Economic benefits of NFL stadium boom are 'vastly overblown'

New NFL stadiums are steadily getting more expensive. (David Foster/Oath)

Perhaps you saw the many mocking social media posts last weekend pointing out the rows and rows of empty seats at the LA Rams and LA Chargers games in Week 2 of the NFL season. Both teams are playing in temporary homes — the Rams in LA Coliseum, a college stadium, and the Chargers in StubHub Center in Carson, Calif., a soccer stadium — until they move into LA Stadium at Hollywood Park, projected to open up in 2020 and cost $2.6 billion.

The Chargers got 25,381 fans at a stadium that holds 27,000, while the Rams only attracted 56,612 to a stadium that holds more than 90,000. As many stories pointed out, the two NFL games combined had a smaller in-person audience than the USC vs. Texas college football game Saturday night at the Coliseum, attended by 85,000 people. (The empty NFL seats were “not a great look,” the AP wrote.)

The reasonable conclusion from the low turnout might be that LA doesn’t have enough NFL fans to support two new teams. And that, in turn, may look like a reminder of how outrageous the trend is of teams relocating and building $2 billion-plus stadiums, and, often, obtaining public money to help build them.

But it doesn’t really matter if the new LA stadium doesn’t fill up for games. The pricey stadium trend is likely to continue, because cities — which consist of local construction companies to trade unions to bank branches to architecture firms to hotels — see appeal in having an NFL team and stadium.

“Not a very good economic proposition”

It’s about enhancing the culture and image of the city, says Andrew Zimbalist, a sports economist at Smith College in Massachusetts, and author of a wide range of books that strip back the financial impact of sports arenas and major events like the World Cup and Olympics.

“The main reason you want the stadium is because you want the team, and the main reason you want the team is because in United States culture these days, football is particularly prominent,” says Zimbalist. “What a sports team does is provide some coherence to a city’s culture. It provides a common thread that helps people in the community relate to each other. It enhances the city’s identity. People now have a way to relate to each other… A large percentage of the people in the community are experiencing the football team. That’s a very important function of the culture, to me. Now, some people might argue that, ‘Gee, it’s too bad, we need other kinds of culture instead of football culture.'”

[Zimbalist is the special guest on Episode 3 of our Sportsbook podcast on the business of football. You can listen here or scroll to the bottom of this post.]

It’s an image thing, then. And a recent comment by former San Diego Chargers quarterback turned broadcaster Dan Fouts backs this up. Fouts said it’s “embarrassing” for the Chargers to play in a 27,000-seat stadium, even temporarily. (But if the team can’t even fill the stadium, what’s embarrassing about it?)

Andrew Zimbalist (Smith College)

Cities want a new NFL team even though the popular claim teams make when they relocate — that the team and stadium will have a positive economic impact on the local economy — is usually “vastly overblown,” Zimbalist says. That’s because the majority of the money that gets spent at and around the stadium is spent by local residents who would be spending their money in the area anyway. As for the players, they are generally unlikely to live in the local community, so they’re not infusing the area near the stadium with any new money.

And the typical NFL stadium, with some exceptions, “is going to be used 10-15 times a year out of 365 days. The rest of the year it’s going to be sitting idle… It’s not a very good economic proposition.”

And yet, cities keep welcoming new teams. In March, the Oakland Raiders got NFL approval to move to Las Vegas, and team owner Mark Davis plans a $1.9 billion stadium. $750 million of that cost will come from a public subsidy already approved by the local Clark County government in Las Vegas. (The San Diego Union-Tribune called it, “peak public stadium financing.”) If the economic impact will be minimal, why grant public money?

Zimbalist uses this analogy: “Cities don’t sit around and say, ‘Should we maintain Central Park [in Manhattan] because it’s going to help our economy?’ That’s not why you have Central Park, you have Central Park for cultural reasons. So a similar argument, I think, can be made for sports teams.”

How the NFL avoids blame for teams moving

When teams like the St. Louis Rams move to LA, or the Oakland Raiders ditching town for Las Vegas, many outraged fans blame the NFL for allowing it to happen.

But it’s important to note that the NFL charges teams a hefty fee to relocate. The fee varies, gets paid out over time in installments, and gets split up equally among the other NFL teams. The Raiders will have to pay $378 million, while the Chargers and Rams have to pay $645 million each.

“So the NFL can say, ‘We’re actually discouraging teams from moving,'” Zimbalist points out. “The NFL has the view that all of the potential markets in the United States belong to the NFL, they are NFL assets. And if the NFL allows the teams to use these assets, they will charge them for it.”

Even with the relocation fee, a new stadium is likely to be extremely lucrative for a team. Apart from ticket sales, which they share with the rest of the league, the stadium owners get to keep all money from sponsorship deals, concessions revenue, and from PSLs, or personal seat licenses, which are fees that fans pay up front for the right to buy tickets for a certain seat at the stadium. Your seat license is like a membership fee you pay each year, on top of the price of your actual tickets.

“Part of the problem with that financing mechanism,” Zimbalist says, “is that if the owner gets money for the seat upfront, before the team ever steps on the field, then the owner has less incentive to put a winning product on the field. This works a little bit against the fans’ interests.” The Atlanta Falcons, playing this season in a brand new $1.6 billion stadium, had already made more than $250 million on PSLs before the season began.

And so, in many cases, with a new NFL stadium, the local economy loses, the fans lose, and the stadium may not fill up for games — but the team owner still wins.

Listen to Episode 3 of the Yahoo Finance Sportsbook podcast here:

Daniel Roberts is the sports business writer at Yahoo Finance. Follow him on Twitter at @readDanwriteSportsbook is our sports business video and podcast series.

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