management professor Kristi Sweeney puts it plainly:
“Ticket revenues are 20 to 25 percent of league revenue…so, it’s more important to be on [television] in the local market and drive that fan base and the potential to sell tickets.”
These days, teams are making nearly twice as much from television exposure as from gate receipts.
And exposure is one thing Los Angeles boasts in abundance. Even without a pro team to call its own, the consumption of NFL products within city limits remains insatiable, with an appetite only set to grow with a new home team. In a 2011 Variety Magazine article by Michael Ventre discussing NFL ratings in LA, Fox Sports Media Group executive VP of programing and research, Bill Wenger states “[t]here’s definitely an impact nationally and locally [from bringing a team to Los Angeles].From a local standpoint, you’re talking about more than doubling the rating for a home team in L.A. vs. a neutral game…”
However this calculus had always been tempered by the deleterious effects of the blackout. Ventre argues “if a winning team comes to Los Angeles, the local blackout that exists league-wide for games that don’t sell out likely won’t come into play, and fans would also be able to watch the game live on local TV, which would boost ratings. But if a team that has only varied success over the years and is not a TV draw — think the Jacksonville Jaguars — moves to L.A., then all bets are off. Unsold tickets to the games would mean a blackout and a big hole in the television schedule that would limit the number of games beamed into the L.A. market.”
The elimination of the blackout eradicates this risk. Since it is rare that popular and winning teams move, in all likelihood LA would get a team that has struggled in its home market. Eliminating the blackout means that team would have the ability to grow locally though television. Even if the team didn’t double viewership as Wenger estimates, the power of the market would undoubtedly mean a vast increase for the NFL in the very near future. While the league recently re-upped its NFL Sunday ticket deal with DirecTV, contracts with ESPN, NBC, FOX and CBS are all set to expire within the next 8 years.
What could this mean in terms of actual dollars and cents? While the NFL negotiates its’ broadcasting deals as a single entity and splits the money evenly rather than allowing individual teams autonomy, there is considerable precedent for the power of the LA sports broadcasting market.
In 2011, the Pac 12 Conference, anchored by Los Angeles schools USC and UCLA, secured a 3 billion dollar broadcast deal with Fox and ESPN. In 2012, the Lakers signed a 3 billion dollar deal with Time Warner, granting the media giant a veritable monopoly on the 16 time world champions. In 2013, the Dodgers signed a similar deal with Time Warner, worth north of 8 billion dollars. Recently, former Microsoft CEO Steve Ballmer purchased the Clippers for 2 billion dollars, a valuation significantly buoyed by potential TV revenue. While predicting the actual value of the potential contracts for the NFL is speculative, these numbers provide credence to the idea that any new deal would be extremely profitable.
Ending the Blackout May Help Build A Stadium.
In the twenty odd years that the NFL has been absent from Los Angeles, the struggle to build a viable stadium has largely resembled the mythological tragedy of Greek king Sisyphus. Like Sisyphus, who is doomed to an eternity of attempting to move a boulder to the pinnacle of a large mountain, only to fail as he is close to succeeding, several times the city has come tantalizingly close to building a stadium, which has long been the major hurdle to luring a team. There are a few reasons why it has been a struggle. First, the NFL is leery of creating an expansion team, meaning any franchise in Los Angeles would have to be relocated. Second, the city will not invest public dollars in a new facility until there is a team ready to move. Third, and conversely, the league will not sanction a move unless there is a viable stadium.
This means the majority of proposals for a new stadium come from within the private sector, which creates a new hurdle since all deals largely financed by private citizens or corporations demand a share of ownership in return.
It seems an unlikely prospect, particularly when owners can use the threat of relocation to secure cushy deals for elaborate stadia, all while avoiding the dilution of their ownership interests. And so, much like the ill-fated Greek king, a proposal will gather momentum, come agonizingly close to its goal, and then collapse, leaving the weary city to pick up its boulder and try again.
However the increased revenue from television, and the sponsorship opportunities guaranteed TV would create, could be enough to finally convince an owner that it would be rational to move their team, even if it meant divesting a small share of ownership.
