As the Super Bowl nears, cities face relocation fears

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We are currently in what could be called the most exciting era of professional football.  Not football as in that game that restricts the use of your hands, but football as in the homegrown American contact sport that takes you away from your place of worship on Sundays to the “real” Cathedral of every city, the football stadium.  There have been several topics to plunge the National Football League onto front-page news in the last couple of years ranging from Deflategate to domestic violence to North Carolina’s very own Carolina Panthers having an almost perfect season record.  Currently, residents of North Carolina should be enthused to watch the Carolina Panthers take on the Denver Broncos in Super Bowl 50, which will be a historical match-up between teams led by Cam Newton and Peyton Manning.  However, another NFL topic, which has garnered comparable attention to Super Bowl 50, is the relocation of the St. Louis Rams to Los Angeles.

The Rams, a professional football team currently based out of St. Louis, Missouri, was recently able to terminate its thirty-year lease with the city of St. Louis ten years early. 

The Rams, a professional football team currently based out of St. Louis, Missouri, was recently able to terminate its thirty-year lease with the city of St. Louis ten years early.  This feat was accomplished due to the invocation of a “state of the art” (SOTA) clause within the team’s lease agreement.  While the SOTA clause can apply to any professional team, this article will be limited in scope to professional football teams within the National Football League.

In the past, teams would simply leave and go to a different city at the expiration of their lease agreement so long as that city provided a new stadium.  In 1987, the St. Louis Cardinals left for Arizona at the end of their lease because Arizona promised to build the team a new stadium.  While the strategy of building a new stadium to lure in a professional sports team has been used since the 1960’s, the SOTA clause has now given teams a vehicle to exit a lease agreement prematurely and relocate to greener pastures.

[The State of the Art clause] allows a team to relocate before the lease is up, if a stadium is not maintained to a certain degree. 

The SOTA clause is a contractual term within a lease agreement between a professional sports team and a municipality.  This clause allows a team to relocate before the lease is up, if a stadium is not maintained to a certain degree.  Other sports teams that have one of these clauses included the Charlotte Hornets, Kansas City Chiefs, Minnesota Vikings, and the Atlanta Braves.

What exactly does that invocation of the SOTA clause mean?  Lets start with the Rams previous lease agreement with St. Louis.  The St. Louis stadium had to be maintained to the standard of a “first tier stadium” or else the team would be able to leave before the end of their 30-year lease.  Starting in 1995, every ten years, the stadium would be evaluated as to whether it qualifies as a first tier stadium.  If it did not qualify as a first tier stadium then the Rams have the option to pursue a year-by-year lease or relocate.

A first tier stadium is measured by a variety of factors including location, luxury boxes, seats, electronics, and every other facility within the complex.

 A first tier stadium must rank among the top 25 percent of stadia in regards to value and condition.   A first tier stadium is measured by a variety of factors including location, luxury boxes, seats, electronics, and every other facility within the complex.

So, whose job is it to rank stadia?  An arbitrator determines these questions using the vague criteria previously listed.  One would think that an arbitrator would cater towards a city if a dispute should arise, due to a number of factors, such as income generated within the state, among others. However, given the Rams most recent arbitration dispute, it seems rulings tend to favor professional teams.

In 2012, the CVC (Convention & Visitors Commission), a marketing organization responsible for promoting St. Louis’s tourist venues, offered to make upgrades to the Rams’ stadium in the amount of  $ 120 million.  In contrast, the Rams argued that they required renovations worth at least $ 700 million.  Apparently, due to the offer number it made, St. Louis thought the Rams’ number was a completely unreasonable request.   However, the arbitrator sided with the Rams giving the team legal justification to leave St. Louis pending a vote by the NFL owners.  The Rams successfully received a 30-2 vote permitting the move to Los Angeles.

There has been a lot of controversy over the years since it has been the taxpayers who front the bill for each National Football League team stadium. 

There has been a lot of controversy over the years since it has been the taxpayers who front the bill for each National Football League team stadium.  For example, while the Rams didn’t officially move to St. Louis until 1995, the city of St. Louis and the rest of the state of Missouri began paying for the $ 300 million dollar stadium dome in 1991.  By 2014, St. Louis tax-payers were paying $ 24 million per year for maintenance and past debts.  At the beginning of 2015, the city of St. Louis, and to some extent the state of Missouri, were still left with a debt of more than a hundred million dollars.  It does not appear this debt will be paid off until 2021, but without the Rams drawing in revenue (such as annual lease payments to the city of $500,000) it will prove difficult for the city to pay off that debt in the current timeline.  

Many in the local area of St. Louis were puzzled that the Rams would move since the fan base had been so devoted to the team.  Even though the team’s last eleven seasons have been losing seasons, the stadium had managed to maintain an 86% attendance.   Fans in St. Louis are now left without a team, but with a $ 100 million dollar tab.  Many feel jaded and frankly, used, as the fans remained supportive over the years despite the team having little success.

