The gap between rich and poor teams in the NFL has gotten so wide in recent years that three of the underprivileged franchises have taken drastic action:
In the past 15 months, the St. Louis Rams, San Diego Chargers and Oakland Raiders have decided to leave their home markets and move to cities that offered better stadiums and more local revenue potential.
By 2030, several more of the NFL’s low-revenue teams might face the same pressure: Do they risk shrinking financial margins as costs go up for all teams with rising player salaries? Or do they relocate to where they can better keep up with teams that have bigger markets or better stadiums?
That is the big issue boiling under the hot pot of NFL relocation, from the viewpoint of low-revenue teams, said Troy Blackburn, vice president of the small-market Cincinnati Bengals.
The revenue disparity between teams is “the largest it’s ever been in NFL history,” Blackburn told USA TODAY Sports. Even though teams equally share the revenues of NFL television contracts and a portion of ticket sales, they don’t share other local stadium revenues with each other, leading to the rising gap.
He said St. Louis, San Diego and Oakland essentially lost NFL teams because of this issue. If they had stayed where they were, he said they faced an increasing financial squeeze as player salary expenses continue to shoot up for all teams while revenues definitely do not. The salary cap this year is $167 million per team, up from $155 million last year and $120million in 2011.
Meanwhile, the gap between the highest- and lowest-revenue teams was $400million, the Dallas Cowboys at $700million compared to the Raiders at $300million, according to Forbes in 2016.
Making matters worse is how the salary cap is calculated as a percentage of the NFL’s total revenues, Blackburn said. The more revenue those rich teams take in at the top, the higher player salary costs climb for all NFL teams, including those at the bottom.
“Right now, you’ve got many of the small markets paying over 60-plus percent of their revenues on players, and many of the large markets are paying 40% of revenue on players,” said Blackburn, who previously was the team’s director of stadium development and is the son-in-law of Bengals owner Mike Brown. “Something that could be done that narrowed that gap would be helpful, and it would make it easier for the small-market teams to stay where they are and not have to explore relocation.”
Blackburn’s suggestion to relieve this problem is more cost-sharing, possibly with richer clubs helping pay more for player benefits, which are separate from the salary cap and include pensions, insurance premiums and disability benefits. This year such player benefits are $37 million per team.
Or perhaps the NFL could provide other assistance similar to the old G-3 loan program for stadium construction.
“If the league is serious about franchise stability, maybe it should consider a new G-3-styled program that would help keep teams in small markets,” Blackburn said. “If it did it once, it can certainly do it again, if it truly cares about the issue.”
Otherwise the tension mounts and more relocation might be considered as teams with older stadiums have leases expiring in the 2020s, such as in Jacksonville, New Orleans and Tampa Bay.
Blackburn said the Bengals are committed to Cincinnati and not looking to leave town when their lease expires at Paul Brown Stadium in 2026. It helps that his team received a $350 million stadium funded by a sales tax increase approved by voters in 1996. It also helps that his team received generous lease terms from Hamilton County, Ohio, which the team can extend an additional 10 years.
But as a small-market team executive, he still feels the pinch of the smaller-revenue economy, much of which stems from how the league does and doesn’t share its revenue and costs.
Old problem gets bigger
Tension over the revenue disparity isn’t new, and this is not the first time the Bengals have spoken out about it. Brown has been a leading voice about what he sees as structural financial imbalance in the NFL. On the other side of the spectrum, some owners have not been sympathetic to this argument. Cowboys owner Jerry Jones even has suggested that the low-revenue teams need to be more aggressive chasing dollars.
“The big concern I have is not how to equalize the disparity in revenue but how to get the clubs that are not generating the revenue to see the light,” Jones said in The Wall Street Journal in 2004.
Cowboys spokesman Rich Dalrymple said Jones wasn’t available to comment.
Not all small or big markets are the same. Big market and small market in this context also sometimes is used to mean the haves and have-nots: teams that are making big money because of big markets or lucrative stadiums vs. those that are not.
“You’re always going to have a bottom eight, but if you keep enhancing the bottom eight, and you change them out, that means everyone’s doing better,” said Marc Ganis, a sports consultant who works with NFL owners and helped the Rams and Raiders relocate from Los Angeles in 1995.
The difference this time is the widening of the gap, the rising costs for all teams and how to “change out” the bottom eight without having them consider more relocation, which is bad for loyal NFL customers in abandoned markets.
Much of the league’s revenue is shared equally among 32 teams, recently at around $225 million each. But the disparity has grown because of the revenues that teams are not required to share with each other — local dollars that are kept by the team that earns them, including highly lucrative stadium suites, advertising and sponsorships.
Costs go up for all
This unshared revenue creates a big gulf between teams with lucrative stadiums in wealthy corporate markets, compared to teams with outdated stadiums with fewer corporate customers willing to pay big bucks for sponsorships and suites.
