NFL Franchise Goes to Houston Summary

  • Last updated on November 10, 2022

The amount of money needed to support a professional sports franchise jumped to a new level when investors in the city of Houston paid $700 million to the National Football League merely for the privilege of fielding a team. An additional substantial investment was also necessary to create the team.

Summary of Event

In 1995, the Los Angeles area lost both of its National Football League (NFL) teams. The Raiders Oakland Raiders returned to their original home, Oakland, California, and the Rams moved to St. Louis, Missouri—where they would win a Super Bowl in 2000. In 1997, the Oilers moved from Houston Houston Oilers to Nashville, Tennessee. Tennessee Titans These were merely the latest moves in a trend of professional teams moving from one city to another when the price was right. National Football League Sports;football Football, professional Houston Texans [kw]NFL Franchise Goes to Houston (Oct. 6, 1999) [kw]Franchise Goes to Houston, NFL (Oct. 6, 1999) [kw]Houston, NFL Franchise Goes to (Oct. 6, 1999) National Football League Sports;football Football, professional Houston Texans [g]North America;Oct. 6, 1999: NFL Franchise Goes to Houston[10490] [g]United States;Oct. 6, 1999: NFL Franchise Goes to Houston[10490] [c]Sports;Oct. 6, 1999: NFL Franchise Goes to Houston[10490] [c]Business and labor;Oct. 6, 1999: NFL Franchise Goes to Houston[10490] Brown, Lee McNair, Bob Tagliabue, Paul Riordan, Richard Ovitz, Michael Roski, Ed Broad, Eli Davis, Al

In early 1999, three groups—two from Los Angeles and one from Houston—presented their cases to the NFL’s expansion and stadium committees. At the time, the NFL had thirty-one teams and wished to add another to begin playing in the 2002 season. Each of the groups was given thirty minutes for its presentation. It was estimated that the new franchise to be awarded would cost between $700 million and $1 billion. In commenting on the choices faced by the committee, Bob McNair of the Houston group said that he thought “the NFL wants to be back in Houston and wants to be in Los Angeles and is trying to figure out how to do that.” During his presentation to the committee, McNair showed the league’s team owners a model of the proposed new stadium that would be built for the new Houston franchise: It would feature a retractable roof and would cost roughly $310 million. The model alone cost $85,000 to build—one-third the cost of the original Rose Bowl. It took McNair and his advisers more than two years to put on the table a convincing package for the NFL.

In March, 1999, the NFL owners voted to award the league’s thirty-second franchise to Los Angeles. The league seemed to regret that the second-largest American city had lost its two teams in 1995. However, the league attached some strings to finalization of the deal. Los Angeles was given six months to decide where the stadium would be and draw up plans for its construction. The league also was concerned about how a new stadium or a refurbished existing stadium would be financed and how the franchise fee would be paid.

The mayor of Los Angeles, Richard Riordan, supported the idea of bringing a professional football team back to the city. With investors such as Eli Broad and former Hollywood power broker Michael Ovitz willing to raise the franchise fee, it seemed that a deal could be worked out that would meet all the NFL stipulations by the September 15, 1999, deadline. However, while Riordan strongly supported the local business leaders who were negotiating with the NFL for a new franchise, he was still willing to work out a deal that would have brought the Raiders back to Los Angeles. For the Raiders to return, someone would have to persuade Raiders owner Al Davis that it was in his best interest to return. The mayor was walking a fine line, as he wanted to avoid facing a backlash from city taxpayers who might end up paying most of the tab for bringing professional football back.

In the end, there were too many obstacles for Los Angeles to succeed in putting together a package by September 15. A crucial issue that made it difficult for Los Angeles to succeed was the city’s refusal to use public financing to build a new stadium. The $310 million stadium that Houston was proposing was to require raising $195 million from public financing. A number of studies showed that relying on public financing to build stadiums is usually not a good investment for cities. It is, however, an extremely good deal for NFL owners. Of the $700 million Houston had to pay to get a franchise, each existing NFL owner was to receive $22 million. The new influx of money into the league would add value to the other teams as well, as the mere fact that investors are willing to pay $700 million to own a team makes all other teams more valuable. At a meeting on October 6, 1999, the NFL owners voted twenty-nine to zero for the new franchise to go to Houston. The owners of both the St. Louis Rams (whose 1995 move to St. Louis had left much ill feeling in Los Angeles) and the Arizona Cardinals (who had moved to Phoenix from St. Louis in 1988) abstained from voting.

As the owner of the new Houston franchise, Bob McNair projected that it would take between fifteen and twenty years to recoup his $700 million investment. He stated that he believed in the old expression “long-term gain and short-term pain.” Some of this short-term pain, however, would be relieved by the $195 million that would come from the public funding used to build a new state-of-the-art stadium. Football has been described as a “religion” in Texas, and it was certainly the case that the citizens of Houston looked forward to having an NFL team once again. However, they were also a little leery of what might happen because of their recent experience with the move of the Oilers to Tennessee.

Significance

Although a great deal of press coverage is regularly given to the multimillion-dollar signings of professional athletes, comparatively little attention is paid to how much money flows into the pockets of team owners. It is not surprising, however, that some of the richest persons in the world own professional sports franchises. More than one hundred major-league-level teams exist in the United States, in baseball, basketball, football, and hockey leagues. During the late 1990’s, the revenue generated per year by these four professional sports alone reached more than five billion dollars. In addition to the money coming in through gate receipts, the team owners earn money from media arrangements and from the buying and selling of franchises.

