On Tuesday afternoon, the world began to hear that the Rams’ disgruntled CB, Jalen Ramsey, had finally been shipped to another team. This wasn’t an unexpected change, despite Jaguars owner Shad Khan insisting that he’d be the one backing up the Brinks truck to keep the star. The Rams won the auction, earning them a new power player with roughly 1.5 years of team control. The price, however, was very steep.
The compensation: 2 first-rounders — one in 2021 — and a 4th rounder in 2021. And Jalen Ramey’s back will improve as well. https://t.co/4if42GLKIJ— Ian Rapoport (@RapSheet) October 15, 2019
Beyond that beautifully snide tweet, we learned that the Rams will likely go an addition two years without a 1st round pick. It’s a king’s ransom, and an extremely powerful move by the Rams to insist that they aren’t giving up on the season.
It was almost this exact day last year when some of the first concrete numbers began to leak about the Inglewood Stadium and the Chargers’ struggles to pull their own weight. Their PSL (Personal Seat License) sales were much lower than expectations, a situation that would threaten the viability of a stadium in non-Kroenke hands.
As the Bleacher Report explained on October 17, 2018:
According to Seth Wickersham of ESPN The Magazine, it has been a “struggle” for the Chargers to sell personal seat licenses for Los Angeles Stadium at Hollywood Park in Inglewood, California.
Wickersham added the Chargers are likely to revise their revenue goals from $400 million to $150 million as a result.
The issue actually brought discussion at the NFL League Meetings that week whether the Chargers were honestly a viable franchise in LA. Nothing concrete was discussed beyond that — at least from talking points in the media. In any event, PSL sales are incredibly important as a sort of in-kind financing to secure the monumental loans that make a building of this magnitude possible. There are over $2 billion in loan dollars to make the stadium work, and that is on top of a very significant personal investment from Stan and Ann Kroenke, in the form of the company Stadco L.A., LLC.
The LA Sports Business Journal puts their staggering number into perspective:
The Kroenkes’ $1.6 billion investment is higher than the final price of the last NFL team to sell, the Buffalo Bills, which were bought by Terry and Kim Pegula for $1.4 billion in 2014.
The collateral, if you will, for those incredible loan dollars is made up through four primary financial sources: Guaranteed loan money (The NFL’s $200 million-per-team stadium loans), reserve capital (Kroenke money ear-marked for stadium financing), PSL sales, and, occasionally, guaranteed partnerships and advertising (SocialFinancial is the largest at $400 million over 20 years). There can and often are additional elements, which you would expect with numbers this large, but these are the numbers that were spelled out in the business plan that set shovel to dirt. $400m NFL loan, $900m PSLs, $400m naming, and $1.60b personal capital work to secure bank loans of $2.25b.
It’s All According to Plan
Here’s where things get messy. While the Kroenke’s personal investment has risen to alleviate the loan discrepancy as the budget jumped from $2.6b to $5b, the PSL sales have lagged. While raw numbers aren’t accurately available yet, information from last year’s NFL league meetings indicated that the Rams were meeting their targets (presumably $500m+ as a goal). PSLs guarantee annual dollars coming in, which is an important guaranteed revenue source that helps lenders breathe easy when signing.
In 2018, the Business Journal clarified how the loans were secured:
The loans require pledges of revenue that is 1.75 times debt, the finance sources said. Including PSL sales, that suggests stadium revenue of close to $4 billion.
With current estimates having doubled the initial expense figure, we start to get an idea of how important PSL sales are, even if they don’t contribute the largest portion to the construction dollars.
We also know from those same meetings that the Chargers were failing to meet their quota of $400m. In fact, they revised their estimate to around $150m around that time. Forbes this week lists their estimated PSL pull at $100m, leaving a $300m deficit in these presumed funds.
Forbes also indicates that the Chargers will forfeit portions of future game revenue for failure to meet their quota. That’s all well-and-good, but PSL dollars are important because they are current cash in the bank as well. With every misstep the Rams’ hapless tenant takes, it threatens to negatively impact the stadium brand as a whole. More to the point, it threatens the availability of any future loans, requiring all additional dollars to be put up by the Kroenke family.
Thus, the Rams made a business decision to make a huge splash on another free agent. Whether or not the Rams can stay competitive this year, they need interest in the stadium project and their franchise to rise. If ticket buyers have reason to believe the team will be good next year, they are much more likely to buy a PSL. Every seat license that the Rams sell helps to make up the difference caused by the Chargers’ stumbles. This, in turn, alleviates the potential disaster that the Kroenke family would have if it commits more to the project than their franchise might be worth.
Jalen Ramsey might help the Rams keep relevant this year, but he’s more important in making sure that they still have sellable swagger into next year. With the presumed franchise faces of Goff and Gurley looking like less than sure bets, this addition helps sell those seat licenses that haven’t materialized for the Chargers.
-Jason “Dollars Make Sense” Michaels