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San Diego Is Chargers' Problem

The Chargers say they have a problem: Qualcomm Stadium is antiquated. Sorry. The Chargers’ problem is much broader and deeper than that. The Chargers have a problem with San Diego. Period. It’s not big enough or rich enough to satisfy the financial ambitions of the ownership.

I recently had an email colloquy with Mark Fabiani, the team’s special counsel. His answers to my questions were revealing. He says the team is sedulously working to remain in San Diego. But I suspect he realizes that that is impossible, given the management’s monetary desires. I have thought for years that the team wanted the rich Los Angeles market. Economic and political conditions may prevent that for a while — perhaps a very long while. But unfortunately, the horrible City/Chargers contract inked in 2004 permits the team to walk off without saying a word beforehand. Therefore, the Chargers don’t have to move to L.A. and play in the Rose Bowl or Coliseum until a new stadium is finished. The Chargers can stay mum until a stadium is completed and suddenly move.

Other teams, however, want that juicy Los Angeles market. So the Chargers don’t have a sure thing. If they continue playing at Qualcomm, they will make plenty of money — just not as much as they could make in Los Angeles or a handful of other markets.

Says Fabiani, “Simply put, our stadium does not allow the Chargers to remain financially competitive with the top teams in the NFL (all of which are playing in, or about to begin playing in, new taxpayer-subsidized facilities). Qualcomm Stadium’s luxury boxes and club seats do not have the amenities for which customers in other markets are willing to pay top dollar.” He is talking about “luxury boxes, club seats, and electronic signage/sponsorship opportunities” that “create a huge and growing financial chasm between the Chargers and the top teams in the NFL.” (Because of so much revenue sharing, I don’t think there is any “huge” chasm, but that’s another subject.)

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Sponsored

Fabiani goes on to say that luxury boxes and club seats were “both virtually sold out last season.”

That’s a mouthful. The Chargers virtually sold out the luxury boxes and club seats, but that’s not good enough. Let’s face facts: only a big, rich market could create the income stream that the Chargers’ management covets. San Diego cannot provide this. First, the business mix in San Diego does not lend itself to providing whopping revenues from super-luxury boxes. San Diego is filled with capital-intensive, cerebrally oriented companies (biotechs, telecoms) that can’t afford to entertain in luxury boxes and really aren’t suited to doing business at football games anyway. The real estate companies used to throw money around, but now they are struggling to survive. The big hotel owners still have money to burn, but there aren’t enough of them. Similarly, the average San Diegan is squeezed: the cost of living is 50 percent above the nation’s, but incomes are only 20 percent higher.

Bottom line: even if the Chargers built a new stadium, they would find that they couldn’t get that much more revenue from the corporations, superrich, and average fan. San Diegans, including most companies, live on psychic income. That won’t satisfy the Chargers. A new stadium would cost well over a billion dollars. The team could not recover those extra costs, even with a large government subsidy.

And that brings us to today’s macroeconomic situation. Governments at all levels are ailing. The City of San Diego is one of the worst off in the nation. Chula Vista, with which the team is now having discussions, is hurting. The recession will inhibit consumers for probably two more years. Building costs have soared. All around the country, housing markets are in desperate shape; teams’ hopes of financing stadiums with revenue from condos are, frankly, shot. The credit crunch is likely to last into 2010. The National Football League could have a strike or lockout in 2011; that prospect could cool off the building of new stadiums.

“Tax revenues are falling, governments are struggling,” says Dennis Coates, economist at the University of Maryland, Baltimore County. With real estate in the Dumpster, the always-specious argument that stadiums spur development is a tougher sell.

Rodney Fort, professor of sports management at the University of Michigan, agrees with Coates: in the near future, the private sector will have to put up more of the money. “Governments are less willing to foot the bill,” he says, so the teams will have to come up with more scratch. The NFL itself might put more into new stadium deals; it has always wanted desperately to return to Los Angeles, and in that 2004 contract, San Diego promises not to sue the league, which was already talking with L.A. at the time of the negotiations.

Fabiani admits that “Today, there is no chance that the Mission Valley project could be financed.” The housing market has “declined dramatically,” while stadium construction costs have skyrocketed. In my judgment, that deal was a fairy tale back in 2002 when the Chargers proposed it.

Fabiani believes a deal can still be worked out in Chula Vista. But 60 to 70 percent of the houses for sale in Chula Vista are distress sales. Fabiani hopes there could be a “consortium of universities” on the east side that could produce “a mix of development… that would include more than housing.” Sorry. “A consortium of universities” is not going to spring out of the ground in eastern Chula Vista. It might get a branch of a community college or of San Diego State, but that would be a long time away, and modest at best. Eastern Chula Vista is one of the messiest housing markets in the county. Fabiani admits, “We are a long, long way from moving forward” in Chula Vista.

