Docstoc

Sources of Revenue for Sport Enterprises.ppt

Document Sample
Sources of Revenue for Sport Enterprises.ppt Powered By Docstoc
					New Sources of Revenue
          for
   Sport Enterprises
       Sport Finance
             New Sources of Revenue
• During last 10 years, revenue model for sport
  organizations has changed.

• Construction boom of 1990’s & early 2000’s made way for
  fully loaded sport facilities with new sources of revenue.

• Three major innovations in revenues:

          – Premium Seating (luxury suites & club seats)

          – Naming rights

          – Personal Seat Licenses (PSL’s)
            New Sources of Revenue

• Current Challenges

  – Revenues also affected by economic circumstances &
    marketplace conditions (over saturation of market)



  – Novelty effect in naming rights have diminished
                      Luxury Seating

• Luxury suites are the universal and dominant feature of every
  new stadium/arena built since early 1990’s.


• General amenities included in suites: carpets, wet bar,
  restroom, and seating for 12-24.


• “Ten years ago, only 3% of seating in stadiums/arenas was for
  premium seating and club seats. This figure is now
  approaching 20%” (Exec. Dir. Of Assoc. of Luxury Suite Directors)
                     Who deserves credit?
• Houston’s Astrodome is credited for being first facility to introduce this
  concept in 1965.

• However, concept of luxury suites as revenue producers did not happen until
  20 yrs later.

    – The Palace at Auburn Hills – 1989

         • $12 million annual income from suite rentals paid off $70 million construction
           debt in 6 yrs.

    – Joe Robbie Stadium (Renamed ProPlayer) – 1990

         • $20 million per year from leasing 216 suites; more than half of team’s gross
           revenues.

    – Luxury suites & club seats became norm in new stadiums built after 1990. Other
      sports venues also open venues with suites (i.e. Golf courses, collegiate facilities)
                    Drive for Revenue

• Rapid growth of luxury suites attributed to substantial revenue
  they produced.
   – The Palace initiated trend, but Staple Center has realized enormous
     revenues from luxury suites (160). $68 million generated per season.

• Revenues generated from 12,000 luxury suites in major league
  venues is approximately $600,000,000.

• Popularity of luxury suites among franchise owners is highly
  favorable because revenues are not shared with the rest of the
  league.

   – i.e. Washington Redskins - $100 million unshared revenue in 2000.
 Average Annual Luxury Suite Price



NBA/NHL Share Arena     $199,000

       NBA              $113,000

       NFL              $100,000

       MLB               $ 85,000

       NHL               $ 77,000
               Marketing Premium Seats
• Carefully planned marketing strategy needed to sell
  luxury suites:
   – Cleveland Browns sold two-thirds of their suites in two weeks. Success
     attributed to customer research to determine elements of suite program most
     important to companies. Long-term, staggered payment terms in 5, 7, and 10
     year intervals.

   – University of Oregon saved thousands by learning restrooms in suites are
     undesirable.


• Venues can demand substantial prices for club seats,
  include preferred seating with access to specialty
  services.
                             Challenges

•    Two major challenges confronting sale of premium seating
     include:

    1.   Economic recessions:

         •   1990s longest period of sustained growth, but recession of 2001-
             02 presented challenge

    2.   Saturation of available luxury suites in some markets:

         •   Oversaturated markets for luxury suites include San Francisco,
             Atlanta, Denver, Seattle, & Dallas
               Response to Challenges

• Successful sales programs will need to become creative and
  flexible to respond to challenges.

   – Incentive for long-term deals with staggered expiration dates.

   – Suite-sharing – more manageable set of games at more
     affordable price to companies.

   – Suite-reselling
      • Suite Adoption Programs
                           Naming Rights
• Corporate naming of sport facilities is a fairly recent concept.

    – First naming rights agreement in 1971. Schaefer Brewing Co. paid $150,000 to
      name Patriot’s stadium Schaefer Field.

    – Several other teams followed Patriot’s lead.


• Early naming rights agreements did not stimulate trend in U.S. Most
  facilities from 1970’s – 1980’s were publicly financed and named after
  civic leaders.

• Naming rights agreements did not become prominent until mid 1990’s.

• By 2002, 80 of 121 teams were playing in major sport facilities named by
  corporations.
                     Public Opposition

• Public resistance to selling
  naming rights result from
  pre-established civic identity.

   – Candlestick Park in San
     Francisco

       • 3Com Park at Candlestick
         Point – ended in 2002

   – Mile High Stadium in Denver
      • Invesco Field
              Growth of Naming Rights
• Exponential growth created by new facilities accompanied by
  increases in price:

   – Average annual price quadrupled from $1.28 million in 1995 to $4.8
     million in 1999.

