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March 06, 2009
Tracking the sports bubble
Long piece in today's Wall Street Journal on the bad timing by the New York Yankees, New York Mets, and Dallas Cowboys in opening stadiums geared to high-end consumers at a time when there ain't none to be found. (Best headline, though, goes not to the WSJ but to the New York Times' blog item on the story: "Luxury Stadiums Seemed a Good Idea at the Time.") Highlights:
With just weeks before their new $1.1 billion stadium opens, the Cowboys still have 2,000 premium seats and about 50 of their 300 luxury suites left to sell. The Yankees have hired [luxury real estate agent Neal] Sroka to drum up buyers for the hundreds of premium seats still in their inventory. The Mets, who once had deals for all 49 of their luxury suites, say they've had to go back to the market after one customer, whom they declined to name, backed out....
Between corporate sponsorships, naming-rights deals and luxury suites, two-thirds or more of teams' revenue comes from corporations rather than ordinary fans, estimates David Carter, executive director of the University of Southern California's Sports Business Institute. Over the years, luxury boxes, once just a few glass-enclosed rooms high above the regular seats, have become as integral to a new stadium as concession stands -- more so, because companies pay for them up front, guaranteeing profits regardless of the team's success on the field. As team owners crammed in ever-more premium seats, corporations, eager for new ways to entertain clients, happily bid up the prices.
All that corporate money, Mr. Carter says, has created what he calls the "sports ticket price bubble." Now that bubble is in danger of bursting.
If so, the question is whether sports will get that "soft landing" that everyone was talking about for the real estate market a couple of years ago, or the spectacular nosedive that we saw instead. Opinions?
I do not think teams like the Yankees and Mets will be killed by this. I project the biggest loser will be the Detroit Tigers. They have one of the highest payrolls in baseball, and because of the economy, they will have difficulty drawing flies to Tiger games this year. Other losers will be the 49ers, Marlins, and the Vikings OR Chargers (Whoever does not end up in LA). Long-term, I see the Yankees and Mets as winners, because not only will they have new Stadiums, but the area around the stadiums will be improved (Cleaning up Willets Point, and the newly constructed Gateway Mall will be huge, because more people will go to games, since the environment will be better).
Posted by Januz on March 6, 2009 06:42 PM
To the extent this bubble does burst, it will have an effect on salaries as well. Estimates are that the NHL salary cap, which is tied to revenues, will drop slightly this coming year, and then drop substantially for 2010-11. Already, you are seeing NHL teams load up on draft picks and prospects, and shy away from pricey veterans who might demand an expensive long term deal.
I guess we will see just how bad it is this summer, when NHL and NBA teams have to go out and sell luxury suites, season tickets, and corporate sponsorships for 2009-2010. Keep in mind that when they last engaged in this exercise, Spring and Summer of 2008, things weren't nearly as ugly economically as they are now. To quote T.O., get your popcorn ready.
Posted by Dennis Prouse on March 18, 2009 12:41 PM