He sums up, “The credit crunch, skyrocketing raw material costs, and [the] housing-market collapse are huge issues, and that is why completing our project in San Diego County becomes more difficult by the day.”

That is another mouthful. He is telling San Diegans to be ready for a departure, although he is not that blunt about it.

A billionaire developer named Ed Roski says he will build a privately funded football stadium in the City of Industry, 25 miles east of Los Angeles. He says he can start construction in October and claims he has financing. (He is a known dreamer/huckster, so eyebrows are always cocked at his pronouncements.)

In telling me that the Chargers are not likely to keep their plans secret from San Diegans, as the contract permits, Fabiani says, “When Ed Roski announced his City of Industry stadium proposal, we proactively told the media and our fans of the long friendship between the Roski and Spanos families and about the fact that Ed Roski and Dean Spanos [have] talked about Mr. Roski’s plans for a stadium in the Los Angeles area.” But the main focus is on San Diego, Fabiani insists.

But his statement should not be comforting to Charger fans. On the other hand, NFL owners are said to be talking about cities with “stadium issues” — that is, teams that reside in cities that won’t or can’t come up with gigantic subsidies or might even think there are better uses for public funds than supporting pro teams owned by billionaires. Teams considered the best candidates for departure are the Minnesota Vikings, Oakland Raiders, Chargers, and San Francisco 49ers. In the second tier are the Jacksonville Jaguars, New Orleans Saints, Buffalo Bills, and St. Louis Rams. (The Raiders and Rams were both domiciled in Los Angeles at one time.)

My guess is the Chargers are Roski’s lead candidate. The Chargers would have to pay a penalty of more than $50 million to leave between now and 2010, but the sum drops to $26 million in 2011 and keeps declining. In that 2004 contract, the City gave the Chargers every incentive to scram. They would like to do so. The year 2012, the year following a possible players’ strike or owners’ lockout, and possibly in a better economic/financial environment, seems logical.

Every entrepreneur wants to make more money. In the world of pro sports, there is no such thing as community loyalty, especially when such loyalty is spelled S-U-B-S-I-D-Y and the government is broke.

Reader poll

What should the Chargers do at this point?

  • Stay in San Diego – we should spend whatever it takes to keep them here. 23%
  • Stay in San Diego – but they should pay their own way. 35%
  • Leave for all I care. 42%

194 total votes.

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The Chargers say they have a problem: Qualcomm Stadium is antiquated. Sorry. The Chargers’ problem is much broader and deeper than that. The Chargers have a problem with San Diego. Period. It’s not big enough or rich enough to satisfy the financial ambitions of the ownership.

I recently had an email colloquy with Mark Fabiani, the team’s special counsel. His answers to my questions were revealing. He says the team is sedulously working to remain in San Diego. But I suspect he realizes that that is impossible, given the management’s monetary desires. I have thought for years that the team wanted the rich Los Angeles market. Economic and political conditions may prevent that for a while — perhaps a very long while. But unfortunately, the horrible City/Chargers contract inked in 2004 permits the team to walk off without saying a word beforehand. Therefore, the Chargers don’t have to move to L.A. and play in the Rose Bowl or Coliseum until a new stadium is finished. The Chargers can stay mum until a stadium is completed and suddenly move.

Other teams, however, want that juicy Los Angeles market. So the Chargers don’t have a sure thing. If they continue playing at Qualcomm, they will make plenty of money — just not as much as they could make in Los Angeles or a handful of other markets.

Says Fabiani, “Simply put, our stadium does not allow the Chargers to remain financially competitive with the top teams in the NFL (all of which are playing in, or about to begin playing in, new taxpayer-subsidized facilities). Qualcomm Stadium’s luxury boxes and club seats do not have the amenities for which customers in other markets are willing to pay top dollar.” He is talking about “luxury boxes, club seats, and electronic signage/sponsorship opportunities” that “create a huge and growing financial chasm between the Chargers and the top teams in the NFL.” (Because of so much revenue sharing, I don’t think there is any “huge” chasm, but that’s another subject.)

Sponsored
Sponsored

Fabiani goes on to say that luxury boxes and club seats were “both virtually sold out last season.”

That’s a mouthful. The Chargers virtually sold out the luxury boxes and club seats, but that’s not good enough. Let’s face facts: only a big, rich market could create the income stream that the Chargers’ management covets. San Diego cannot provide this. First, the business mix in San Diego does not lend itself to providing whopping revenues from super-luxury boxes. San Diego is filled with capital-intensive, cerebrally oriented companies (biotechs, telecoms) that can’t afford to entertain in luxury boxes and really aren’t suited to doing business at football games anyway. The real estate companies used to throw money around, but now they are struggling to survive. The big hotel owners still have money to burn, but there aren’t enough of them. Similarly, the average San Diegan is squeezed: the cost of living is 50 percent above the nation’s, but incomes are only 20 percent higher.