   – From 1995 -2002, naming rights amounted to over $3.5 billion.

   – Single largest naming rights deal came from Reliant Energy. Paid $300
     million, 30 year agreement for Houston Texans new stadium.

       • Justified by 2004 Super Bowl, Houston Livestock Show & Rodeo,
         and rights to display name on Astrodome.
                 College Sport Venues
• Growing number of colleges & universities are selling naming
  rights to stadiums and arenas.

   – Single largest agreement: $40 million agreement to Fresno State
     University from Pepsi & Save Mart.

• College facilities generally named after major donors (30-50%
  of construction costs).

   – Colleges now selling naming rights to space within already named
     facilities.

   – Ohio State sold naming rights for gymnasium inside new event center.
     $12.5 million – Value City Arena at Jerome Schottenstein Center
             Resistance at College level

• Increasing resistance among schools over increased
  commercialization on campuses.

   – Some colleges view as an invasion of the sacred realm academia.

   – Stanford reacted by removing large corporate signs and banners from
     sport facilities. $2.5 million annual loss.

       • “Only the rich can afford to be moral.”

• Some colleges are reaching a compromise in naming rights
  agreements. Incorporate sponsor name with institutional
  identity.
     Why companies buy naming rights?
• Two reasons corporations seek naming rights on sport
  facilities:

   – Exposure – advantage of taking name of a public attraction.

   – Increase sales – use sport facilities as a platform for growing company
     sales.

• Naming rights agreements have evolved:
   – One-dimensional to multidimensional.

   – Integrated packages that provide sponsor with range of hospitality,
     media, preferred seating, and business building benefits.
 Key Elements of Agreements
• Term or length of contract – 15-20 years

• Consideration – amount/schedule of payment.

• Signage Rights & Limitations.

• Installation Costs

• Marketing Rights

• Termination upon default

• Reimbursement

• Renewal Option
  Impact of naming rights’ partner failings
• Bankruptcy of corporate partners prematurely terminates
  naming rights contracts.

   – Advantage – easy exit for franchises that entered low naming rights
     agreements. Negotiate new agreements at higher price.

   – Disadvantage – Creates public relations & image problem.

       • Astros paid Enron $2.1 million to remove name. Regained money by
         signing agreement with Minute Maid.

       • Colleges suggested to include disassociation option in naming rights
         agreements.
           Shirt & Team Naming Rights
• Naming rights on shirt and apparel yet to be accepted by the four
  professional leagues.

   – Only allow manufacturer's name or logo to be discreetly displayed on
     athletic wear at a significant fee.

   – NCAA Rules: NCAA Bylaw 12.5.4

• Team & apparel naming rights likely more preferable than
  facility naming rights because of added value of appearing on
  television, print media, and pictures.

   – Widely used in European sports
    Personal Seat Licenses (PSLs)
• Similar to selling naming rights and premium seating to corporations,
  franchises are able to sell seat licenses at premium prices to individual
  fans.

    – Concept: Individual makes an advance payment to purchase rights
      to secure particular seats in the venue for a specified period of
      time.

    – Length of license range from 10 years to a lifetime, depending on
      the facility.


• PSL’s raise considerable amounts of money, which

• Reduces the money an owner or public entity would have to invest in
  constructing a new facility.
                  Growth of PSLs

• Colleges initiated the notion of selling seat rights 30 years ago;
  however, Dallas Cowboys introduced concept of seat licensing in 1968.

    – PSL did not become widespread until 25 years later because of
      contemporary model introduced by Carolina Panthers. Sold rights to
      scarce season tickets in exchange for nonrefundable fee.


    – By 2002, 30 professional teams had implemented PSL programs.


    – PSL not widely accepted in Major League baseball due to the greater
      inventory of games.


    – MLB use more conservative approach by offering limited inventory to
      PSL program.
                  How PSLs work:

– Fundamental concept of all PSL programs:

   • Once seat license is awarded, seat holder must purchase season
     tickets to the assigned seat on an annual basis.

   • Failure to renew season tickets results in forfeiture of the PSL.

   • Guaranteed right of purchase is only good for as long as the rights
     holder continues to buy tickets.


– Most PSL programs offer discounts on season tickets to
  rights holders.

				
DOCUMENT INFO
Shared By:
Categories:
Tags:
Stats:
views:22
posted:5/16/2012
language:English
pages:22
zhaonedx zhaonedx http://
About