Sources of Revenue for Sport Enterprises.ppt

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					New Sources of Revenue
   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

    – 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

   – 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

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

•    Two major challenges confronting sale of premium seating

    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
                     Public Opposition

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

   – Candlestick Park in San

       • 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

   – 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
     Why companies buy naming rights?
• Two reasons corporations seek naming rights on sport

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

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

• 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
           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

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

    – 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.

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