FanPost

Chargers Financial Situation

Back in December 2020, I posted this FanPost: Value of Chargers Move to LA. Given some developments since then, I figured it was a decent time for an update.

Value Increase Since Leaving San Diego

In that previous post, I posted this:

The clear implication of the Spanos decision to move the Chargers to LA is that the Spanos family thought doing so under the terms they agreed to would increase the value of the franchise more than any alternative path. That is simply not true.

There are easy ways to show this.

1. In September 2016, the Chargers' last season in San Diego, Forbes assessed that the Chargers franchise was worth $2.08B, which was #21 among NFL franchises. In September 2020, Forbes assessed that the Chargers franchise was worth $2.6B, which was... #21 among NFL franchises. So relative standing is unchanged.

2. The average value of NFL franchises in that 2016 assessment was $2.34B. The average value of NFL franchises in that 2020 assessment was $3.05B. That is an average increase of 30.1%. The Chargers franchise increase was 25%. So the Chargers value grew at a below average rate.

3. The Raiders are the other team that moved at the same time as the Chargers, and they were similar to the Chargers in terms of being constrained financially relative to most other NFL franchises. In September 2016, the Raiders franchise value was assessed at $2.1B, ranking #20, one spot ahead of the Chargers. As of September 2020, Forbes assessed the Raiders franchise value at $3.1B, ranking #12 among all NFL franchises. Clearly, there was at least one better alternative available; the Raiders took it.

The Forbes article for 2022 won't be out for a couple months, but we can look at the 2021 article for updates. Using the same numbers as above:

1. In the 2021 ranking, the Chargers ranked #23, at $2.92B. So they have slipped two spots relative to the other NFL franchises since 2016.

2. The average value of NFL franchises in 2021 was $3.48B, an average increase of $1.14B (48.7%) since 2016. (In just 5 years... with two of them negatively impacted by the COVID pandemic... turns out NFL franchises are a great investment...) The Chargers value has increased by "just" $840M (40.4%). Continuing their trend of growing at a below average rate since the move.

3. Meanwhile, the Raiders value is up to $3.415B, which ranks #16. Since 2016, that franchise value has increased by $1.315M (62.6%). Wow. Turns out that NFL franchises working out their own stadium deals rather than being a tenant in another franchise's stadium might actually affect the bottom line!

Own Stadium Value

I followed those quotes above with this:

I would argue that there was also another better alternative. Had the Chargers been willing to spend the $650M they took on for their relocation fee on a San Diego area stadium, plus the $300M the NFL would have provided, and been more flexible about the stadium location (e.g., Mission Valley), they likely would have been able to get the city/county/state to chip in the rest.

Then they would have held majority ownership in a brand new, state of the art stadium which would have elevated their franchise value at least as much as it has grown since 2016. Spanos only offered to put up $350M toward a San Diego stadium, but took on twice as much as that for the relocation fee and the move, neither of which provides the franchise with any equity. It is easy to look at the Forbes list and associate positive value with stadium equity, and the Chargers have none, and they never will as long as they are Kroenke's tenant.

Doesn't seem like a smart business decision in retrospect, especially considering they gave up their San Diego fan base and haven't seemingly been able to build one in LA, which also has some effect on the long term bottom line.

I get that very few people posting on this site are likely to speak favorably about the move, but even an objective assessment shows that they bungled this decision pretty severely.

Nothing I have seen to date has changed my opinion on that.

2021 Financial Breakdown

  • Sport - $2.688B
  • Market - $100M
  • Stadium - $43M
  • Brand - $90M

As a point of comparison, consider the breakdown for the rival Raiders:

  • Sport - $2.735B
  • Market - $234M
  • Stadium - $210M
  • Brand - $237M

Look at the gaps in market, stadium, and brand value. Once again, here is evidence that the path the Chargers took didn't pay. And, frankly, all of this was foreseeable. I'm not surprised at all.

Consider a couple more metrics from that 2021 Forbes ranking:

  • The Chargers were dead last in Operating Income, at -$49M. I have to assume that has something with getting zero non-gameday revenue from their venue.
  • The Chargers have the 4th highest Debt/Value ratio in the league at 27%. The only three worse were the Rams (66%), Raiders (45%), and Falcons (31%). But those franchises all have new stadiums and financed at least $600M for them. Plus the Rams and Raiders also had recent relocation fees. That's all the Chargers have... and they don't have the same level of annual revenue or operating income to help them pay down that debt.

And it might get worse...

Lawsuit #1 -- Dean Spanos

There are some potential developments that could affect the franchise value going forward, at least as relates to current ownership.

