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Author's Note: The post has been updated to accommodate information which was not known to the author at the time of posting, and /or made assumptions based on unsubstantiated information. This was a research failure on the part of the author, and areas of the post will be marked with an asterisk (*) to indicate where changes have been made.
Let's assume for the moment that the Carson Stadium project is selected by the NFL at the end of 2015. I'll be the 1st one to say that the project (financially speaking) should be financially viable with both the Chargers and Raiders sharing the facility from the beginning.
However, if I was the Chargers, I wouldn't feel too confident about Mark Davis as a potential partner.
So, the real question behind Carson is whether or not the Chargers can afford Carson on their own.
What do the Chargers take into Carson right now?
The Spanos family is worth approximately $1.26 billion dollars, according to Forbes. The Chargers account for just under $1 billion of that value. And, even though, the Chargers have claimed that the project would be less expensive with only one team, I disagree. The stadium will still cost $1.7 billion, with or without two tenants. This is because the NFL will want any stadium in Los Angeles to be built with the ability to host two teams.
*Changes in the NFL Loan Program
One thing that neither team is supposed to Carson is money from NFL's G4 Stadium Loan Program. The NFL rules state these loans may only be used by teams if there is a public financing component to the stadium plan, and as long as the team is not relocating to another market.
This however, may have quietly changed. According to this article in the OC Register, the NFL appears to be creating a new fund specifically for the construction of the Carson stadium project. If this account is true, it means the Chargers would likely have access to $200 million from the NFL, whether building a stadium in Carson or San Diego.
Authors Note: Before continuing forward, many of the estimates below are based on known agreements in other locations, but in the end are my guesswork, unless otherwise specifically linked.
Personal Seat Licenses.
One of the big benefits of having two teams in Carson is that you'd have the ability to sell twice as many Personal Seat Licenses (PSLs). Some have speculated the Carson stadium project could sell up to $1 billion in PSLs.
*However, if the Chargers go this road alone, they won't have the Raiders around to sell several hundred million in PSLs. Furthermore, guessing PSL revenue can be tricky. According to this article from ESPN, the original projection for the San Francisco 49ers in Santa Clara was about $312 million. This article indicates the 49ers sold $531 million in PSLs, which has set the Levi's Stadium project ahead of schedule to be paid off. However, the Chargers don't have the name brand recognition to sell $650 million in PSLs like the Dallas Cowboys, or even the $531 million like the 49ers. The Giants and Jets together pulled in about $814 million in New York. I have a hard time believing the Chargers will generate more than $400 million in PSL sales, even in Los Angeles.
Naming Rights
I simply don't think Naming Rights will approach the $700 million which was pledged for Farmers Field. This is because Farmers' Field was attached to LA Live and the Los Angeles Convention Center, which ensured virtual year-round usage. A single team in Carson might expect to get $450 million in Naming Rights for the Los Angeles market. For comparison, MetLife Stadium pulls in $425 million over 25 years, at a facility with two tenants. On the bottom end, the Chargers might be looking at something closer to $250 million as the lone tenant, which is more than the San Francisco 49ers received for their stadium in Santa Clara.
Sponsorship Deals and Miscellaneous Revenue.
Let us also assume the Chargers reach a sponsorship deal similar to the one reached for MetLife Stadium and add some extra revenue, with four sponsors paying $10 million each per season for 25 years. That's $1 billion. However, that's for a facility with two teams. If the Chargers go it alone, I think that number comes down to $7 million each per season over that time. That equals about $700 million. If it's low, I think you're looking at something like $5 million each per season, which over time would pull in $500 million.
Let's also figure on another $300 million in other revenues from merchandising, parking, concessions, and other sources. With that in mind, let's take a look at the numbers, with high, middle, and low projections.
