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21Oct/1116

NFL IN LA: FINANCING A FOOTBALL STADIUM IN LOS ANGELES, PART 2

NFL in LA financing a Football StadiumBy Jaboner Jackson 8 am and UPDATED on 10/24/2011 | Part 2 of 3 | Last week, the FOOTBALLPHDS examined how NFL franchise value is determined.  Today, we take a look at real life valuations for the San Diego Chargers, San Francisco 49ers, and Oakland Raiders, three California teams that are looking for Brand Spanking New Stadiums.  As we pointed out earlier this month--long before ESPN once again followed our trailblazing lead  and copied usfinancing is the only reason why these three teams are not currently playing in new stadiums.  Financing refers to the raising of monies to fund a project, a process that the Chargers, 49ers, and Raiders have had a difficult time doing for several years now.  Forbes’ estimations of franchise value are meaningless in the real world since they rely mostly on current revenues and exclude debt burdens.  For this reason, I have turned to my former colleagues in the investment banking arena to assess franchise value based on comparables (“comps”) and discounted future cash flows, which are the true way that NFL franchises are valued.

Before I get into our real life valuations of the Chargers, 49ers, and Raiders, here are some basic elements of our methods:

1. Valuation is a Range.  The most important element of real life valuation is that it does not focus on a single number.  For example, Goldman Sachs, who had been working with the San Diego Chargers in 2010 to sell a minority ownership interest in the team, had valued the Chargers at both a high and low value, which is roughly equivalent to our own valuation.  (UPDATED: I had erroneously stated in the original post that the Chargers were currently working with Goldman Sachs to sell a minority interest but this was not the case.  The Chargers retained Goldman Sachs in 2010 to sell a minority stake in the team for estate planning purposes and consequently terminated this objective in early 2011 when Bush era tax cuts that were set to expire in 2010 were extended to the end of 2012.  The Chargers are no longer working with Goldman Sachs for this purpose but they continue to work with Goldman Sachs on stadium financing.)

2. Valuation is based on Assumptions.  Valuation is firmly routed in finance theory but is dependent on assumptions which makes valuation as much an art as it is a science.

3. Different valuation firms will arrive at Different Valuations.  Different investment banks and consulting groups will oftentimes arrive at different valuations for the same NFL franchise.

Valuation of the San Diego Chargers

For a true current valuation of the Chargers, our calculations are based on the San Diego Chargers remaining in San Diego.  These valuations do not assume a relocation to Los Angeles.  Common assumptions are common to all of our valuation figures.  Specific assumptions are particular to the specific valuation scenario.

SAN DIEGO CHARGERS VALUATION

VALUATION BASED ON DISCOUNTED FUTURE CASH FLOWS

SPECIFIC ASSUMPTIONS

COMMON ASSUMPTIONS

Low

$790 million

Assumes play in Qualcomm without any significant additional luxury revenues over the next several years.

 

 

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This is our valuation of the Chargers in San Diego and does not include relocation to Los Angeles. 

 

 

This includes the assumption that NFL television contracts will almost double in the next round of negotiations, following the 73% increase in the Monday Night Football contract secured by ESPN in 09/2011.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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High

$900 million

Assumes the construction of a new East Village stadium for a cost of $800 million with debt service rates for a general construction loan set at 7%.

 

 

Assumes use of low interest NFL loans funds (G3 financing) for financing a part of the new stadium.

 

 

Assumes luxury seating and PSL use as a means of constructing the new stadium per our prior analysis in June 2011.

 

 

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Valuation of the San Francisco 49ers

For a true current valuation of the 49ers, our calculations are based on the 49ers remaining in the Bay Area. These valuations do not assume a relocation to Los Angeles. Common assumptions are common to all of our valuation figures. Specific assumptions are particular to the specific valuation scenario.

SAN FRANCISCO 49ERS VALUATION

VALUATION BASED ON DISCOUNTED FUTURE CASH FLOWS

SPECIFIC ASSUMPTIONS

COMMON ASSUMPTIONS

Low

$840 million

Assumes play in Candlestick Park without any significant additional luxury revenues over the next several years.