In earlier decades, most sports franchises remained in their home cities for long periods. During the 1990’s, in contrast, it became common for “bidding wars” to break out among cities and states contesting for teams. Locales would promise hundreds of millions of dollars to guarantee that franchises would come to their areas. Winning cities cheered their good fortune while others bemoaned the loss of their teams, as well as lost revenue and jobs. Communities that lost teams were also often stuck with unpaid bonds on stadiums that had been built for the teams.

Professional sports plays such a large emotional and cultural role in American society that it is often difficult for elected city leaders to say no to owners who demand improved stadiums while threatening to look for new homes for their teams. Experts have pointed out that major sports leagues have long used their cartel status to obtain subsidies and make profits. Since the 1950’s, critics have argued against financing stadiums with public funds. In 1999, George Steinbrenner Steinbrenner, George threatened to move his legendary New York Yankees baseball team to New Jersey if he did not get a new stadium for his team in New York City—even though the Yankees had been one of baseball’s most successful and valuable franchises. In the late 1990’s the team had agreed to a $496 million cable television deal, and yet Steinbrenner still felt it necessary to pressure the city for a new stadium.

Because major professional sports leagues have monopoly status in the United States, each league has the right to negotiate television contracts that will benefit all its teams. In 1961, the federal Sports Broadcast Act Sports Broadcast Act (1961) made it possible for the leagues to work as a group in the selling of their television rights without worrying about antitrust laws. The Fox network alone paid more than $17 billion in 1997 to secure nonexclusive television broadcast rights to NFL games through the year 2005. With this one contract, each NFL team received approximately $75 million per season. In 1998, Forbes magazine estimated that the average major professional sports team was worth almost $200 million.

In addition to McNair’s paying $700 million for the new Houston franchise in 1999, another group paid $800 million to purchase the Washington Redskins Washington Redskins football team and stadium, and Alfred Lerner Lerner, Alfred paid $530 million to buy the Cleveland Browns Cleveland Browns football team. During the 1990’s, many new arenas and stadiums were built; about $9 billion was spent during the decade for new sports facilities. More than 80 percent of this money was raised with state and community funding.

The majority of professional sports teams played in privately owned facilities in 1950. By the 1990’s, more than 75 percent of the teams were playing in publicly owned facilities. With the average net worth of a professional sports team owner hovering at around $400 million, it seemed that it would become somewhat less likely that in the future the public would automatically vote for bonds to finance new sports facilities so long as owners had other ways to put together funding for their projects. The building of new facilities continued, however. For example, on March 26, 2000, Seattle’s Kingdome stadium was imploded to make room for a new multipurpose stadium in the same location. The stunningly attractive new stadium, a marvel of architecture and engineering, was the subject of great controversy in King County and the state of Washington generally. National Football League Sports;football Football, professional Houston Texans

Further Reading
  • citation-type="booksimple"

    xlink:type="simple">Cagan, Joanna. Field of Schemes: How the Great Stadium Swindle Turns Public Money into Private Profit. Monroe, Maine: Common Courage Press, 1998. Argues that communities should be wary of sports team owners who insist that the public pay for new stadiums. Includes bibliography and index.
  • citation-type="booksimple"

    xlink:type="simple">Colangelo, Jerry, with Len Sherman. How You Play the Game: Lessons for Life from the Billion-Dollar Business of Sports. New York: Amacom, 1999. Inside story on professional sports ownership from the owner of the Phoenix Suns basketball and Arizona Diamondbacks baseball teams.
  • citation-type="booksimple"

    xlink:type="simple">Jozsa, Frank P., Jr., and John J. Guthrie, Jr. Relocating Teams and Expanding Leagues in Professional Sports: How the Major Leagues Respond to Market Conditions. Westport, Conn.: Quorum Books, 1999. Uses demographic and economic data to discuss the business side of American sports from 1950 through 2000. Includes selected bibliography and index.
  • citation-type="booksimple"

    xlink:type="simple">Noll, Roger, and Andrew Zimbalist, eds. Sports, Jobs, and Taxes: The Economic Impact of Sports Teams and Stadiums. Washington, D.C.: Brookings Institution, 1997. Collection of essays takes a close look at the economic impacts of new stadiums, examining whether particular sports franchises really do add revenue to their local communities.
  • citation-type="booksimple"

    xlink:type="simple">Quirk, James, and Rodney D. Fort. Pay Dirt: The Business of Professional Team Sports. Rev. ed. Princeton, N.J.: Princeton University Press, 1997. Thorough and balanced guide to the sports industry includes chapters titled “The Market for Sports Franchises,” “The Reserve Clause and Anti-Trust Laws,” “Competitive Balance in Sports Leagues,” and “Why Do Pro Athletes Make So Much Money?”
  • citation-type="booksimple"

    xlink:type="simple">Rosentraub, Mark S. Major League Losers: The Real Cost of Sports and Who’s Paying for It. New York: BasicBooks, 1997. Detailed account of how professional sports has become a massive recipient of corporate welfare. Notes that while team owners are pampered, the public pays millions in taxes to subsidize new sports facilities.
  • citation-type="booksimple"

    xlink:type="simple">Scully, Gerald W. The Market Structure of Sports. Chicago: University of Chicago Press, 1995. Examines in detail the business of professional sports, including a close look at management practices, players’ salaries, and the monetary value of teams.
  • citation-type="booksimple"

    xlink:type="simple">Shropshire, Kenneth L. The Sports Franchise Game: Cities in Pursuit of Sports Franchises, Events, Stadiums, and Arenas. Philadelphia: University of Pennsylvania Press, 1995. Presents in-depth analysis of how team owners go about manipulating the system in order to almost guarantee themselves huge profits.

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