Experts say the San Diego Chargers could make the Super Bowl this year. However, the team’s desire to build a new stadium in San Diego could be — well, economically inSuperable.
The team now plays at Qualcomm Stadium, which is a black hole for the City of San Diego but a super-ecstatic hole for the Chargers. It costs the City $2.8 million a year to put on Chargers games, while the team’s rent is capped at a mere $2.5 million, down from $7 million under a former, more favorable agreement. This sweetheart rent deal is one reason that the team’s debt-to-value ratio is only 14 percent, about in the middle of teams in the National Football League, according to Forbes magazine.
But as Forbes points out, the teams that have (or will soon get) new or elaborately rehabbed stadiums are the most valuable. The ten richest teams, all worth more than $1 billion, are, in order, the Dallas Cowboys, Washington Redskins, New England Patriots, New York Giants, New York Jets, Houston Texans, Philadelphia Eagles, Tampa Bay Buccaneers, Chicago Bears, and Denver Broncos — almost all playing in palaces. (A team’s worth doesn’t necessarily correlate with on-the-field performance. Last year’s Super Bowl winner, the Pittsburgh Steelers, are valued 16th of 32 teams, and the squad that almost beat them, the Arizona Cardinals, are 23rd, just ahead of the Chargers, whose value is calculated at $917 million.)
“New stadiums generate revenue for teams that is unshared by the rest of the teams in the NFL,” says Chargers spokesman Mark Fabiani. The new stadiums bring luxury and club seat sales, advertising rights, and sponsorship income that a team can keep for itself. Ergo, the Chargers want a new facility. And, insists Fabiani, “Our search remains focused in San Diego County.”
And that is the hole in the Chargers’ plans. “The Chargers are trying to pound a round object — their desire for a new stadium — into a square hole — which is economic reality,” says Mike Aguirre, former city attorney with whom Fabiani constantly tussled. (Fabiani alluded to Aguirre’s “toxic, bilious personality,” while Aguirre allegedly called team owner Alex Spanos “a welfare queen.” I can’t argue with Aguirre’s characterization: I have described pro football team owners — and bankers getting bailouts — in the same terms.)
The Chargers claim they want to build a privately financed stadium somewhere in the county, whether it be Oceanside, Escondido, East Village near Petco Park, or elsewhere. The team wants to fill the luxury and club seats and attract advertising, including naming rights, in a metro area without the necessary economic base. County incomes are low compared with the cost of living, and local companies tend to be small, capital-intensive, and cerebral. (How many biotech and telecom executives would entertain clients at a football game?)
Fabiani says that the ability to sell these upscale products “in an NFL marketplace will determine whether a new, privately financed stadium is financially feasible.” But there is a change in that marketplace: companies are slashing entertainment budgets and banning employees from taking expensive freebies, such as football tickets. Corporations may sensibly put fewer dollars into sports advertising and promotion, such as naming rights. Money is tight. Since the Chargers claim a new stadium will be privately financed, “The team will be required to borrow hundreds of millions of dollars to finance the project,” says Fabiani. “So we need to be sure that sales from the new stadium will support the significant private debt.” That’s the hole the team may tumble into.
There are other negative economic factors: any new, privately financed stadium (even if land, development rights, and infrastructure were subsidized by government) would have to be accompanied by “gargantuan real estate development with commercial and residential properties integrated with the stadium,” says former councilmember Bruce Henderson, who adds that “without extraordinary growth in population, there is no indication that such a project would be viable in the next decade.”
Think back just a few years ago. The Chargers were looking for a development partner so they could construct 6000 housing units, a hotel, offices, and other commercial buildings at the Qualcomm site, where a new stadium would be built. When no development partner surfaced, Fabiani said one reason was Aguirre’s obstinacy. But what would have happened if that project had gone ahead? Throughout the county, condos, hotels — residential and commercial real estate of all kinds — have hit the skids. That’s what would have happened to the Qualcomm project. “It is likely that the private developer would have been forced to delay some or all of the urban village project,” waiting for the economy to recover, concedes Fabiani.
“It would have been a disaster,” says Aguirre. Henderson agrees and chuckles that he and Aguirre should get a bouquet of flowers from the Chargers. (Actually, Henderson never thought that proposal was a serious one.)
A privately financed Chargers stadium is not going to make it in the county. And governments don’t have the funds to provide subsidies. That leaves locations outside of San Diego. Las Vegas, with whom the Chargers have had contact, is in worse economic shape than San Diego, at least in real estate.
The one logical candidate is the City of Industry, a snug and smug town of only 88 tightly controlled voters in southeast Los Angeles County, just north of Orange County. Developer Ed Roski, a close personal friend of Alex Spanos, says he will build a stadium that will be mainly financed privately. The accommodating town early this year passed a bond measure to provide half a billion dollars of infrastructure improvement. (The vote was 60 to 1, and civic leaders may be trying to find out who that one dissident is.)
The L.A./Orange County market is the nation’s second largest, with 13 million people. Inclusion of Riverside and San Bernardino adds another 4.1 million. San Diego is the nation’s 17th-largest market at 3 million. Unlike San Diego, the L.A. area has a broad and deep mix of businesses to spend on sports luxuries. “If the NFL cobbles together government and private subsidies for a new stadium in Southern California over the next decade or so, it will be built in L.A.,” says Henderson. On the bright side, he points out that Qualcomm Stadium is one of the best in the world for football, and the Chargers are making a bundle of money playing in it.
It’s generally believed that if Roski builds the stadium, he will want at least part ownership of a team. Fabiani says that pro sports owners through the years have sold stakes in their teams for various reasons. “So an owner would probably never rule out such a possibility — but as I’ve said, the Chargers’ search remains focused in San Diego County.”
But Henderson says the Chargers are looking at local sites only because they will have to prove to the NFL that they gave San Diego every chance. Also, if the Chargers wait until after the 2010 season to announce they are leaving, they will only be obligated to pay $25.8 million of the remaining debt from the 1998 remodel of the stadium. If they make the announcement this season, it will be more than double that.
For Chargers fans, this may be holey depressing.