How a Failed Wal-Mart Made the L.A. Rams
On Monday night, three NFL teams, the St. Louis Rams, the San Diego Chargers, and the Oakland Raiders, formally submitted applications to relocate their franchises to Los Angeles, which has been without a team since the Rams and Raiders both fled in 1995.
For the Rams, the long road back to California actually began in 2004, all because the Inglewood City Council wouldn’t exempt Wal-Mart from the zoning and environmental regulations that would allow the creation of a mega-store “the size of 17 football fields.”
The proposed site for the new Rams’ stadium has sat empty for almost 10 years, including a failed bid by the Madison Square Garden to put up a parking lot after they purchased the Los Angeles Forum. But in 2013, the Rams’ owner, real estate magnate Stan Kroenke, quietly bought a 60-acre parcel, and shortly thereafter, the rumors that the Rams were planning to bolt St. Louis began to pick up some serious steam.
Here’s where it gets fun: Sam Kroenke is a former Wal-Mart board member, and just happens to be married to Ann Walton Kroenke, one of the two heiresses to the Wal-Mart fortune.
In addition to the spiffy new stadium and a performance venue, the revised and expanded 238-acre mixed-use development plan includes “a hotel, housing, hundreds of thousands of square feet of retail and office space and even a lake with waterfalls.”
Then again, the Rams are only free to shuffle off to Hollywood because of the agreement the city of St. Louis signed off on back in 1994 that allowed them to decamp from Los Angeles in the first place. It’s a pact that Jim Nagourney, a member of the Rams’ negotiating team, once called “probably the most scandalous deal in the country.”
During the negotiations, the Rams kept asking, for more and more concessions, figuring it couldn’t hurt to ask for the moon. Much to their delight, St. Louis not only forked over the moon, but, as Neil deMause, the co-author of the book Field of Schemes: How the Great Stadium Swindle Turns Public Money Into Private Profit, wrote, they agreed to “a clause requiring the team’s new stadium to remain ‘state-of-the-art,’ or else the team could break its lease and leave.”
That, of course, is exactly what happened. At the end of the 2014 season, Kroenke lopped a decade off his 30-year lease, transferring to a year-to-year agreement, which, oddly enough, was not long after he and Mrs. Walton-Kroenke started sharing their real estate.
For its part, St. Louis hasn’t been sitting on its hands. It submitted a proposal to erect a $1.1 billion stadium buoyed by $477 million in public financing. The Rams aren’t impressed, nor is the NFL.
Here’s NFL Executive Vice President Eric Grubman poo-pooing a half-billion dollars in free, taxpayer money to ESPN radio: “St. Louis will surely fall short of having a compelling proposal that would attract the Rams.”
Then again, keeping L.A. NFL-free has been a dandy Sword of Damocles to dangle over the head of any municipality that dared to completely empty their coffers and submit to a wanderlust-ridden owner’s demands. (See Vikings, Minnesota.)
But what’s truly odd about this tale is that, despite the seeming allure of the Los Angeles market, when you factor in the estimated $1.86 billion cost of the wholly privately funded new stadium and the additional $550 million franchise relocation fee that the Rams would have to pony up, the economic incentives aren’t there.
The Daily Beast spoke with Neil deMause. He called Kroenke’s unyielding desire to return to the West Coast “very, very bizarre.”
“It makes no damn sense,” he said. “And every economist I’ve talked to has said it’s very, very bizarre. That’s why they keep saying we don’t think anyone is going to move to L.A. under these conditions.”
DeMause explained that, given the amount of equally divided revenue the NFL’s lucrative national television contracts bring in, there’s no huge incentive to having a team in the second-largest market in the U.S.
“You’re not going to suddenly cash in on a bigger TV contract because people in Los Angeles are watching the Rams instead of watching whatever the game of the week is,” he said.
Perhaps, then, Kroenke is eyeballing something equivalent to the Nets’ decision to move to Brooklyn where the construction of the Barclays Center launched the entire Atlantic Yards project? That allowed for a massive residential and commercial space carve-out along with the stadium.
“I guess you could say there’s a little bit of a parallel to the Brooklyn Nets’ deal,” deMause said. “You could explain the sports facility as the loss-leader to try to get a hold of this big plot of land that they want to do whatever with. That said, I still I don’t know why they needed to do that in order to get approval to re-do that land.”
For deMause, the only plausible explanation is that Kroenke’s looking to cash in on personal seat license fees a la the San Francisco 49ers, who managed to rake in $531.5 million from fans. Seat license fees are basically a spot in line to reserve season tickets in the future, so a half-billion dollars for the ability to take people’s money in the future is not a bad prospect.
Kroenke would certainly be able to charge a lot more in Los Angeles than he would in St. Louis, but even then, as the economist Peter Noll outlined to deMause in a VICE Sports article, that’s not enough: “It’s not billions of dollars.”
The best-case scenario for the Rams, or at least one in which it isn’t “so damn expensive,” involves cajoling the San Diego Chargers (whose current plan is to move to Carson, California, with the Oakland Raiders) to join them at the Inglewood site instead. “At least then [the Chargers] can help, whether through actual equity or through rent, they can at least help pay off some of this thing,” he said.
“But 1.9 billion dollars?” he continued. “You’re starting to run into some real money. And then the relocation fee on top of that... It doesn’t seem in any way possible that the marginal value of moving your team from St. Louis to Los Angeles is worth all that.”
So why would Kroenke be going forward, despite all that? Well, sometimes these things just have a momentum of their own.
“Kroenke saw the 49ers and all the money they got and how they were able to pay for a stadium in St. Clara and he thought, ‘Hell, maybe I can do that, too,’” deMause said. “So he went and bought the land, and said he was going to move, just to be the first person to throw his hat into that ring. And then the Chargers had to respond at that point because they didn’t want another team on their doorstep.”
The Chargers enlisted the Raiders and all of a sudden, for Kroenke, “it wasn’t just ‘Do I want to do this?’ it was ‘Do I want to let these other guys do it instead of me?’” deMause said.
Even if said deal, in all likelihood, will result in serious, immediate losses.
“These economists will say, ‘Is there a rational economic reason for it?’” he said. “And you know, sometimes there are no rational economic reasons. It’s just ‘Hey, this seems like a cool idea!’ And the next thing you know, you’re spending $1.9 billion.”
And it’s a financial hit that might have been avoidable, if only Inglewood was willing to stomach the presence of a supersized Wal-Mart a decade ago.