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NFL Ledgers Reveal Profits Depend on New Stadiums
(Quotes from McCombs at the end.)
Raider trial gives first look at team 'financials' detailing how public subsidies enrich owners.
By ALAN ABRAHAMSON and SAM FARMER, Times Staff Writers
Confidential National Football League financial documents, never before seen in full detail even by the 31 teams in the league, reveal a robust enterprise that gets more so each year as team after team moves into new or renovated stadiums, many paid for by taxpayers. The league is not as profitable as many American industries. But prospective owners keep bidding up the value of franchises, attracted by the allure of joining the select group that runs the country's most popular spectator sport. The New Orleans Saints, for example, actually lost $849,000 in 1999, but owner Tom Benson would probably be in for a windfall if he put the team on the open market, where the latest franchise to change hands sold for $700 million. The documents, entered into evidence in the Oakland Raiders' lawsuit against the NFL, itemize each team's revenue and expenses from 1995 through 1999. The documents also trace certain financial data as far back as 1989, making plain the import of a wave of stadium construction and renovation over the past decade across the nation. The figures are likely to spark further debate about whether public funds ought to be used for such facilities. They reveal: The average per-team operating profit, arrived at by deducting expenses from revenue, jumped to $11.6 million in 1999, up 68% from 1994. In 1999, the teams generated an average of $45.3 million in local revenue, meaning primarily the dollars that can be wrung out of a stadium, an increase of 80% from 1994. Each team's share of common revenue, mostly from merchandising and national television, was about $65 million in 1999, up about two-thirds from 1994. First in the financial ledgers in 1999 were the Cleveland Browns, an expansion team that--though horrible on the field, as most fledgling teams are--made a $36.5-million profit in its first year of NFL play. (A previous Cleveland Browns franchise moved to Baltimore in 1996.) Such performance underscores the value of a team playing in a stadium paid for primarily by taxpayers, where luxury boxes and club seats generate big revenue for the team. Cleveland was the third-highest generator of local revenue, money a team does not share with its NFL business partners and on-field competitors. On the other hand, owning an NFL franchise has to be viewed as a capital investment, not a short-term profit-maker. The initiation fee for the Cleveland Browns in 1998 was $476 million; an annual profit of $36.5 million is not even a 10% return. Then again, the league was able to entice businessman Robert McNair to pay $700 million in 1999 for a new Houston franchise to begin play next year, representing a 47% increase in asset value for the Cleveland franchise in one year. There is a loose correlation between financial success and success on the field. Three of the four teams in the past two Super Bowls--Baltimore, St. Louis and Tennessee--have moved into new stadiums in the past few years, in the process abandoning longtime fan bases in Cleveland, Los Angeles and Houston. They now rank in the top half of the league in local revenue. But of the 11 franchises that posted the poorest performance in generating local revenue, only three made the playoffs in 1999. "The disparity is real," Kansas City Chiefs President Carl Peterson said. And, he said, "It is widening." The Saints and the Minnesota Vikings are clearly the two most likely candidates for a possible move to Los Angeles, which has been without NFL football since 1995. Unlike the Saints, the Vikings made money in 1999, about $9.8 million. But that was below average. And, like the Saints, the Vikings rank near the bottom of the league in local revenue.
