By Jaboner Jackson 12 pm | In order to understand the tenant scenarios for Farmers Field in downtown Los Angeles, you must understand Franchise Free Agency (FFA). FFA is a term that became popular in the late 1990s after both the Los Angeles Rams and Los Angeles Raiders packed up their gear and left the Los Angeles area within months of each other. It is a term initially popularized by members of the U.S. Congress, who attempted to create legislation that would make it more difficult for professional sports franchises to leave their current markets for financial incentives offered by relocation. At its core, FFA revolves around unshared Local Revenues.
Revenue in the NFL can be divided into two types: 1) revenue that is shared equally by all 32 teams, and 2) local revenue that is not shared but stays with the individual team. Shared revenue is primarily made up of television contracts. The $3 billion received by the NFL for its current television contracts are split equally by the 32 teams over the life of the contract. Unshared local revenue is revenue that a team gets from local advertising deals, luxury box suites (most of the time), concessions, and parking.
As you can see, there is an incentive for NFL teams to maximize unshared revenue, which in turn is done by building brand spanking new stadiums replete with luxury suites, $40 parking fees, and merchandise stores. (Think Raiders Image at Universal CityWalk.) There are several owners, including Jerry Jones, who think that having unshared revenue is essential for maintaining competition between owners. Without unshared revenues, Jones argues, teams would have no incentive to build new stadiums or find additional revenue streams.
While there may be truth in Jones' assertion, there is also a tendency for teams to look for the sweetest stadium possible to maximize these unshared revenues, which in turn makes teams relocate. The Los Angeles Rams and Los Angeles Raiders were prime examples of this scenario in the 1990s and now twenty years later, they may be involved in Franchise Free Agency all over again.
But what is good for an individual franchise is not good for the league as a whole. Since television contracts make up the bulk of television revenues, the NFL actually suffered when Los Angeles, the second largest television market, lost two NFL teams. Without a vested interest in the NFL, the Los Angeles was valued at less of a premium by the television networks. So even though the Rams and Raiders benefited from leaving Los Angeles because of greater unshared stadium revenues in St. Louis and Oakland respectively, the entire league as a whole suffered.
For this reason, the NFL is adamant about re-entering the Los Angeles market. New television contracts will be negotiated for 2013. The NFL would like to have at least one team committed to the area by then and they have finally found a willing and sophisticated partner in AEG to make it happen in Farmers Field.