San Diego Chargers Stadium: Looking at the economic potential between Inglewood and San Diego for Dean Spanos

Author's Note: Much of the following is my own speculation. Specific items will contain links to sources whenever possible.

Let's get this out of the way right now: Los Angeles is a much more lucrative market than San Diego. According to this article by Dan McSwain in the San Diego Union Tribune, some estimate annual revenues of close to $300 million per year.

However, it's not that simple for the Dean Spanos. In order to realize the maximum amount of revenue, he'll have to take on significant risk. If he wishes to avoid risk in Los Angeles, his revenue streams contain a definite ceiling.

And San Diego may still offer an appealing economic option. Let's take a look.

The High-Risk Inglewood Option

The first option we'll look at is the 50/50 partnership.

For those needing a primer, Rams owner Stan Kroenke offered this possibility to any team relocating to Los Angeles.  The deal would be to share the Inglewood stadium costs equally, while also sharing revenues (such as naming rights, PSLs, and sponsorships) equally. Initial estimated costs to build the stadium were $1.86 billion, while more recent estimates call for $2.66 billion.

We also have the Relocation Fee for Los Angeles, which if paid in full initially is about $550 million. If paid over time, it rises to $640 million.

With that in mind, let's look at the following table, which will illustrate the costs of relocation, for Dean Spanos if he chooses this option. To reflect the differing construction and relocation elements, there's a comparison of low costs and high costs.

Relocation Costs to Inglewood as Partner

	Low Costs	High Costs
Stadium Construction	$930	$1,330
Relocation Fee	$550	$640
Physical Relocation1	$100	$100
Stadium Loan2 5% annually/15 years	$72	$72
Subtotal	$1,652	$2,142
Interest 5% annually/15 years	$735	$914
Final Total	$2,387	$3,056

1. Physical Location includes construction of new team headquarters, purchasing land, rebranding, and physical relocation costs.
2. G4 Stadium Loans do not require the full $200 million to be repaid. Only $50 million is repaid as a loan with interest. This information was previously located on Falcons website for their new stadium, but the link has been disabled.

So, as you can see, Spanos will be on the hook for at least $2.3 billion dollars. If the higher costs for Inglewood are indeed accurate, that number rises to almost $3 billion dollars. Furthermore, as Inglewood's stadium has already been designed, the Chargers won't have any significant input into the stadium itself.

The Lower-Risk Inglewood Option

The second option we'll look at is the lease option.

The lease terms are pretty simple. The Chargers would be able to lease Inglewood for 1 dollar per year. The team gets to keep all of their own gameday revenue, plus a smaller split of naming rights, their own PSLs, and sponsorships.

Let's take a look at the next table, which will illustrate the costs of relocation for Spanos if he chooses the lease option. To reflect the differing relocation elements, there's a comparison of low costs and high costs.

Relocation Costs to Inglewood as Tenant Only

	Low Costs	High Costs
Relocation Fee	$550	$640
Physical Relocation	$100	$100
Stadium Loan 5% annually/15 years	$72	$72
Subtotal	$722	$812
Interest 5% annually/15 years	$322	$362
Final Total	$1,044	$1,174

The downside here being the Chargers have absolutely no control over any element of the stadium outside of their game days. All that said, I'd be more inclined to accept a lease arrangement, and save myself in excess of $1.5 billion in debt and interest.

Revenues in Inglewood to Cover Relocation

Of course, some revenues are relatively quantifiable.  For instance, we know that the Inglewood Stadium will draw a huge naming rights fee, and the Chargers will sell a huge number of PSLs.  Let's speculate on what those numbers might be

Naming Rights: As Inglewood is designed to feature two teams, as well as host a significant number of non-NFL events, I'm comfortable guessing the Naming Rights Deal will reach at least the $425 million threshold established at MetLife stadium in New York, and is likely to reach the $700 million offered by Farmers Insurance for the now-defunct Farmers Field.

Sponsorship Revenues should also be similar to those in New York, which has a sponsorship deal close to $960 million over 30 years (4 gates sponsored, each paying $8 million annually), which we'll use as a low. Let pencil in a potential high of $1.2 billion for the Inglewood Stadium (4 gates sponsored at $10 million annually).

PSLs may reach up to $1 billion in sales between 2 teams. That's based on the $531 million generated by the San Francisco 49ers in Santa Clara. On the lower end, I think we again look at the $814 generated by the New York teams combined as a reasonable floor.

Let's put these numbers together. The Partnership element will split Naming Rights as well as Sponsorships evenly, while the Lease element will assume a 75/25 split favoring the Rams.

Partnership vs Lease Revenue Comparisons

	Partnership		Lease
	Low	High	Low	High
Naming Rights	$225	$350	$113	$175
Sponsorships	$480	$600	$240	$300
PSLs Chargers	$407	$650	$407	$650
Totals	$1,112	$1,600	$760	$1,125

Looking at Inglewood Over 30 Years

Going back to the McSwain article mentioned above, as well as this column by Kevin Acee in the San Diego Union Tribune, we'll go with a range of Los Angeles revenues being 3 to 5 times what San Diego can generate. Which leaves us with the following revenues over 30 years:

• High end: $9 billion.
• Middle: $7.65 billion.
• Low: $6.3 billion.