 

 

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This is our valuation of the Niners in the Bay Area and does not include relocation to Los Angeles. 

 

 

This includes the assumption that NFL television contracts will almost double in the next round of negotiations, following the 73% increase in the Monday Night Football contract secured by ESPN in 09/2011.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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High (Scenario 1)

$950 million

Assumes the construction of Santa Clara Stadium per our prior analysis done July 2011:

$1 billion total construction cost

(minus)

$79 million from Santa Clara

$35 million in pre-advanced hotel taxes

$138 million from luxury box sales

$150 million from Personal Seat Licenses (FOOTBALLLPHDS projection)

$200 million from G3 financing (FOOTBALLPHDS projection)

 

Assumes use of low interest NFL loans funds (G3 financing) for financing a part of the new stadium.

 

 

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High (Scenario 2)

$1.1 billion

Assumes the construction of a stadium in San Francisco at Hunters Point with higher luxury seat revenues than the Santa Clara stadium and higher naming rights versus Santa Clara.

 

 

Assumes use of low interest NFL loans funds (G3 financing) for financing a part of the new stadium.

 

 

Footballphds.com

 

Valuation of the Oakland Raiders

For a true current valuation of the Raiders, our calculations are based on the Raiders remaining in the Bay Area.  These valuations do not assume a relocation to Los Angeles. Common assumptions are common to all of our valuation figures. Specific assumptions are particular to the specific valuation scenario.

OAKLAND RAIDERS VALUATION

VALUATION BASED ON DISCOUNTED FUTURE CASH FLOWS

SPECIFIC ASSUMPTIONS

COMMON ASSUMPTIONS

Low

$740 million

Assumes play in O.co Coliseum without any significant additional luxury revenues over the next several years.

 

 

Footballphds.com

This is our valuation of the Raiders in the Bay Area and does not include relocation to Los Angeles. 

 

 

This includes the assumption that NFL television contracts will almost double in the next round of negotiations, following the 73% increase in the Monday Night Football contract secured by ESPN in 09/2011.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Footballphds.com

High (Scenario 1)

$810 million

Assumes joint tenancy with the 49ers at Santa Clara Stadium with the 49ers shouldering the financing and the Raiders having a standard Landlord-Tenant relationship.

 

 

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High (Scenario 2)

$970 million

Assumes the construction of a stadium in San Francisco at Hunters Point with higher luxury seat revenues than the Santa Clara stadium and an ownership interest in the stadium and resultant Landlord-Tenant relationship with the San Francisco 49ers as a second tenant.

 

 

Footballphds.com

 

Valuation Observations

All three California franchises have higher valuations with Brand Spanking New Stadiums.  The reason for this increased valuation is based on the realization of greater unshared local revenues.  Unshared local revenues are not split with other teams and include revenue from local advertising deals, luxury box suites (most of the time), concessions, and parking.

The Chargers valuation increases by 14% with a new East Village Stadium with premium seating and greater unshared local revenues.

Location matters.  The valuation of the 49ers is higher in a Brand Spanking New Stadium in San Francisco than it is in Santa Clara.

The Oakland Raiders have the lowest valuation out of the three California franchises, which is a function of low unshared local revenues.

For the San Francisco 49ers, their highest valuation would be with a urban stadium in San Francisco at the shovel-ready Hunters Point site, which Carmen Policy and Lennar have been spearheading.

For the Oakland Raiders, there is no valuation scenario for a new Oakland stadium, since we consider this scenario unlikely under current ownership.

True Franchise Value and Comps

Despite our valuations, true NFL franchise value is exactly what a buyer is willing to pay.  NFL franchises are not liquid assets, meaning that NFL teams are not easily bought or sold.  The pool of potential buyers is limited, thereby limiting prices.  Due to the lack of liquidity of NFL franchises, real purchase values are oftentimes less than valuations.  For example, Stan Kroenke entered an agreement to purchase 60% of the St. Louis Rams in 2010 in two phases for $450 million, which resulted in a real valuation of the team at $750 million, which was lower than the low end of the valuation for the franchise.