A guarantee of a weekly game in front of over 3 million sets of eyes means not only additional TV money, but revenue streams from corporate sponsorships. The Dallas Cowboys, despite a well-documented lack of on-field success in recent years, recently signed multi-million dollar endorsement deals with Hublot and Carnival Cruises. Likewise, companies would be emboldened to invest in an LA team, full knowing that their logos, trademarks, and trade dress would not be restricted from the local market. In a state that boasts the most Fortune 500 companies in the nation, many of which call Los Angeles home, this opportunity would surely be exploited.
The net effect would make a joint partnership equally lucrative for current owners and potential stadium investors. Even more profit stands to be made from an owner who moves their team and creates the venue in Los Angeles.
The End of the Blackout Means That Attendance Risks Are Mitigated.
While the Dodgers, Lakers, and Galaxy are perennial leaders in home attendance, Los Angeles has always been a bit of an anomaly when it comes to support of professional teams. Constantly derided as a “fair weather fan city,” a pseudo truth at best, there have always been challenges that make attendance at sporting events different in Tinsel Town.
To begin, LA has always been a town of migrants. From Midwesterners hoping to make it big on the silver screen, to easterners seeking a respite from brutal winters, the city has consistently been a haven to the relocated, many of whom bring their home team sentimentalities westward. Furthermore, the nation’s worst traffic, a plethora of events, activities, and year around outdoor diversions, means that the average Angelino is spoiled for choice where it comes to recreational spending.
And the blackout only made things worse for the city’s previous tenants. Calling the cavernous Coliseum home, the Raiders struggled with selling the minimums necessary to keep their games on television.
The awkward configurations of Angel Stadium made it equally difficult for the Rams to sell the required amounts. Down years lead to down attendance, and the teams consistently struggled to put games on local television, invariably damaging the financial viability of both franchises.
Eliminating the blackout obviously eradicates the financial black hole that restricted television access represents. Moreover, strategic placement in Downtown Los Angeles means an owner could reap the fruits of both increased television access and gate receipts.
Where old models of attendance-driven success meant that teams would build larger stadiums to accommodate more fans, the modern league is dominated by the sale of suites and personal seat licenses. Indeed, according to a 2012 USA Today article by CNBC correspondent, Mark Kuba, “in the past 20 years, 75% of American sports teams have either built or remodeled their venues, with luxury suite additions being a major reason for the construction and renovation.” “Suites now account for anywhere between 5% and 20% of total team revenue, according to the latest statistics.”
In the same article, Fordham business professor Mark Conrad explains, “[l]uxury boxes provide a constant flow, no matter how good or bad the team is playing. The payment is already made and it’s part of the revenue generated by the facility.”
With suites worth between $224,000 and $900,000, a year, it is little wonder that the 49ers recently sold well over $138 million worth of seating before their new Levi’s Stadium was even built.
And because these seats are purchased by corporate clients and high worth individuals (a demographic in no shortage in LA, often with an eye to entertaining and impressing clients, results on the field are of decreasing importance as compared to user experience. By putting the stadium downtown, the neighborhood’s confluence of mass transit, and experience in hosting large events, means the infrastructure necessary to support a team is mostly in place. Its accessibility would help drive attendance, and its proximity to the financial district would benefit the businesses likely to invest in premium seating. A 600 million dollar naming rights deal, environmental approvals, proximity to the ESPN campus, and year around business from the convention center makes the downtown option the best bet for a relocating team.
In light of the FCC’s abolishment of the blackout rule, there is no doubt that a television deal that includes an LA franchise would be exceptionally lucrative for the league. By engaging the second largest television market in the country, the league would be poised to cash in on a from television, sponsorships, and premium seating means the NFL’s return to LA not only makes common sense, but dollars and cents as well.
About the Author:
Mikhaile Savary is an entertainment attorney, sports agent, and ardent sports fan. Admitted in both New York and California, his legal practice focuses on music, television, and film finance and production. Additionally he represents a wide range of athletes in a variety of sports. He is the founding partner at sports and entertainment firm Mountain PSG, and currently resides in Los Angeles. For more, you can follow him @mikhailesavary, and the company @mountainpsg on twitter
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