As consumer tastes evolve, digital entertainment blossoms. But the economy is limping along. Will live events soon be on life-support
ESPN is reporting that TV viewership, this truncated NBA season, is up 21 percent. While the NBA seems to have pushed viewers to reach for the remote and climb into their armchairs, the problem of empty seats, and even more fundamentally, empty luxury suites, at live events, continues to plague sports arenas, team owners, and especially, big name sponsors.
ALSD, the Association of Luxury Suite Directors, estimates the total value of U.S. suites at $10 billion. By any measure, that’s serious money. And where there’s money to be made, there’s also revenue at risk. Current trends aren’t encouraging and they don’t appear to be self-correcting. A large number of venues are losing or have already lost large numbers of suite-holders, due to over-selling and under-delivering. At some venues, a quarter-to-a-third of suites, remain vacant.
With luxury suites and club seats, the name of the game is return on suite-holder investment. That helps explain why some companies are dropping their sponsorships. In today’s economy, ROI (return on investment) is king and suite-holders simply aren’t experiencing it. At the same time, too many venues and teams have focused on maximizing revenue from ten-year leases without doing enough to ensure value. When leases come up, they aren’t being renewed.
While not as visually striking as barren bleachers, the impact of empty suites is profound, extending from the public corporations that own teams and venues, to the network of sponsors who lease the suites, and to the local governments that miss out on needed tax revenues.
Zooming out just a bit, ticket sales, once the main source of any professional team’s financial success, are now just part of the revenue mix, along with television contracts and heavily marketed merchandise. Ticket sales, however, drive the core of the brand for the team. An “it” team doesn’t play in an empty cavern. The venue must be cool, exclusive, and sold out. If that is the case as I believe it to be, teams must find a way to push through the electronic headwinds. High-definition televisions, tablet computers, and an entire gamut of technology innovations threaten to make the live experience inferior to simply watching at home. And that’s even more critical with suites and club seats given both their cost and their ability to drive business.
Consider how luxury suites and club seats have evolved. What started out as a status symbol has evolved into something else; something with the potential to pay big dividends to any number of stakeholders, but with an equal potential to become an albatross. Whether it’s the NBA, the NFL, the NHL, the MLB or even the MLS, suites are now a permanent part of most team’s balance sheets.
According to stadium officials in Indianapolis, all 137 luxury suites at Lucas Oil Stadium were sold out months before the kick-off at this year’s Super Bowl. With a minimum reported price of $80,000 per box, the investment is hefty and the prospect of big returns has enticed teams to give their venues massive makeovers over the past ten-years.
As the Indianapolis example suggests, suites can work and they need to work. Luxury suite buyers want to be exclusive. They want to have access where others do not; access that can buy them a meeting with a key prospect or customer. They want access that entices a customer to leave the couch, the tablet, and the HDTV for an experience that no electronic medium can replicate. But the minute the live offering becomes tedious, oversold, or non-exclusive, luxury suites and club seats lose their mojo.
Most venues follow the same story line we are seeing, yet again, in the San Francisco Bay Area, among other places. The 49ers have sold $138 million in luxury suites, even before the team’s Candlestick replacement project has broken ground. The Birmingham Barons organization says it has already received commitments for more-than-half the planned luxury suites at its $64 million stadium expected to open in 2013. And Los Angeles is salivating over boxes at Farmers Field, even though the stadium is now little more than an architect’s rendering.
These luxury boxes provide a constant cash flow, no matter how well or poorly the home team is playing, since revenue accrues from long-term contracts. But savvy teams are realizing that it’s not enough to sell-off real estate. What is important is making sure the suites are, in fact, occupied and that people are in attendance. To help make that happen, successful teams are providing their corporate season ticket holders with tools that enable ticket and suite investments to be treated as assets, rather than expenses. Thereby, this helps fill seats. In other words, “no ticket left behind.”
Board-rooms likewise are now taking a closer look at managing these assets, if only because they feel the hot breath of regulators bent on Sarbanes-Oxley and IRS compliance. Technology means the process can be managed effectively with accountability and transparency. It means CFOs can track vital business statistics, such as tax deductibility, return of investment and usage rates. It also means unused tickets are not sitting around in company drawers or the trunk of Cousin Eddie’s Corolla. Unused tickets are a lost opportunity to build business relationships and close deals.
Given the dictates of the new economy, corporations are once again recognizing the important “business” of sports; not just as entertainment, but as an asset that can reap substantial rewards, no matter what happens on the field. After all, a ticket is a terrible thing to waste.