And such is currently the case for the San Diego Chargers.  AEG has been playing hardball with the Chargers, knowing that their ability to finance both an equity portion in the team and the construction of a new football stadium is unique to their situation.  Ed Roski of Majestic Realty lacks the deep pockets to do both, which is the reason why he has recently changed the specifics of his offer to a prospective team.  To put it bluntly, there are few interested parties in the world who can finance $2 to $2.5 billion for both an NFL team and stadium.  As an example, Bob McNair needed to finance only approximately $765 million for the Houston Texans and Reliant Stadium back in the early 2000s—$700 million for the franchise fee and approximately $65 million of the $425 million stadium cost.

Accordingly, Philip Anschutz of AEG realizes that the pool of real suitors for an NFL team in Los Angeles is limited.  The NFL realizes this truth as well and has kept the Majestic Realty project at the forefront to provide leverage in its negotiations with Anschutz and AEG.

Make An Offer, Wonderful Readers

Want to buy an NFL team, Wonderful Readers?  Here is the step-by-step guide to getting your own NFL franchise:

1. Hire an investment bank to conduct your valuations.  The investment bank of choice for most NFL franchises is Goldman Sachs.  Open your pocket book and retain them.  If you do not want to pay the hefty 4-6% transaction fee to the investment bank, though, hire a consulting firm instead to conduct your valuations.  Or be like AEG and do your valuations in-house.

2. Hire an experienced accounting firm to look at the investment bank’s work and conduct due diligence.  Or be like AEG’s Dan Beckerman and conduct the due diligence in house.

3. Hire an experienced legal firm to conduct additional due diligence, negotiate the price, and hammer out the purchase agreement.  Or be like AEG and utilize your own in-house counsel.  When making your final offer, do not go higher than your valuation range and do not forget your assumptions.  For example, if you would like to close the transaction on the San Francisco 49ers at $1 billion, make sure you have the Hunters Point stadium in hand and not just the Santa Clara project.

4. Convince 24 of the 32 NFL owners to approve the transaction.

5. Go back to your investment bank and attorneys and sign all the financing and purchase documents.

Easy, huh?

***

Next week, I will explore how  AEG and Majestic will finance their representative stadiums and take a look at ongoing negotiations between them and the Chargers.  You can also follow me on Twitter for quick hits on the NFL in LA at twitter.com/footballphds.

 

References:

Financing an NFL Stadium in LA, Part 1 (10/2011)

Evaluating LA Stadium as the Future Home of the NFL (10/2011)

ESPN Copies the FOOTBALLPHDS Once Again: Holes in Industry NFL Plan (10/2011)

AEG Brain Trust (09/2011)

Santa Clara Stadium Update (07/2011)

Hunters Point Stadium in San Francisco (07/2011)

Local Revenues and Franchise Free Agency (06/2011)

 

jaboner@footballphds.com

Comments (16) Trackbacks (0)
  1. The Raiders should belong to the people like the Packers.

  2. Never gonna happen. No one wants to buy the Raiders. It’d be like buying a Yugo.

  3. just because the monday night contract re-upped at +73% does not mean the other 3 contracts will do the same…the business climate for nbc/fox/cbs is one of cost cutting as viewership is continuing to fragment…there’s no doubt that the nfl is a ratings juggernaut, but for the networks (and subsequently the sponsors) who buy the ad airtime to continue absorb the astronomical increases of nfl rights is not realistic in this prolonged environment of economic stagnation.

    on the hunter’s pt vs. santa clara discussion I think there’s a slight equity premium in the sf site but minimal at best…stadium revenues and naming rights would be a wash as santa clara county is the real economic center of the bay area whilst sf is the figurehead of the region.