*Total Revenues against Stadium Cost
| Carson Stadium Project | $$$ in millions | ||
|---|---|---|---|
| Revenue Sources | High | Middle | Low |
| PSLs | $600 | $450 | $300 |
| NFL Loan | $200 | $200 | $200 |
| Naming Rights | $450 | $350 | $250 |
| Sponsorship Deals | $1,000 | $750 | $500 |
| Miscellaneous | $300 | $300 | $300 |
| Totals | $2,550 | $2,050 | $1,550 |
| Difference | $850 | $350 | -$150 |
As you can see, everything looks great if the team hits the high numbers. The stadium is paid for, with an additional $850 million to cover cost overruns, lawsuits causing delays, labor issues, or remedial issues with the site.
Things still look good for the middle numbers. The stadium is paid for, and there's $350 million left over to handle anything that comes up.
If, however, the Chargers are wrong about PSL sales, Naming Rights, and Sponsorships, they could be looking at a deficit of $150 million, and that's assuming everything goes right during construction.
*The Other Costs of Moving to Los Angeles
However, relocation to Los Angeles carries with it a Relocation Fee. According to this article in the OC Register from last fall, the Relocation Fee could be $250 million. Nick Canepa in the UT San Diego recently speculated it could reach $500 million. For the sake of argument, let's use $250 million as the low number, $375 as the middle, and $500 as the high number.
Now, let's further add in $10 million in rent per year for the Los Angeles Coliseum, the Chargers' temporary home. Based on design and land remediation delays mentioned in my last post about the Carson project, we should guess at least four years, assuming a move in 2016. Let's add in another $100 million in tenant improvements for the Coliseum, to satisfy the high-rollers waiting on Carson. Let 's now add $50 million for a new state-of-the-art practice and training facility in Los Angeles, and figure another $20 million in moving costs, such as physical relocation, rebranding, temporary offices, and so on.
The total price tag for moving to Los Angeles, with the stadium and everything else, works out as follows:
- High End: $2.41 billion.
- Middle: $2.285 billion.
- Low End: $2.16 billion.
Here's another table, showing the comparisons:
| Carson Stadium project | $$$ (in millions) | ||
|---|---|---|---|
| Total Relocation Cost | |||
| Revenues | High ($2,410) | Middle ($2,285) | Low ($2,160) |
| High ($2,550) | $140 | $265 | $390 |
| Middle ($2,050) | -$360 | -$235 | -$110 |
| Low ($1,550) | -$860 | -$735 | -$610 |
There's also stadium upkeep and maintenance to consider - probably at least $15 million a year. Over 25 years, that works out to $375 million. Will the raised ticket prices and luxury box sales cover those costs? Certainly, as long as the team is competitive. Can the Chargers book enough additional events at an outdoor stadium to generate the extra revenue needed? Quite possible, especially if additional development takes place at the Carson site. Since the Chargers haven't released a financing plan for Carson yet, we have no idea what they think they'll get.
And if anything doesn't work out the way Spanos hopes, will he be on the hook, or will the Chargers find some way to stick Carson with the bill? By the way, this is a major reason why the Inglewood project is likely going to be chosen. Stan Kroenke can simply write a check if things don't work out perfectly in Inglewood.
Otherwise, there's only one asset that Spanos has which could possibly make up that kind of deficit... the franchise itself. I'd guess the Chargers are worth at least $3 billion if they move to Los Angeles. That means if the deal doesn't work out as well as they hope, Spanos is looking at selling anywhere from 3% - 25% of the franchise to cover relocation costs.
In Summary
Based on all the information above, I think the Carson deal works if the costs are shared by two franchises.
On the other hand, if the Chargers attempt to make this move on their own, there's not a ton of room for error. There's not enough money coming in to cover the total relocation costs for the Chargers unless they reach the high end of revenue projections, and the Spanos family doesn't have the financial backstop to make it work if things don't go perfectly, without potentially giving up a significant part of the franchise. If the Spanos family wanted to do that, they'd have made the Farmers' Field deal years ago.
Until the Chargers produce their financing plan, and they have hard commitments for potential revenue, we can't accept their plan to move to Carson is a much of a slam-dunk as it might otherwise seem.