Home Field Advantage : Stadium Income Holds the Key to the NFL’s New Economics

Why is it that the badly managed, chronically losing Los Angeles Rams are suddenly worth $200 million in St. Louis when the team was worth $50 million less than that in Anaheim?

The secret is in stadium revenues, the same economic factor that allowed the San Francisco 49ers to pay bonuses to star athletes who helped them gain a trip to the Super Bowl, where they will oppose the San Diego Chargers.

The Chargers’ success in turn, say experts in football economics, could mean that $27 million in tourist spending will keep coming to San Diego’s economy because out-of-town fans will travel to the games.

Welcome to the new economics of professional football. The sophisticated operators of the National Football League are focusing these days on control of stadiums where they can sell leases on luxury boxes, advertising space on the stands and scoreboards and special services to corporate customers. Such revenues are attractive because they don’t have to be shared with the other 27 teams in the NFL, as do television money, gate receipts and proceeds from sales of souvenir merchandise.

And, significantly, such stadium revenues don’t come under the league’s salary cap, which limits player salaries to 64% of a team’s income from TV, gate receipts and merchandise.

Thus a team with large stadium revenues can pay bonuses out of its extra cash and gain a competitive advantage on the field, explains investment banker Paul Much, sports specialist at the firm Houlihan Lokey Howard & Zukin.

That’s how San Francisco paid bonuses to sign up cornerback Deion Sanders and linebacker Rickey Jackson this season. Averaged over five years, the bonuses did not violate the team’s salary cap, but it made a difference to the players to get cash immediately. The 49ers have been earning $8 million a year in stadium revenues, but that will increase when Candlestick Park is remodeled for their benefit.

The acknowledged master of the new system is the Dallas Cowboys franchise, which took in $30 million in stadium revenues in the ’93 season and a like amount this past season. The Cowboys sell advertising in Texas Stadium and corporate “game day” events with pregame receptions, as well as sideline and locker room visits for corporate brass, who watch the game from Cowboy owner Jerry Jones’ luxury box.

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“Golf and tennis have always pampered corporate sponsors, now football is doing it,” remarks a sports expert. The Denver Broncos and other teams, sensing a change in the economics of the sport, want to take over operations of their stadiums from municipal owners so they can have a free hand to follow the Dallas example.

After their move to St. Louis, under a sweet deal that gives them almost all revenues from a new taxpayer-built stadium, the Rams may take in as much as the Cowboys do in Dallas. The team earned $4 million in stadium revenues at Anaheim.

Of course, the Rams might have taken in more money if they had had good management and a competitive team, but they had neither.

Even so, Anaheim was considering building a new stadium for the Rams, who brought about $78 million a year in direct and indirect business to the area, according to the Orange County Chamber of Industry & Commerce. The football field was to have been part of a complex linked to Disneyland and the Anaheim Pond, where hockey’s Mighty Ducks play.

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What will happen now? It could be that the NFL will find a way to put a new team in Orange County. Fox, which televises games in the Rams’ National Conference, will pressure the league to put a team in the Los Angeles metropolitan area.

But Orange County and Anaheim, having lost millions in the county’s investment fund debacle, have no money to subsidize fancy accommodations for football teams. Cutting back school funds while handing money to millionaire football owners wouldn’t look good--although the football owners would take it.

The NFL has long demanded that taxpayers pay for stadiums, as well as luxury boxes for the private profit of its teams.

“It’s a big trough, and there are a lot of hogs,” says economist Robert E. McCormick of Clemson University, an expert on public policy who has studied the impact of sports. General tax subsidies for NFL teams are wrong, McCormick argues, because the business benefits to hotels, restaurants and other services go to a select class of citizens for which the general public should not be taxed.

Yet McCormick recognizes that cities are competing for even the lowliest of NFL franchises. As an example, the Tampa Bay Buccaneers, with the league’s worst record, were sold Monday for $192 million--a price driven higher by competition from Baltimore, where taxpayers are eager to build accommodations.

Still, there are truths that the Rams’ new St. Louis landlords--and Orange County, if a new team looms on the horizon, and Los Angeles, which subsidizes owner Al Davis’ stumbling Raiders--should keep in mind.

One is that quality does matter. While attendance at Rams games in Anaheim was falling in recent years, hurting nearby businesses, the Chargers--which earn $1.8 million from stadium revenues--were building a winning team and selling out most of their games. That meant more fans spending more cash in San Diego businesses.

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Another truth is that good finances alone do not make champions, but they may indicate good management, which does. San Francisco, Dallas, Miami and Kansas City, all teams with relatively high stadium revenues, have been consistent at putting good teams on the field.

Finally, if cities are going to subsidize professional teams at a time when school athletic programs and other extracurriculars are being cut back, maybe they should ask for something in return. Why not require teams to devote a portion of their stadium revenues to support school programs?

It’s a thought to contemplate as NFL publicity builds toward the all-California Super Bowl.

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The Stadium Game

A new competitive edge in professional football, experts say, comes from a team’s ability to earn big money from stadium revenues over and above gate receipts--from sales of advertising, special services for corporate customers and leases on luxury boxes. Stadium revenues lured the Rams to St. Louis and helped the San Francisco 49ers make the Super Bowl. Some high and low earners of stadium revenues, in millions of dollars:

Dallas Cowboys: $30.0

Miami Dolphins: $15.9

Philadelphia Eagles: $8.8

San Francisco 49ers: $7.7

Los Angeles Rams: $4.1

Arizona Cardinals: $3.9

Seattle Seahawks: $2.0

San Diego Chargers: $1.8

Los Angeles Raiders: $1.0

Denver Broncos: 0

Source: Houlihan Lokey Howard & Zukin

Note: Figures are for 1993