    • The Santa Clara site doesn’t have parking. Oh, there will be a parking garage (no tailgating) and a few thousand spaces at the amusement park, but according to the Santa Clara city manager at a city council meeting, not one private business has signed up to be part of the ‘parking district’ to provide parking for NFL games (and the election was almost 1 1/2 years ago). After the beatings/shootings/fights at Candlestick in August, insurance carriers must be leery of allowing parking lots they insure to be used by NFL fans. What private lot will want tailgating (drinking, open grills etc.) Look at the parking lots at Candlestick and the Oakland Coliseum – tons of trash from tailgating. What parking lot owner wants that? The valuation should consider that Candlestick/Coliseum/Hunter’s Point all have/will have large dedicated parking lots, while the Santa Clara site is a 14 acre stadium on a 17 acre lot without a parking lot.

      • Does Santa Clara want this stadium or not? I thought they passed a referundum saying they wanted it? Is there dissension now or this thing still going forward?

        • There has always been plenty of dissension, and it has grown since the election. The 49ers funded the yes on the stadium campaign to the tune of about $5 million, while the grassroots citizens group fighting the stadium only had $20K to get the message out
          because people here don’t have a lot of money and didn’t have any deep pockets to tap.

          Yes, the 49ers won the referendum, but the costs of the stadium to Santa Clara and its agencies weren’t on the ballot (other than $40 million in redevelopment funds). It turns out that in CA there is no legal requirement for city-wide ballot measures to contain a financial analysis like there is for county-wide and state-wide ballot measures. Santa Clara’s agency, the Stadium Authority, is listed in the Term Sheet as responsible for raising $330 million for the stadium, including sources such as personal seat licenses, which was a disaster across the bay when the Raiders tried it. Now, a June 2011 agenda report from the city says that the 49ers will only pay for 15% to 25% of the stadium development costs, and that Santa Clara’s Stadium Authority will pay for the rest. One of the financing mechanisms listed in this agenda report is that the Stadium Authority will take out an advance (loan) from the 49ers to pay for construction, and then will pay it back how??? No other stadium anywhere else in the country has had such a goofy financing plan, backed by what??? They aren’t saying.

          The election was almost 1 1/2 years ago and there’s still no contract between the 49ers and the city. There have been over 90 closed door meetings between the 49ers and the city, and citizens here aren’t being told what’s going on.

          People will not forget that the Yes on the stadium campaign lied to get the ballot measure passed. There are still negative letters to the editor being written/printed in the newspapers, and the city council still receives negative letters about the stadium. This is a bad deal for our city, and the deal has gotten worse since the ballot measure passed, according the the agenda report from the city. There is plenty of dissension here, and it is growing as more and more people figure out that the Yes campaign essentially hoodwinked the citizens here.

  4. I don’t see the Hunters Shipyard as being viable. It has an EIR and if it was viable it would get built. Who is going to pony up the big money to get that built? Lennar? It doesn’t seem like they want to. Even in the article you referenced, it says that there is more money for less risk if Lennar does not build a stadium. I know Policy is running his mouth about Hunters Shipyard but he has been doing that for probably almost 5 years now.

    Having said that, none of these projects are getting off the ground anywhere, unless the NFL steps in and pays for most of them. Even Minn is having problems and what else do they have out there to do except football? California will never fund public stadiums. We have other problems here that deserve our attention, so right so, too. Kudos to us for keeping our priorities straight!

  5. Blah blah blah. LA Raiders are playing at Grand Crossing

  6. This post goes down better with the sticky icky ha ha!

  7. I enjoyed reading ESPN’s detailed break down of AEG and Majestic’s financing two weeks ago. I look forward to reading your breakdown next week. ESPN wrote last year that financing was the biggest reason LA hasn’t had a team since 1995. Let’s hope they can figure things out.

  8. The same reason why I can’t buy a house in Malibu is the reason why these teams don’t have stadiums. It’s money, my dear Watson. They don’t have it.

  9. Why do you need a billion $ to build a stadium? Just build a regular stadium for a 300 million $ instead or play in the LA Coliseum with the Trojans.


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