Long-Held Secrets Now on the Record The NFL has long guarded its revenue and expense numbers. It generates such figures on an annual basis, demanding that each team supply a variety of revenue and expense calculations. Then the league ranks each team and teams learn their own rankings. But, as former NFL President Neil Austrian testified in the Raiders' Superior Court lawsuit against the league, "No club gets the other club's financials." Until now. The financial data, complete with rankings of each of the 31 teams in a variety of revenue and expense categories, became Exhibit 681 in the Raiders vs. NFL case. The Raiders claim that the league sabotaged their plan to move into a proposed new stadium at Hollywood Park, forcing the team--which played in Los Angeles from 1982 through 1994--back to Oakland, its original home. The league has denied any wrongdoing. The team is asking for more than $1 billion in actual damages, plus punitive damages. The NFL financial documents were kept under seal before the trial started. During the trial, various league ledgers and memos were shown to the jury and then entered into evidence. Even so, the NFL objected to the release of Exhibit 681. Superior Court Judge Richard C. Hubbell agreed not to release the 100-page exhibit while jury deliberations continued. The jury finished its second week of deliberations on Friday. The Times had earlier obtained a copy of the document. When asked about the league's objection, league spokesman Joe Browne said, "I just think the less read about dollar signs, the better. This case involves potential damages." The 100-page memo contains myriad details, breaking out ticket sales, parking and advertising income, player costs and team expenses. Figures for the 2000 season, which concluded in January with Super Bowl XXXV in Tampa, Fla., are not yet available. The one financial facet the memo does not explore is the primary lure of NFL ownership--which relates less to any increase in operating profit and more to the way the value of an NFL franchise appreciates over time. An NFL team cost about $600,000 in the early 1960s, compared to $140 million paid for the Carolina and Jacksonville franchises in 1993 and $700 million paid for Houston in 1999. Why do millionaires keep paying huge premiums for teams, when they could undoubtedly generate higher operating profits in other businesses? As John Madden, the Fox TV analyst and former Raider coach, put it, "It's a very exclusive club. There's only 32, so you're one guy in 32. There are very few people who can afford it. You have to go quickly to that ego word." At the same time, the NFL is reaping the benefits of both a $17.6-billion TV deal, which runs from 1998 through 2005, and an unprecedented stadium boom. Over the past decade, according to evidence presented by the league in the Raider trial, about two dozen stadiums have come--or are coming--online. What's behind the push for new stadiums? "It's all about local revenue," the money each team keeps for itself, said Marc Ganis, a Chicago sports business consultant and expert on NFL finances. "Financially, the only way to differentiate yourself from the pack is to have a strong local stadium deal and strong local broadcasting [for preseason games] and sponsorship," Ganis said. A "strong" stadium deal can involve naming rights, advertising, concessions and, perhaps most important, luxury boxes and club seats. Luxury boxes typically sell for $50,000 and up, and a new stadium will have hundreds of them. Club seats give fans access to an upscale club at the stadium where the game is on TV and they can enjoy (in theory) better food; fans pay a premium for those seats. The impact--and the lure--of a new stadium has dramatically reshaped the NFL.
A New Stadium Can Make All the Difference The Washington Redskins, for instance, ranked 17th in the league in locally generated revenue in 1996, the team's final year in aging RFK Stadium. In 1997, the team moved to a new stadium in the Washington suburbs, a privately funded facility now called FedEx Field. That year, the Redskins soared to No. 2 in the league in local revenue. In 1998, they were No. 2 again. In 1999, they led the league, with $83.9 million. The Redskins ranked second in 1999 in the league in operating profit, clearing about $32.4 million. According to testimony in Superior Court, the league projected that the Raiders would have local revenue of $99 million in 1997, the first year of operations at Hollywood Park. That theoretically would have put the Raiders near the top of the league that year. In Oakland in 1997, the Raiders had $29 million in local revenue, $74 million in total revenue--19th in the league in both categories. Members of the NFL's internal Finance Committee, which was charged with oversight of the Hollywood Park proposal, saw the Raiders' proposed revenue figures in the spring of 1995. It's unclear whether those numbers provided the impetus for what happened thereafter. But it's indisputable that, in the months afterward, several of the committee members began pushing for their own new stadium deals, in some cases going so far as to uproot their franchises. Bud Adams, the 1995 Finance Committee chairman, moved his Houston Oilers to Tennessee before the 1997 season. The Titans, as the team is now known, play in the new Adelphia Coliseum in Nashville and had $32.1 million in profit in 1999, third in the league. Art Modell, the longtime owner of the Cleveland Browns, announced on Nov. 6, 1995, that he was moving to Baltimore--setting in motion a long and complex process that ultimately put the Cleveland franchise in Baltimore, renamed the Ravens, and prompted the NFL to award an expansion team to Cleveland, again to be called the Browns. The new Browns ranked third in the league in local revenue in 1999, with $67.2 million. The Ravens were fifth, at $56.4 million. Denver Bronco owner Pat Bowlen, testifying in the Raider case, said that he expects his team's local revenue to jump by $40 million because the Broncos will begin play this year at a new stadium literally next door to the old one. That's money available to an owner to pay players, coaches--or whatever. Player salaries are typically a team's leading expense. The NFL theoretically controls this expense through a league-wide salary cap, but bonuses and other forms of remuneration can be accounted for in a variety of ways. As Bowlen said in court, $40 million more per year makes a team far more appealing to prospective free agents who might become impact players right away. "If you're below average, substantially below average [in revenue] . . . you're losing more and more ground every year," said Ganis, the sports business consultant. Thus the motivation for teams in the bottom tier of local revenue rankings to catch up via a new stadium--whether in a team's longtime home, or in Los Angeles, or somewhere.
