News today that AEG is no longer for sale wasn't exactly surprising. For months it appeared that no company was willing to offer the $10 billion asking price that Phil Anschutz had sought. It's still not clear why Anschutz wanted to sell AEG in the first place, but I always felt that the company was more valuable if it was sold in parts. AEG has become such a giant conglomerate with so many different holdings - from real estate to pro teams to events to a ticketing company and much more - that it was never clear who would want or need every single piece of what they owned. Perhaps that's why no company was willing to offer Anschutz what he reportedly wanted.
The real surprise to me is that Tim Leiweke is leaving AEG. Leiweke has been with the company through every step of its dramatic rise, and has always been its public face. If there was a Mount Rushmore of all-time great sports executives, then Leiweke would surely be on it. He's right up there with the O'Malley family, the Buss family, Jack Kent Cooke, and Peter Ueberroth as individuals who have had a profound impact on the LA sports scene.
Seemingly through the sheer force of his will, Leiweke transformed Downtown LA with the building of STAPLES Center and LA Live, and he also spearheaded the construction of Home Depot Center in Carson. He brought David Beckham to LA, the Stanley Cup to the Kings, and a whole range of large events to town from The X-Games to the Tour of California. It's hard to imagine AEG without Tim Leiweke, and I didn't expect his tenure to end this way, especially considering it was announced that he signed a long-term contract last fall.
The next question is about the future of Farmers Field. Personally, I'm pessimistic that it will ever get built. While the AEG release this morning claimed that Farmers Field was still a "top priority," conventional wisdom has always been that this was Leiweke's pet project. Without Leiweke's determination and enthusiasm in the AEG offices, I'm not sure how Farmer's Field happens.
But the other wall that Farmers Field advocates keep running up against is that the economics don't really work. For years AEG has been a model for vertical integration in sports. They've profited not just by owning teams, but also by owning arenas, management companies, and ticketing companies. If AEG could just buy an NFL team and move it, then LA may have a franchise by now. But the NFL does not allow corporate ownership of its franchises.
This means that an individual owning an NFL team would have to move to LA, have AEG spend over $1 billion to build a stadium on their behalf, and then figure out a way to divvy up the stadium revenues for 10 games a year. Reportedly, Anschutz himself was interested in buying a percentage of an NFL team, but he only wanted to do so at a discount. This makes sense, considering his company was footing the bill for the billion dollar stadium. But the NFL made it clear that it will never allow any share of its teams to be sold at a discount. Furthermore, the NFL is resistant to the idea of allowing a company like AEG receiving a large percentage of profits on in-stadium advertising and other stadium revenues. But without that kind of revenue, it's hard to see how this deal works financially for AEG.
Last week, Yahoo's Jason Cole reported that the stadium deal was close to dead. He quoted a league source as saying:
"The numbers just don't work, no matter how you look at the deal," a league source said in February. "It's either too hard for AEG to make money [and pay the debt on the stadium] or too hard for the team. I just can't see a way for it to work."
Some of the same issues have cropped up with Ed Roski's City of Industry stadium site, now called Grand Crossing. Roski reportedly wanted to buy part of an NFL franchise at a discount in exchange for building an $800 million stadium. He had to back off of that after the NFL stepped in. Reportedly, Roski has changed his offer so that he'd essentially hand over the Grand Crossing site to another owner, who would then need to foot the entire bill on stadium construction.
Remember that any stadium construction cost would be added to the nine figure relocation fee that the NFL will likely tack on. Some estimates have put that figure at $250-500 million. So if a team wants to move to Grand Crossing, they'd need to spend $800 million on a new stadium, hundreds of millions more to move, and if it's a new owner who just bought a $1 billion team, then an LA move could easily be a $2.5 billion expense.
Guggenheim Partners or Colony Capital may have $2.5 billion to spend on such an endeavor, but with the NFL's rules on ownership structure, it means an individual would need to cover that cost. Very few people in the world have the resources to spend that kind of money, and even fewer have the appetite to take such a large financial risk. The new NFL collective bargaining agreement does allow for $200 million per team to go to new stadium construction, but that only goes so far. One of the reasons why we keep hearing two LA teams is possible is that $400 million can be procured from the NFL, and then rest of the construction costs can be split between two teams.
Reportedly, the NFL has privately said that it doesn't care for Farmers Field or for Grand Crossing. Farmers Field lacks the tailgating space to have a truly integrated NFL experience. And Grand Crossing is viewed as too far from the center of Los Angeles. I've always felt that the NFL was a bit hypocritical in this regard. The New England Patriots play in Foxboro, which is further from Boston than the City of Industry is to Beverly Hills. And the New York Giants and Jets play in East Rutherford, NJ, which is a pain for any New Yorker to get to. That didn't deter the NFL from awarding next year's Super Bowl to the Meadowlands.
The NFL refuses to make it even moderately easy for a team to move to LA. They still operate as if a city will just spend a $1 billion to build a new stadium, without appreciating the nuances of our local politics. Reportedly, they prefer Chavez Ravine or Hollywood Park as a stadium site. While I've always felt that the Dodger Stadium area was perfect for an NFL team (plenty of tailgating, accessible from three freeways), that site has the same problems as AEG's Farmers Field. Guggenheim Partners can't own any portion of an NFL team, so it's hard to see how building a stadium would be profitable for them. And don't forget that Frank McCourt still owns half the land where Dodger Stadium sits.
Hollywood Park is an interesting site, considering that the NFL once committed to help build a stadium there for the Raiders. But that site will supposedly turn into a retail and residential complex.
I've been an enthusiastic advocate for the NFL to return to LA for years. But right now, I've never been more pessimistic about LA's chances to land a team. Unless the NFL is willing to compromise, it's hard to envision a deal that makes sense in the current financial and political landscape.