There has been scholarly work done in the last decade addressing the burdens and stress that contractual terms, such as SOTA clauses, can place on cities.  An informative article regarding the evolution of SOTA clauses can be found on the Marquette Law Review titled, If You Build It, Will They Stay? An Examination of State-of-the-Art Clauses in NFL Stadium Leases, by Kristen E. Knauf.  The conclusion of her piece is that these clauses are unconscionable and should be held to be void against public policy.

The standard of what constitutes a top tier stadium changes from year to year, and the price to upkeep and continue to compete with other stadiums increases from year to year. 

Knauf and other scholars have criticized SOTA clauses because they are extremely burdensome on a city and state.  Within ten to fifteen years after being built, stadiums tend to be outdated due to the competitive nature of stadium renovation.  Teams like the Dallas Cowboys and New York Giants have built new stadiums within the last decade that look more like shopping malls than sports arenas with their shops and vendors located within the stadium confines.  The standard of what constitutes a top tier stadium changes from year to year, and the price to upkeep and continue to compete with other stadiums increases from year to year.  In order for cities to rest assured that their professional teams will not leave, they must keep pumping public money into their corresponding stadiums in hopes their team will not leave.

SOTA clauses give an easy out for professional sports teams negotiating a lease with a city.  A city is so desperate to bring in professional football teams due to the economic advantages that having an NFL team will bring, that they are typically willing to sign a leasing contract with this type of clause.  Bigger cities tend to have better economic opportunities and stronger fan bases thus those lease contracts tend not to contain SOTA clauses.  Mid-market teams tend to need these clauses because the fight for professional teams can get competitive.   There is clearly unequal bargaining power in favor of the professional teams, but is it to the extent that it violates public policy as some scholars suggest?

Should SOTA clauses be held to be unconscionable? The basic test for unconscionability is “whether, in the light of the general commercial background and the commercial needs of the particular trade or case, the clauses involved are so one-sided as to be unconscionable under the circumstances existing at the time of the making of the contract.”

One factor often considered is whether the contracting parties are sophisticated, or whether one party is more sophisticated than the other.

One factor often considered is whether the contracting parties are sophisticated, or whether one party is more sophisticated than the other.  The bulk of cases that illustrate unconscionability in law school revolve around one party being more sophisticated than the other.  These most common of these come in the form of cross-collateralization contracts where the inability to pay off one item on credit gives a seller the right repossess all items bought with that credit account.  Typically these can be seen in secured transactions or lending situations.  Another example is when an apartment attempts to contract out of premises liability.  The victims in these cases tend to be unsophisticated lessor parties in a transaction to the extent that the common person may not be aware of what they are signing.

In a lease agreement between a city and a professional football team, both parties are of presumably equal sophistication.  While this may be wishful thinking, municipalities often have employees and elected officials smart enough to engage in contracts of this nature and afford them full freedom to contract.

Another factor to be considered [in determining whether a contract is unconscionable] is a party’s lack of choice or decision-making to a commercially necessary item

Another factor to be considered is a party’s lack of choice or decision-making to a commercially necessary item (like housing or domestic necessaries).  This factor may not necessarily apply in such situations.  The idea in fact may be rejected on the notion that a professional sports team is not exactly a necessity or a commercially necessary item.

In addition, professional football teams definitely have superior bargaining power and leverage, but city’s still have meaningful options like choosing not to have a team or waiting for a team that is a better fit.

Stadium’s offer quality of life benefits, but they often rarely create jobs and other economic benefits as projected.  In fact, it is more likely that a team will drain a city’s budget and finances for upkeep and marketing or other investments.  Thus, opting to not have a professional football team could be an economic blessing.

As the SOTA clause has become more widespread in professional football team leases, which means more teams are continuously flirting with other cities and threatening to move.

It also makes sense for cities to be patient when considering signing a lease with a team.  As the SOTA clause has become more widespread in professional football team leases, which means more teams are continuously flirting with other cities and threatening to move.  This ensures that every couple of years, there will be teams willing to move and cities can just wait for these teams to approach them.  By being patient, cities put themselves in a better position to negotiate and contract.  A city may even be in a better position to reject a SOTA clause or at the least mitigate its potential effects.  As many negotiators have said, always be prepared to walk away from the bargaining table.

While SOTA clauses seem to be here to stay, their power in NFL contracts has been diminished by the Rams move to L.A.  In addition, the San Diego Chargers will play the upcoming 2016 season in San Diego but will have the option to join the Rams in L.A starting in 2017.  The Chargers decision to relocate will likely be based on whether San Diego offers to build a new stadium.  Teams have continually threatened to leave because there was always a huge vacant market in L.A.  The L.A. market is economically equipped to handle to two teams.   But, now that the L.A. bargaining chip is off the table, teams will be hesitant to prematurely exit their lease in order to relocate to mid-market cities.

Cities like San Antonio and Las Vegas have expressed interest in acquiring an NFL team and have also been used as potential threats for relocation but they also present risks in terms of financial stability.  Only time will tell whether the L.A. move hurts or helps SOTA clauses going into the future.

While these options may illustrate my naivety, they are viable alternatives that support the argument that SOTA clauses are not unconscionable.