Doing the Math of an NFL Return to L.A. The possibilities in Los Angeles are hard to ignore. This is the nation's No. 2 television market. This is the world's entertainment capital. If a new stadium were to be built here, the NFL made clear during the presentation of evidence in the Raider trial, the league would be delighted to once again hold Super Bowls here regularly. It makes little financial sense for an existing team to move to Los Angeles, however, unless a new stadium is built and revenue generated from the stadium is given to the team. If there existed such a state-of-the-art facility, an NFL team in Los Angeles would clearly be a boon to the league, said David Carter, who teaches sports business at USC. A stable team in new digs would boost the NFL's national TV profile, generate millions in local corporate support and enhance the NFL's "brand"--all of which would "positively contribute to franchise values," Carter said. Then again, an NFL-less Los Angeles is a "valuable asset" to NFL owners. The reason: leverage. With Los Angeles vacant, any owners contemplating a new deal can "use the threat of relocation to extort public subsidies from their current cities to build them state-of-the-art stadiums that become cash cows for the owners," he said. All things considered, Raiders owner Al Davis has let it be known he would rather be in Los Angeles than Oakland. The Raiders' local revenue has hovered near $30 million annually since the move to Oakland in 1995. The team ranked 28th in that category in 1999. The three teams below the Raiders in 1999 were Detroit, Arizona and Cincinnati. A new Detroit stadium is scheduled to open in 2002. Voters in Arizona last November, by a margin of 51%-49%, approved $1.8 billion in increased taxes on rental cars and hotels, more than $330 million of it to go for a new stadium. A new stadium in Cincinnati opened last fall. Just above the Raiders on the list are Atlanta, No. 27, and Chicago, No. 26. In January, Illinois Gov. George Ryan signed legislation that will put the Chicago Bears in a new lakefront stadium by 2003. The Falcons play in the relatively new Georgia Dome, site of the 2000 Super Bowl. But Atlanta is an "anomaly," Ganis said, "a pretty poor sports town" where even the baseball Braves have had trouble drawing sellouts to playoff games. The Falcons have no interest in moving to Los Angeles, said the team's general manager, Harold Richardson. "I would say that's never been discussed. We fully intend on staying in Atlanta." No. 25 on the 1999 local revenue list is the Saints. No. 24 is the Vikings. Seattle (No. 23), Pittsburgh (No. 22), Denver (No. 21) and Philadelphia (No. 20) all have new stadiums in the works. Last week, the Saints proposed what they called a "framework" to keep the team in town at the aging Superdome. Earlier this year, the team had filed notice that the dome was in violation of the team's lease by providing a dingy and depressing atmosphere for games. Short-term, the proposal would keep the Saints in the dome for the next five years with "enhanced" local revenue. Long-term, it involves a new stadium to be ready by 2006. If it doesn't happen? "I can't comment on that," said Arnold Fielkow, the Saints' director of administration. Asked if the Saints were interested in Los Angeles, he replied, "I'm not going to respond to that." Fielkow declined to confirm or deny the Saints' $849,000 loss outlined in the NFL memo. But he did say, without providing backup numbers, that the team has dropped to 28th in the league in total revenue and is projected to be last in 2002. "We're significantly behind the rest of the league in total revenue, much of which comes from the playing facility," he said. "The economic landscape of the league has changed dramatically over the past decade." The Vikings play in another aging dome, the Metrodome, built in 1982. Their drive for a new stadium has intensified since Texas businessman Red McCombs bought the team in 1998. "From a business perspective, those teams that don't have [a new stadium] won't be able to operate," McCombs said. "It's not an issue of whether you'd like to or not." An outspoken roadblock standing in the Vikings' path is Minnesota Gov. Jesse Ventura. He has steadfastly opposed spending public money to bankroll stadiums for pro teams. The Vikings' lease extends through the 2011 season. But McCombs said there are provisions that would allow the Vikings to buy out the remaining years and leave early. "We haven't even looked at our options because we can get something done here," he said. But he also could not deny the appeal of Los Angeles--which 40 years ago drew the NBA Lakers from Minneapolis. "Realistically," McCombs said, "whether you own a team or not, you have to say L.A. is a market that would interest anyone that's not in it."
-- Mark (Karch firstname.lastname@example.org), May 25, 2001
That last sentance is rather haunting if you ask me.
-- IZ (email@example.com), May 25, 2001.
"Chilling" is more like it!
-- Jan Zumbo (firstname.lastname@example.org), May 31, 2001.