Los Angeles: Just Privatize, Baby
These days, professional sports franchises seem to be in perpetual motion. In the National Football League, after 70 years in Chicago, the Bears may abandon Soldier Field for the city's growing western suburbs, thus becoming the Schaumburg Bears. And though it seems like just yesterday that the Cardinals fled St. Louis for Phoenix, owner Bill Bidwell already threatens to move on. Indeed, seemingly every NFL team has moved or is looking to move.
Sports Illustrated columnist William Nack recently parodied this current relocation frenzy, noting that it might not be long before NFL teams "begin playing on aircraft carriers, with $25 parking on the hangar deck, soaring skyboxes port and starboard, and Taco Bells fore and aft. Home games would be scheduled from port to port up and down the West Coast." This floatable stadium might be called "Carrier Dome II," he quipped.
The relocation craze isn't confined to the NFL. In baseball, the Astros want out of Houston; the Indians hope to shed their half-century losing tradition by escaping Cleveland; and the Mariners may soon bid adieu to the cavernous Kingdome in Seattle. Waiting in the wings are the Greensboros, Orlandos, Sacramentos, and Tucsons—hungry for a sports team and eager to seduce club owners with lucrative financial packages.
All of the teams seem to want state-of-the-art stadiums with domes, skyboxes, plush locker rooms, built-in hotels and restaurants, increased seating capacity, multilevel parking facilities, and on and on. And, of course, they want these stadiums built at taxpayers' expense. Frantic city leaders wonder whether anything can convince club owners to keep the home team off the auction block, short of handing over the keys to the city vault. But last year, Los Angeles discovered a promising way to satisfy a team's demands without stiffing taxpayers: privatization. Thanks to a recent pioneering deal that will lead to the private financing, management, and operation of the soon-to-be renovated Los Angeles Memorial Coliseum, the NFL's Los Angeles Raiders will stay in that city for a long time.
The happy ending to this L.A. story is especially improbable considering that one of its principal characters is the consummate antihero of the professional sports world, Raiders owner Al Davis. "Just win, baby!" is Davis's well known team motto, and it aptly describes the way the man does business. As Sports Illustrated's Peter King recently said of Davis, "No owner has ever operated with a more unseemly disregard for his constituents."
Davis kicked off the relocation craze in 1981, shortly after the Raiders won their second Super Bowl. The then-Oakland Raiders shocked the football establishment by snubbing their fans in the Bay area and heading for the 90,000-seat Coliseum and the lucrative Southern California television market. Along the way, Davis won a multimillion-dollar lawsuit from the other NFL owners and longtime adversary, then-NFL Commissioner Pete Rozelle, who had attempted to block the move.
This landmark court case gave team owners almost carte blanche to search out new accommodations. No surprise then that within five years of settling in Los Angeles, Davis announced in 1988 that the club would be repacking its equipment bags.
Davis had tired of the Coliseum. Almost 70 years old, the facility urgently needs renovation. The seats are set far back from the action, thanks in part to a track that circles the field. Attendance figures of around 50,000 a game have forced the Raiders to routinely play in front of waves of empty seats. The team's inability to sell out the Coliseum has also meant foregone TV revenue because of NFL blackout rules. Meanwhile, investment consortia from other cities began to dance multimillion-dollar contracts in front of Davis's eyes to pry the Raiders away from the Coliseum.
The late 1980s was a particularly bleak period for Raiders fans in Los Angeles. The team came within an eyelash of leaving on repeated occasions. Irwindale, California, (pop. 1,000) handed Davis a $10-million, nonrefundable check to move there; Davis flirted with the idea but eventually pocketed the payment and looked elsewhere.
The next bid came from Sacramento, which held out $50 million and a $100-million new stadium as an inducement to the Raiders. Davis again balked.
Next, Oakland re-entered the sweepstakes, offering a $600-million, 15-year package for the Raiders to move back. Before Davis could grab the money and run, Oakland taxpayers pulled back the hefty offer. Later, Oakland officials put a revised contract on the table: $32 million in cash and $60 million in improvements to Oakland-Alameda Stadium. Davis proclaimed in the spring of 1990 that he was inclined to sail the Raiders back to Oakland.
The Raiders' negotiations with Los Angeles had stalled, and the team seemed certain to exit Southern California. In March 1990 Richard Riordan of the Los Angeles Coliseum Commission bid farewell to the team: "I'd like to congratulate Oakland on getting the Raiders, and I wish them the best of luck."
But before a deal with Oakland was formally struck, a new player entered the negotiations on behalf of Los Angeles in a last-ditch effort to break the logjam: Spectacor Management Group, a private sports management firm that has run the day-to-day operations of the Coliseum since 1988.