Let's figure that the high end represents a franchise with a strong tradition and successful history. At this moment, this is neither the Chargers nor the Rams - although the Rams having a historical link to Los Angeles give them a leg up. So, let's compare those revenue totals to the amount of debt incurred by a franchise relocation to the Inglewood Stadium, as partners.

Potential Revenue in Inglewood as Partners

	Low	Middle	High
Before Debt	$6,300	$7,650	$9,000
After Low Debt	$3,934	$5,284	$6,634
After High Debt	$3,244	$4,594	$5,944

Remember, a team leasing in Inglewood will incur less debt, but will not bring in as much revenue. I'd argue the high end numbers are unattainable for a leasing team. To adjust for this, here are the revised numbers for a leasing team (I multiplied the partnership totals by .75 - though this is completely arbitrary on my part).

• High end: $6.75 billion.
• Middle: $5.74 billion.
• Low: $4.73 billion.

And let's compare those revenue totals to the amount of debt incurred by a franchise relocation to Inglewood, as tenants.

Potential Revenue in Inglewood as Tenant

	Low	Middle	High
Before Debt	$4,730	$5,740	$6,750
After Low Debt	$3,686	$4,696	$5,706
After High Debt	$3,556	$4,566	$5,576

Now, Let's Take a Look at San Diego

So, how on Earth can San Diego compete with any of these stadium offers? In terms of overall revenues, it can't. San Diego doesn't have the corporate/entertainment industry base Los Angeles does.

But that doesn't mean San Diego has nothing to offer. So, in order to figure out what San Diego offers, let's take a guess at what the Chargers would likely be willing to put into a stadium deal. I'm using $600 million as my number.

• $200 million in equity from the family/loan
• $100 million in PSLs
• $200 million in a G4 loan from the NFL
• $100 million from the NFL

In reality, of this $600 million, the Chargers would only be paying interest on $270 million maximum.

However, let's suppose San Diego insists the Chargers pay $750 million as part of any stadium plan, as the did with Mission Valley. Assuming all other numbers remain the same, that means the Chargers incur $420 million in debt.

So, how much revenue can San Diego realistically generate? According to Acee, this number is one-fifth to one-third of what Los Angeles can, while McSwain thinks it might be one-half. So, let's look at those revenue numbers over 30 years:

• High End: $4.5 billion.
• Middle: $3.15 billion.
• Low End: $1.8 billion.

Let's compare those revenue totals against the potential debt incurred:

Potential Revenue in new San Diego Stadium

	Low	Middle	High
Before Debt	$1,800	$3,150	$4,500
After Low Debt	$1,530	$2,880	$4,230
After High Debt	$1,380	$2,730	$4,080

So, we can all see that San Diego's revenue numbers are nowhere near as lucrative as they are in Los Angeles, unless you get to the high end projections. But you know what else San Diego doesn't have?

Risk. Put very simply, it's a safer investment.

And here's where I bring this back to how I think Dean Spanos should handle this.

Dean should first get his deal in place for Inglewood, both for partnership and lease, then go to San Diego and figure out if his deal can be made.

For all of the conversation about how much money Dean Spanos loses by not jumping immediately to Los Angeles, it's not that much in the grand scheme of things. Remember, the Chargers wont be realizing much of their new revenues until the Inglewood stadium opens, which isn't for another three seasons.

I'm really not convinced the Chargers lose that much money in playing at the Coliseum in 2016. And frankly, Spanos is better served putting a winning team on the field than worrying about getting to Los Angeles first.

So, what's the risk in giving San Diego one fair shot at the ballot box? Honestly, not very much. It improves the odds of the Chargers keeping much of their existing fan base if they are forced to move north following 2016, which is important to consider if the Raiders in fact make a play for San Diego in 2017.

In Closing

If you're talking about potential for big revenue, the decision is a no-brainer: the Chargers should move to Los Angeles.

However, if the Spanos family pursues a 50/50 partnership with Kroenke, they will be assuming two-to-three billion dollars in debt. This means that even if they are hitting the magic number of $300 million in annual revenue, they will not begin turning a profit for at least 10 years. For an ownership without deep pockets, this is an enormous risk.

The Spanos family can also pursue a lease arrangement in Inglewood, but even then will likely incur over $1 billion in debt. And while they will have an opportunity to generate large revenues, and begin to profit sooner, they will be somewhat limited in the amount of revenue generated.

By comparison, San Diego offers limited revenue opportunities, but San Diego also offers very low risk in terms of the amount of debt incurred.

By having their arrangement in Inglewood secured, the Chargers can pursue a low risk deal in San Diego while not losing out on the big revenues Los Angeles offers if a deal in San Diego cannot be done.