First, as reported on BFTB, Dea Spanos has sued her brothers: Dean Spanos is being sued by his sister for ‘misogynistic’ behavior, breaches of fiduciary duty. I found this quote from that article interesting and on point:

She also contends that the decision to move the Chargers to Los Angeles has proved "financially ruinous" which could end up forcing the family to sell the team in order to pay back debts amounting to over $358 million.

It is at least conceivable that Dea wins outright and gains enough of a controlling stake to sell the franchise or forces a settlement that the other Spanos owners cannot pay out without selling the franchise.

Don't get me wrong, I'm not holding my breath for Dea to win, and I further assume it will take years to play out.

But there is another possible development.

Lawsuit #2?

I don't remember talking about this in this forum, but maybe I have forgotten. But consider this from former San Diego city attorney, Michael Aguirre: Opinion: With Chargers move, San Diego has clear path to compensation from the NFL.

Last November, the NFL and Rams settled with St. Louis: NFL and Rams reach $790 million settlement in St. Louis relocation case. That settlement amount was paid out to the plaintiffs in that case by the end of 2021.

As part of reaching that settlement, Kroenke backed out of his agreement to indemnify the other owners from costs associated with the lawsuit: Los Angeles Rams owner Stan Kroenke angers NFL owners with financial pivot related to lawsuit on St. Louis move, sources say.

In addition to the $790M and plaintiff attorney fees, that article states:

The case has entangled all 32 teams and cost millions in legal fees, which to this point have been mostly covered by Kroenke under an indemnification agreement he signed as part of the relocation. For some teams, the bills have run to eight figures.

It gets more interesting: NFL charged $7.5M per club for Rams settlement despite Stan Kroenke’s assurance. From that article:

Rams owner Stan Kroenke is still resisting pressure to pay for the entirety of the $790 million settlement of the lawsuit by Missouri government entities over the 2016 Rams relocation from St. Louis to Los Angeles. Kroenke agreed as part of the 2016 owners’ vote approving the move to indemnify the league against all legal costs.

That $7.5M per franchise, assigning the Rams an equal share, adds up to $240M. I haven't seen a clear indicator of how the rest of the $790M plus attorney fees -- $550M -- were paid.

That previous quote makes it seem like that could be up in the air. The league apparently covered that $550M delta to make the required payout date, but perhaps Kroenke is not yet off the hook. That ESPN article linked above says he was possibly prepared to sue the league over the indemnification agreement, but I don't think that has happened... yet.

It turns out that the Chargers and Raiders also signed the same indemnification agreements. So, if San Diego sues the Chargers and the NFL, this same type of scenario could play out... but with precedents established:

  • The St. Louis settlement helps San Diego's case and makes it more likely San Diego could achieve a similarly high settlement figure.
  • The other owners were clearly angered, and justifiably so IMO, to have to cover the cost of the settlement from their own money and the league reserves. That was for Kroenke, who up to that point had been viewed as one of the stronger owners who was doing good for the league (reclaiming LA, SoFi). How will the other owners react if Dean tries to get out of similar settlement costs? He could easily get stuck with the whole bill... which he almost certainly cannot afford without selling the franchise.

Plus, there is this from the ESPN article:

But in 2019, an ESPN report on the Rams-Chargers marriage detailed that discovery in the lawsuit had turned up an email from an official affiliated with the competing Carson proposal that outlined to St. Louis authorities all the ways the Rams seemed to be in violation of the league's relocation policy, providing a blueprint for the city of St. Louis' lawsuit.

A source close to Kroenke says now that the Rams owner believes that some of the legal issues arise from that email and that after building the stadium and agreeing to house the Chargers as a tenant for $1 a year, he shouldn't be responsible for all legal fees.

So the Chargers were partly to blame for events that led to the settlement. More importantly, this shows the Chargers were aware of the underlying issues relating to the NFL's relocation policy and need for good faith negotiations to prevent relocation. That could hurt them in any San Diego lawsuit.

Conclusion

Telesco may be in the process of getting himself out of the doghouse with Chargers fans, and there is great reason for optimism about how the team will perform in 2022. But Spanos still remains one of the worst owners in the NFL.

It still seems obvious to me that he made the wrong decision when he left for LA, hurting the value of his franchise while also going scorched earth on most of his previous fan base, which had been loyal throughout his inept tenure.

It doesn't really seem that the dust has settled on the move and all of its ramiifcations. IMO San Diego should sue. If they do, combined with the Dea Spanos lawsuits, current ownership may actually have a real problem.

Thoughts?

This FanPost was written by a member of the Bolts From The Blue community and does not necessarily reflect the views of the Bolts From The Blue editors or SB Nation.