New Sources of Revenue
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 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
– 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
MLB $ 85,000
NHL $ 77,000
Marketing Premium Seats
• Carefully planned marketing strategy needed to sell
– 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
– 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 Adoption Programs
• 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
• 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 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
• 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
– 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
• 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
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