“Let’s say, in New York, they can sell 250 suites at $200,000 per annum,” Blackburn said. “That’s $50 million per annum in suites. Well, in a smaller market — whether that’s Indianapolis, Cleveland, Cincinnati, Buffalo, Jacksonville — you’re not going to have 250 companies that can afford that. Let’s say you have 100companies and say they can pay $100,000, just as an easy example. These numbers are pretty close to reality. That would mean that small-market teams would get $10 million per annum from the luxury box sales, and the large markets would be taking in $50million every year.”
Likewise, Jacksonville isn’t going to get the same demand for national advertising or sponsorships as a team in New York.
This problem compounds for low-revenue teams because player salary expenses and the salary cap are determined by how much revenue the league makes collectively. Players are guaranteed 47% of the NFL’s total revenue over the course of the 10-year collective bargaining agreement from 2011, including combined local revenue. So as revenues rise for the big-market teams, so do player expenses for all teams. Teams also are required to spend at least 89% of the salary cap over a four-year period.
And that’s just fine for players and some franchises. But it’s a different story for the likes of Cincinnati and San Diego.
‘Real financial stress’
Blackburn traces the problem to the late 1990s and the rise of the NFL’s G-3 loan program, which provided financial assistance to teams building new stadiums. Big-market teams were offered bigger loans, with teams in the six largest markets eligible for league loans of up to 50% of private contributions, compared to 34% for other markets.
The idea was to take care of teams in the big TV markets, which drive the big TV contracts. For example, the New England Patriots were looking at moving to Hartford, Conn., but were persuaded to stay in the Boston area with the help of a $141 million NFL loan for the construction of Gillette Stadium. The stadium opened in 2002 at a cost of $325million, and now the Patriots rank No.2 in revenue at more than $500 million, according to Forbes.
This program arguably exacerbated the revenue disparity. Blackburn estimates more than $1 billion was issued to large-market teams to build new stadiums, including $300 million combined for the New York Jets and Giants to build and share privately financed MetLife Stadium, which opened in 2010. Each has more than $400 million in revenue and ranks in the top seven with Forbes.
“Those new stadia, in almost exclusively large markets, have created enormous revenues,” said Blackburn, whose team was in the bottom six in 2016, with $329million, according to Forbes. “Those enormous new revenues have driven the salary cap substantially higher. Those enormous new revenues in large-market stadia … have also created the huge spread in local revenues.”
NFL spokesman Brian McCarthy said NFL personnel weren’t available to comment.
Blackburn said the G-3 program has helped create “very real financial stress that now teams like the Rams, Chargers and Raiders are reacting to — and it does little good at this late date to say the league will also help build stadia in smaller markets where the revenues from those new stadia will be substantially lower. New stadia in Detroit, Jacksonville, Cleveland, Cincinnati, and St. Louis did not solve this problem.”
Even after community leaders in St. Louis put together a plan to build a new $1.1 billion stadium for the Rams, the Rams rejected it and moved last year to Los Angeles, where they are building a privately financed $2.6 billion stadium that will be shared with the Chargers. Before moving, the Rams said in applying for relocation they were not confident that a new stadium in small-market St. Louis “will secure the necessary corporate and fan support to sustain a NFL team long term.”
Teams keep losing ground
The Chargers and Raiders were offered $200 million each in NFL loans, plus another $100 million from the NFL to stay in their home markets. But it wasn’t enough.
The Chargers had a stadium that’s 50 years old in San Diego and wasn’t helping them keep up with rising player costs. They have the same salary cap as the Cowboys but have half the revenue: about $344 million, according to Forbes.
“Their problem was looking to the future,” Ganis said of the Chargers. “They were losing ground every year, as all costs rose but local revenues did not rise at the same rate.”
So they left for Los Angeles after 56 years in San Diego. Likewise, the Raiders couldn’t get an acceptable new stadium deal in Oakland and in 2019 will leave their 51-year-old stadium for a new $1.9 billion stadium in Las Vegas. Though Vegas is a smaller market, it offered a record $750million in public funding for the stadium — and a better path forward for team owner Mark Davis, if not fans in Oakland.
Fans and taxpayers understandably don’t have pity for the wealthy owners of these teams, even if they are not rich by NFL standards.
On the other hand, these teams didn’t see a better alternative for their businesses. The Chargers tried to get a new stadium in San Diego, but voters last year rejected a proposal to support it with taxpayer money. Without such public subsidies, the corporate wealth of the smaller San Diego market wasn’t enough to help privately finance a suitable new stadium, unlike in L.A., according to the team.
In L.A., the Chargers will be in a wealthier market where more suites can be sold at a higher price.
“The challenges that are out there remain more in the growth of the salary cap, and that has been driven up by the new stadia in the larger markets,” Blackburn said. “And that’s exactly what the Chargers were looking at and the Raiders were looking at and the Rams were looking at.”-by Brent Schrotenboer, USA TODAY