Bottom line: even if the Chargers built a new stadium, they would find that they couldn’t get that much more revenue from the corporations, superrich, and average fan. San Diegans, including most companies, live on psychic income. That won’t satisfy the Chargers. A new stadium would cost well over a billion dollars. The team could not recover those extra costs, even with a large government subsidy.

And that brings us to today’s macroeconomic situation. Governments at all levels are ailing. The City of San Diego is one of the worst off in the nation. Chula Vista, with which the team is now having discussions, is hurting. The recession will inhibit consumers for probably two more years. Building costs have soared. All around the country, housing markets are in desperate shape; teams’ hopes of financing stadiums with revenue from condos are, frankly, shot. The credit crunch is likely to last into 2010. The National Football League could have a strike or lockout in 2011; that prospect could cool off the building of new stadiums.

“Tax revenues are falling, governments are struggling,” says Dennis Coates, economist at the University of Maryland, Baltimore County. With real estate in the Dumpster, the always-specious argument that stadiums spur development is a tougher sell.

Rodney Fort, professor of sports management at the University of Michigan, agrees with Coates: in the near future, the private sector will have to put up more of the money. “Governments are less willing to foot the bill,” he says, so the teams will have to come up with more scratch. The NFL itself might put more into new stadium deals; it has always wanted desperately to return to Los Angeles, and in that 2004 contract, San Diego promises not to sue the league, which was already talking with L.A. at the time of the negotiations.

Fabiani admits that “Today, there is no chance that the Mission Valley project could be financed.” The housing market has “declined dramatically,” while stadium construction costs have skyrocketed. In my judgment, that deal was a fairy tale back in 2002 when the Chargers proposed it.

Fabiani believes a deal can still be worked out in Chula Vista. But 60 to 70 percent of the houses for sale in Chula Vista are distress sales. Fabiani hopes there could be a “consortium of universities” on the east side that could produce “a mix of development… that would include more than housing.” Sorry. “A consortium of universities” is not going to spring out of the ground in eastern Chula Vista. It might get a branch of a community college or of San Diego State, but that would be a long time away, and modest at best. Eastern Chula Vista is one of the messiest housing markets in the county. Fabiani admits, “We are a long, long way from moving forward” in Chula Vista.

He sums up, “The credit crunch, skyrocketing raw material costs, and [the] housing-market collapse are huge issues, and that is why completing our project in San Diego County becomes more difficult by the day.”

That is another mouthful. He is telling San Diegans to be ready for a departure, although he is not that blunt about it.

A billionaire developer named Ed Roski says he will build a privately funded football stadium in the City of Industry, 25 miles east of Los Angeles. He says he can start construction in October and claims he has financing. (He is a known dreamer/huckster, so eyebrows are always cocked at his pronouncements.)

In telling me that the Chargers are not likely to keep their plans secret from San Diegans, as the contract permits, Fabiani says, “When Ed Roski announced his City of Industry stadium proposal, we proactively told the media and our fans of the long friendship between the Roski and Spanos families and about the fact that Ed Roski and Dean Spanos [have] talked about Mr. Roski’s plans for a stadium in the Los Angeles area.” But the main focus is on San Diego, Fabiani insists.

But his statement should not be comforting to Charger fans. On the other hand, NFL owners are said to be talking about cities with “stadium issues” — that is, teams that reside in cities that won’t or can’t come up with gigantic subsidies or might even think there are better uses for public funds than supporting pro teams owned by billionaires. Teams considered the best candidates for departure are the Minnesota Vikings, Oakland Raiders, Chargers, and San Francisco 49ers. In the second tier are the Jacksonville Jaguars, New Orleans Saints, Buffalo Bills, and St. Louis Rams. (The Raiders and Rams were both domiciled in Los Angeles at one time.)

My guess is the Chargers are Roski’s lead candidate. The Chargers would have to pay a penalty of more than $50 million to leave between now and 2010, but the sum drops to $26 million in 2011 and keeps declining. In that 2004 contract, the City gave the Chargers every incentive to scram. They would like to do so. The year 2012, the year following a possible players’ strike or owners’ lockout, and possibly in a better economic/financial environment, seems logical.

Every entrepreneur wants to make more money. In the world of pro sports, there is no such thing as community loyalty, especially when such loyalty is spelled S-U-B-S-I-D-Y and the government is broke.

Reader poll

What should the Chargers do at this point?

  • Stay in San Diego – we should spend whatever it takes to keep them here. 23%
  • Stay in San Diego – but they should pay their own way. 35%
  • Leave for all I care. 42%

194 total votes.

Comments
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