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By Daniel Kaplan May 14, 2020
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The Los Angeles Rams have requested up to $500 million in additional NFL stadium financing, and a doubling of the amount of time typically required to pay the money back, sources said. That would bring to as much as $900 million the club arranged to borrow from the league for SoFi Stadium.
The Rams’ planned shared venue with the L.A. Chargers is scheduled to open this summer, though whether it can do so in the midst of the pandemic is unclear. And if it does, the teams almost certainly will not play in front of fans, depriving the Rams of much-needed cash to pay down debt.
“There’s a massive request for debt waivers and additional G-4 from those in LA,” said one team source, referring to the NFL stadium lending program, known as G-4. “And they’re asking to pay that over 30 years as opposed to 15 years.”
The Rams deferred to the NFL, which declined to comment. The request is on the agenda for next week’s virtual owners meeting, a source said.
There are three issues driving the Rams’ request: cost overruns, less than expected personal seat license sales, and the prospect of a gut punch to gate revenue this fall.
When in January 2016 owners voted to approve the St. Louis Rams’ Inglewood, Calif. proposal, the price tag was then $2.2 billion (the Chargers a year later would trigger an option to share the venue). But the cost of the stadium, which includes a retail and entertainment district, rapidly escalated in part because of pricey earthquake mitigation measures. Reports have now pegged the cost at anywhere from $5 billion to $6 billion.
In 2018, the league agreed to waive its restrictive team debt limits, and allow the Rams to borrow $2.2 billion, in addition to a $400 million loan from the G-4 program. Half that G-4 loan belongs to the Chargers, so it is possible the new up to $500 million request is split with the Chargers as well. To borrow more money would require another NFL debt waiver.
As part of Rams’ owner Stan Kroenke’s 2016 deal with the NFL, if the Chargers joined him in the stadium, they would contribute their PSL sales to the capital cost. But Kroenke remained on the hook for any cost overruns, and if the Chargers’ PSL sales fell short, it essentially became the Rams’ problem.
Why did he agree to this?
In 2016, the San Diego Chargers had jointly proposed moving with the Oakland Raiders to Carson, Calif., pitting that project against Kroenke’s Inglewood one. On the first round of voting that day in Houston 2016, the Rams came within a handful of owner ballots of the three-quarters threshold necessary. But to get Kroenke over the finish line, he had to agree to welcome the Chargers (or the Raiders if the Chargers stayed in San Diego). And as part of this agreement, the new team’s capital contribution would be the G-4 share and their PSL sales. The Chargers took that deal, but their PSL sales are under the goals, sources said.
“The PSL numbers are dramatically under what was projected,” one source said. “I mean, all those things, a lot of teams would take what the Rams have sold, but they (too) are well under pro forma numbers.”
The Chargers said in a statement: “Sales were trending positively towards our goal as we turned the calendar and approached the new league year, but the pandemic has had a quieting effect on what is traditionally the biggest sales period of the year — the lead-up to the NFL Draft through the schedule release. Due to the positive momentum, however, created by our free agent signings, draft picks and uniform unveil, we are still seeing significant fan interest in season tickets and continue to onboard new Season Ticket Members”
The Rams and Chargers jointly expected to sell $850 million of PSLs, a contract that gives a fan the right to buy tickets to a particular seat. Instead, the source said they are collectively considerably south of this level, with the Rams the majority of the amount raised. Because the Rams essentially shoulder any Chargers’ shortfall, the sources expect the Rams’ request to glide through next week.
“That’s obviously one of the big reasons that they’re upset, you know, them being the Rams,” one source said. “It’s gonna be really fascinating to see. Obviously, I assume they’ll get approval for it as Roger (Goodell, the NFL commissioner) is pushing for it.”
The Rams’ debt request comes as the NFL is moving to increase the borrowing limit for all its teams. Owners will vote next week on a proposal to increase the amount each team can borrow from $350 million to $500 million because clubs are looking at a dramatic drop in revenues if games are played without fans.
League-wide national revenues make up between on average 70 percent and 80 percent of proceeds for teams. But for some higher-revenue clubs, for example, the Dallas Cowboys, it is closer to 60-40 national to local if not closer.
One team source said his club’s back-of-the-envelope estimate is if all local revenues were removed, it would be the equivalent of $65 million of the nearly $200 million salary cap. Teams are hoping if there are no fans they can salvage some local sponsorship money and are lobbying the league to allow sponsor signs at field level. Currently, only NFL national sponsor signs are visible, so the move would allow local team deals to get visibility.
The NFL does not have a labor provision to correct the imbalance in 2020 other than new talks with the NFLPA. However, the NFL salary cap is structured so it is set in part on the previous year’s local revenues (national revenues are contracted long term). So the NFL cap, if it does not come down this year, would in 2021 no matter if there is a return to normalcy.
The Rams are scheduled to open their season at home on Sept. 13 in a Sunday Night Football tilt against the Cowboys. California Gov. Gavin Newsom, however, has expressed deep skepticism about large gatherings commencing by then, and even recently suggested playing without fans could be a problem.
“It’s difficult to imagine a stadium that’s filled until we have immunity, until we have a vaccine,” Newsom said. “Imagine what the leagues do when one or two of their key personnel or players are tested positive. Do they quarantine the rest of the team? If an offensive lineman is practicing with a defensive lineman, and they tested positive, what happens to the rest of the line? What happens for the game coming up the next weekend? It’s inconceivable to me that that’s not a likely scenario, so it’s a very challenging question.”
(Photo of Kroenke and SoFi CEO Anthony Noto: Sean M. Haffey / Getty Images)
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