Chargers double-down on Los Angeles, tout 20-to-40-year lease

Never doubt that teams have contingency plans—this is a business, and a large portion of that business is set on image management. Within 24 hours of the internet going bonkers because the NFL was discussing the viability of the Chargers in LA, Mike Florio of ProFootballTalk released a sobering article articulating exactly why the team would stay the course.

The details of the agreement between the Chargers and the Rams are not public, but they aren’t private either. The concept first had to be voted on and approved by the NFL, and the nitty gritty details were worked out between the teams before the move was finalized in January of 2016. According to Nathan Fenno of the LA Times, the details of the agreement have not changed since that date, either: The Chargers have a 20 year lease at $1 per year, plus four 5-year options to extend. There are rumors that the extensions are 2 ten year terms, but that’s also unclear.

Those are the basics; we will likely never know the finer details, such as whether or not the Rams can breach the contract or decline the extensions. We have no idea what the penalties would be for the Chargers changing course.

The team is heavily invested in this move. It would be an absolute disaster if they change their minds. They spent a lot of time and money to get out of the contracts that tied them to San Diego, and they’ve spent a lot of money to try and build a nest in LA. News of potential trouble on the horizon is really bad for business, so it is no surprise that the Chargers, the NFL, and any other invested parties are in a rush to quell the idea that the Chargers might not fulfill their 20-year commitment.

Exactly 20 years ago, the Chargers made another diastrous commitment. Ryan Leaf was selected 2nd over all and awarded a $31.25 million contract to play for the San Diego Chargers. You can bet that the Chargers ate what they contractually had to, but got out in the best terms they could navigate: $12.976 was Leaf’s total take. Ouch! It hurt. But that’s how contracts go- and if the Chargers, the Rams, or the inner-stadium Joe’s Pizza Shack go out of business, there probably isn’t a discount for the advertisers who had signed on.

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The news of the NFL weighing the Chargers’ viability wasn’t the worst news for LAC. It was absolutely devastating news for Stan Kroenke and the Rams, because they have the most at stake and have been doing the largest amount of courting in anticipating of a 2020 opening date.

Both the Chargers and the Rams have made progress bringing partners and money to the table. If I was a potential business partner, I’m going to be real shy about signing any long-term contracts with the stadium because the water is now, whether the teams like it or not, muddied. Expect more news to ‘leak’ regarding how strong the permit is and how incredibly unshakable the commitment is to the Inglewood stadium and LA. It is an absolute business necessity at this point, or else the money raised is threatened and the slow flow of construction cash shrinks to a trickle.

If there were more concrete details as to why the Chargers would not be able to breach the contract, those details would be released. It would not be a surprise to have both teams triple-down and solidify such an agreement, though I can’t imagine the Spanos family would want to further obligate themselves without an equal portion of reward.

Here’s what we know: The Chargers have not raised as much as they thought. In fact, right now they are expecting to have raised only $150 million by 2020. Assuming the Rams are actually on-schedule, they’ve likely raised $200 million by this point, with a goal of $425-475 million by 2020.

Those monies are not cash in the bank- those are the promised funds over a 3-year-or-longer period that the banks require to finance a loan. That means that, worst case scenario, the Chargers and/or the Rams would be on the hook for refunding the cash received on any contracts (assuming the contracts stipulate such a refund—no guarantee!). That would probably be just ¹⁄₃ of money received thusfar.

Make no mistake, the Chargers are very unlikely to change course, but to use the idea that written advertising and partnership agreements are the reason for them be chained to a $1 lease would be intentionally misleading. If they decided to call it quits on the whole project, they might have to pay a contract breach amount (and that I have my doubts about, because their ‘rent’ and their involvement in the project amounts to contributing $200 million of NFL stadium loans) and return the 18.75% of SSL (Stadium Seat License) sales that the team would otherwise keep.

It is the Rams that will bear the brunt of the fallout, not the Chargers. And that’s exactly why there isn’t likely to be a big change: Kroenke gets what he wants because he has all of the leverage in the world.

-Jason “Paper beats rock” Michaels