Based in Philadelphia, Spectacor is the world's largest sports-facility management firm, with 10,000 employees and sales of roughly $100 million. It owns the Philadelphia Spectrum and manages more than two dozen other facilities—including the Superdome in New Orleans, Three Rivers Stadium in Pittsburgh, and the soccer stadium in Torino, Italy.
In the first year of its contract to run the Coliseum, Spectacor nearly doubled the facility's net operating income. Moreover, it subsequently spent some $3 million on stadium improvements.
In the fall of 1990, Spectacor, Los Angeles, and the Raiders announced their eleventh-hour agreement to privatize the Coliseum and keep the Raiders in Los Angeles. Spectacor will finance a $150-million renovation of the Coliseum, satisfying Davis's demands for a modernized stadium with luxury boxes. The firm also promised to pay the Raiders $32 million in cash. The Raiders agreed to play their home games in the Coliseum for 20 years. And the Coliseum Commission agreed to lease the stadium to Spectacor for 20 years upon completion of the renovations. Spectacor plans to recoup its investment by booking events at the stadium.
"It was a happy occasion for all of the parties," wrote the Long Beach Press-Telegram when the agreement was announced. "For the Coliseum Commission, which feared it had lost the Raiders for good when the team announced plans to return to Oakland; for Spectacor, which can proceed with plans for reconstruction of the Coliseum; and for Davis, who can now put behind him all the distractions eight years of lawsuits and arguments have caused and get on with the business of football."
The biggest winners are the people of Los Angeles. The day the deal was struck, Mayor Tom Bradley said, "The jobs and economic activity that a professional football team generates are here to stay. The Raiders will continue to call the Los Angeles Coliseum home. This is a reason for all football fans and admirers of the Coliseum to celebrate."
Bradley's deputy Mark Favioni is more to the point: "Privatization gives us a state-of-the-art sports facility for the 21st century—at no cost to the taxpayer," he emphasizes. "Look around at other cities, such as Chicago and Baltimore, where historic stadiums are being torn down. We get a modernized stadium, while preserving the historic architecture."
One of the virtues of this deal is that, in modernizing the stadium, Spectacor has promised to preserve the original architectural design and the renowned outer facade of the Coliseum. In 1984 the federal government declared the coliseum a national landmark.
"I shudder when I think of what might have happened to the Coliseum if Spectacor hadn't come forward," says Matt Grossman, president of the Coliseum Commission, which voted 8-0 in favor of the privatization. "With the city incapable of making the financial commitment, privatization was really the only way to get this done," he says.
How is the deal working so far? Although the biggest question mark in the beginning was whether Spectacor could raise the capital to finance the renovations, the company has already raised most of the money. The city's architectural preservation commission still must approve the final modernization plan, but sources with Spectacor and the Coliseum Commission say the company will get the go-ahead within the next several months. Spectacor plans to begin renovation early next year and hopes to have the stadium ready for the 1993 or 1994 football season.
With a modernized stadium around the corner, Los Angeles officials already plan to bring the Olympics back to Southern California within the next 20 years. They are trying to attract the 1994 World Cup soccer matches. Spectacor has also agreed to continue to book community events, such as graduations, and allow the Coliseum to be used when such international celebrities as the pope and Nelson Mandela pass through Los Angeles. In fact, the private managers have already quadrupled the number of community events held in the Coliseum since they took over operations and booking.
One thing is certain: None of this success story could have taken place without the private sector. Favioni dismisses the notion that the city could have accomplished this itself: "We never have had the financial capability or the political will. Quite simply, without privatization, the Raiders would have been gone."
The pioneering Los Angeles Memorial Coliseum privatization raises an issue of larger political significance: Could this signal the end of the era of publicly financed sports stadiums? Over the past decade alone, U.S cities spent an estimated $750 million to build or renovate arenas and stadiums to accommodate professional sports teams.
A recent study by the Heartland Institute, a free-market think tank in Chicago, suggests that these were dubious capital investments. The study found that the "massive capital costs of modern facilities make it very unlikely that modern stadiums will earn enough to cover debt service expenditures regularly enough to earn a profit." The 14 municipal stadiums examined had a net accumulated value of negative $140 million.
For financially strapped older cities—Chicago, New York, Philadelphia, Washington, Detroit, to name a few—this public subsidy for sports teams has become unaffordable. Happily, cities seem to be waking up to fiscal reality—rebuffing the demands of team owners. Chicago officials spent $150 million to build new Comiskey Park for the White Sox, but they have told the Bulls and Blackhawks to find private financing if they want a new arena. In Detroit, the city council has nixed the Tigers' request for a new, taxpayer-financed baseball park.
"You can bet we will see more of this stadium privatization in the future," predicts Peter Luuko, vice president of Spectacor and the man who negotiated the agreement with the Raiders. He may be right. Any deal that can convince the wayward Al Davis to stay put for a while is bound to be widely imitated.
Stephen Moore is director of fiscal policy studies at the Cato Institute.