(Editor’s Note. Changes to U.S. federal tax laws in the mid-1980s helped usher in an era of new stadium building in professional sports leagues in this country. One feature of new stadiums was the emphasis on so-called “premium seating”. High cost luxury seating raised the per seat revenues for teams. The recent economic downturn has greatly impacted sales of these seats. This has helped to exacerbate revenue problems for many pro sports teams. This article was taken from a sports blog that deals with business issues. Readers can find this blog here.
Unsold premium seating inventory is a rising problem in the sports industry. It is becoming more and more common to turn on the television for a game, only to see dark suites and swaths of empty club seats in the background. Most teams have approached this issue as a sales problem… making more sales calls, offering more creative discounts, etc. In my opinion however, this is not a sales problem, this is a structural problem.
During the sports facility building boom that lasted from the early 1990’s to the mid 2000’s, most professional sports teams drastically ramped up their inventories of luxury suites and club seats. Prior to the building boom, the vast majority of seating revenues for sports teams were generated from general admission tickets, but now seating products focused on corporations and high-income individuals can account for as much as 25% of a franchise’s locally-generated income.
As the U.S. economy sank into a recession in 2007-2008, many teams were optimistic that the effects of the economic downturn would only be temporary. However as our nation’s economic outlook continues to stagnate, there are several financial and cultural factors that could continue to depress long-term demand for suite and club seat sales:
- A prevailing culture of austerity – With the U.S. unemployment rate exceeding 9 percent, many companies don’t want to associate their brands with premium seating that could potentially be viewed by the general public as “exclusive” or “excessive.”
- The rising non-ticket costs of attending a game – As corporate entertainment budgets have been slashed, the additional cost of stocking a suite with food and beverages or paying for the gourmet food and beverage options that are available in the club lounge, has become prohibitive for many firms.
- Advanced technology has made it more appealing to stay home – With the growth of satellite TV, streaming on-line video, interactive iPad apps, HD and 3D televisions, DVRs, and other such technologies… more sporting events are available at home in a wider variety of entertaining formats. The increased quality of affordable entertainment at home can make it very difficult for price-conscious buyers to commit to large, long-term contracts.
- A surplus of single-event inventory cannibalizes long-term demand – If a team responds to unsold inventory by heavily marketing it on an individual-game basis, they not only incent potential customers to avoid making a long-term commitment, but they also encourage current suite holders not to renew. If you know that discounted club seats are on sale for just about any game you want, why would you commit to buying an expensive club seat license or full-season ticket package? Or if you see another company occasionally renting the suite next door to yours on a per-game basis, why would you renew your long-term suite lease?
As all of these factors continue to depress the demand for traditional premium seating products, the 1990’s mentality of maximizing revenue by building as many large luxury suites as possible on your suite-level is no longer relevant. The days of generating premium prices from non-premium locations by turning them into club seat sections are over. So now, many of those large luxury suites and many of those mezzanine-level club seats are sitting empty. This is a structural problem… a fixed inventory that cannot easily be adjusted to meet changes in demand.
I have been engaged by several professional and collegiate sports teams in recent years to analyze premium seating demand, and there are several demand trends that have consistently appeared:
- As overall demand has decreased for large suites that can be difficult for all but the largest companies to fill, new demand has developed for a wider variety of suite sizes, configurations and locations. Examples include smaller suites with seating capacities for 8 to 12 people, super suites with memberships sold in 2-seat increments, large party suites that cater to high-capacity corporate functions, and bunker/event-level suites that offer both a lounge area with behind-the-scenes views of the players and front row seats in the lower bowl.
- There is significant untapped demand for loge boxes (open-air, “theater-style” boxes with seating for four to six people). Loge boxes are extremely popular with small to mid-sized businesses that can’t afford suites but would like a comfortable, private space for entertaining clients.
- Demand for club seats that are located on a mezzanine level is rapidly decreasing. Attaching premium amenities to a non-premium seating location has lost its appeal for many fans. The demand for club seats can be greatly enhanced by relocating them in the center of the lower bowl.
In order to maximize their premium seating revenues in the new economy, many teams/buildings will need to invest in facility renovations to meet the current levels of consumer demand. Until teams provide a wider variety of seating options and price points, they will continue to carry large amounts of unsold inventory and cannibalize their long-term sales efforts with single-game rentals.
Brian Connolly is a sports and entertainment venue consultant with CSL International. He specializes in market demand analysis and financial advisory for professional sports franchises, collegiate teams, arenas, stadiums, ballparks, performing arts centers and amphitheaters. You can follow him on Twitter@BrianHConnolly or e-mail him at firstname.lastname@example.org. Sport finance is one of the topics taught at the United States Sports Academy. For more information go to http://ussa.edu.