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[BaumerJet]

NFL facing the high costs of Jets-Giants plan

Monday, November 13, 2006 Daniel Kaplan and Liz Mullen - Business First

The NFL told its owners at their fall meeting that the planned stadium for the New York Jets and Giants would cost the league's other 30 clubs $914 million in labor and subsidy expenses over the first 15 years of the new venue.

According to an NFL owner, team sources and other sources with knowledge of the numbers, some of whom were in the room and none of whom would consent to be named for this story, the league also said that the two New York teams would enjoy combined cash flow after debt of $1.1 billion over that time frame.

The presentation, which came at the NFL owners meeting in New Orleans, could imperil the two teams' request for $300 million of stadium grants from the NFL's venue financing pool, which is critical if the clubs are to privately finance the $1.2 billion building. The NFL's economic system, however, could be working against such an approval, providing the latest stumbling block to a project the teams hope to open in 2010.

Under the league's economic system, much of the money generated from the new stadium would count toward the league's salary cap, which would increase labor costs for all teams, while the Jets, Giants and NFL players would receive the bulk of the benefits.

While it is true that all new stadiums built in the NFL benefit the players and the team doing the building at the expense of the other clubs, that effect would be magnified in the planned New York stadium, which is projected to generate more revenue than any sports venue ever built. In fact, the NFL told owners that the facility would cost the rest of the league nearly as much as all 10 of the stadiums already funded through the NFL stadium pool, the sources said.

"The (NFL's 30 other) teams can't afford this," said the owner. "Some are operating in the red now."

The NFL declined to comment.

The Buffalo Bills' Ralph Wilson Jr. is one of the NFL owners who in the past has expressed concerns about the financial viability of small market franchises.

The presentation came as the debate continues over revenue disparity and the merits of the labor deal agreed on in March. While owners, at the time, supported a new player-friendly collective-bargaining agreement, many have begun to question the deal's cost. At the same time, they are debating whether a new revenue-sharing plan is enough to lift the teams at the bottom.

So the league's disclosure of the Jets and Giants numbers was something of a bombshell, and may well doom the overall stadium financing program, or G-3, as it is known, said one team source.

Meanwhile, the union, which must approve any G-3 money, is raising worries of its own about the stadium, which would be built next to the current Giants Stadium in the Meadowlands.

"I am concerned about the cost and I am concerned about how the cost is increasing," said Gene Upshaw, the NFL Players Association executive director. Upshaw declined comment on why he would be so concerned about the teams' costs. In the past he has expressed strong reservations about revenue disparity and its effect on competitive balance in the NFL.

John Mara, the New York Giants' co-owner, said the union would be foolhardy to oppose the project because of its effect on the salary cap. The players will enjoy an additional $1.1 billion over a decade and a half from the stadium, the league's presentation disclosed. Mara declined comment on all other aspects of this story.

All league revenue counts toward the salary cap. NFL revenue is expected to hit $6 billion this year, and the players will receive 59 percent of that under the CBA. But what that means is that if one team is making a lot more money from its stadium than another team, the team making less will still see its salary costs rise because the cap will go up. National revenue such as TV are shared equally among the 32 clubs.

The NFL created the G-3 program in 1999 to help build stadiums for teams in large markets that didn't have access to public subsidies. In practice, the $773 million that has been doled has been to a mix of teams from small, middle-sized and large markets.

The money is funded through the visitors' share of club-seat money generated in each new building, money that would have been shared with the players otherwise.

In addition, all teams are assessed $1 million annually in the event that club-seat money does not cover the full costs of the stadium grants. The maximum the program gives for any stadium is $150 million, but the Jets and Giants each want that much, even though they are building one stadium.

The teams' club-seat money would likely cover at least two-thirds of that $300 million league grant, a source close to one of those teams said, meaning that the direct subsidy from the other 30 teams would be at most $100 million.

If the other teams deny the Jets and Giants G-3 money and they build the stadium anyway, it would still burden the 30 other clubs to the tune of $814 million in salary cap effect alone.

"A draft benefits and burdens analysis, which is prepared for all G-3 applications, was presented at the (owners) meeting, and ... we are going through the normal process," said Alice McGillion, a spokeswoman for the stadium project. "We are confident that when the analysis is completed, our G-3 application will be approved."

With $1.1 billion of cash flow projected for the two teams, assuming the G-3 money, that pencils out to on average $37.5 million of cash flow annually for each club after debt, likely placing both of them in to the top five in the NFL on that measure. While the teams don't dispute the NFL calculation, a more realistic figure, according to a source close to the clubs, is that they will have a cash flow of $22 million per team after taxes.

If the Jets and Giants suddenly had to borrow another $300 million, one finance source said, it would eat into the clubs' profit margins significantly, and call into question whether the risk is worth a diminished reward.

As it stands now, the teams in their current stadium only rank in the third quartile for revenue of NFL teams and will soon enter the fourth quartile as other teams build stadiums.

While the league salary cap would rise with this project, there are some strong reasons to support it. One-third of a team's ticket revenue is shared evenly among the 32 clubs, and that amount would surge with the new building.

And clearly having two healthy teams in the New York market is in any league's best interest.

It could not be determined just how much money the new building would make, but it would almost certainly put the teams first and second as measured by revenue in the league.

Each team incrementally would see its own revenue jump at least $100 million annually with the building, one team source said, citing the league presentation.

The disclosure of these figures to owners is the first time the G-3 program has been broken down this way by the league, and may signal a new openness in how information is relayed to the clubs under new Commissioner Roger Goodell.

Whether laying out in stark terms the burden G-3 places on nonrecipient clubs means the league is siding with low-revenue teams is unclear, though sources from some of those clubs were quite pleased the numbers had been aired.

[Preston Howley III]

Hey Baumer, can you post the Jets official address? It's in NJ, right?

[Sperm Edwards]

So the complaint is that the stadium will be too lucrative?

Hey, they got by for years on the Jets & Giants playing in a 1970's stadium. Time to pay the piper.