June 18, 2012

Liverpool owner Henry: New stadiums only work if they let you jack up ticket prices

For anyone still in need of being disabused of the notion that new stadiums are money machines, Boston Red Sox owner John Henry explains it all for you, in the course of telling why a new building wouldn't be a panacea for his Liverpool FC soccer team.

Asked about whether Liverpool needs a new stadium to compete with other top clubs like Arsenal and Manchester United, Henry says, "New stadiums that are publicly financed make sense for clubs. I've never heard of a club turning down a publicly financed stadium. But privately carrying new stadiums is an enormous challenge."

By way of explanation, he provides a chart showing not just seating capacity at the rival clubs' stadiums, but average annual revenue per seat as well. "Even if Liverpool were able to get to 60,000 seats, there would have to be an increase from £900 to £1550 in revenue per seat as well to catch Arsenal," says Henry, continuing:

"New stadiums increase revenues primarily by raising ticket prices — especially premium seating.

"In America, as an example, 3 NFL (American football) clubs have moved into new stadiums over the past 3 years. The New York Jets average ticket price rose by 32% when they moved into their new stadium. The New York Giants rose by 26% and the Dallas Cowboys rose by 31%. In baseball, ticket prices rose 76% when the New York Yankees moved into their new stadium 3 years ago.

"At Emirates Stadium match-day revenues rose 96% the first year while seats had increased 57%.

"Building new or refurbishing Anfield is going to lead to an increase from £40M of match-day revenue to perhaps £60-70M if you don't factor in debt service."

In short: The way you make money off a new stadium is by using the schmancier amenities to jack up ticket prices, not by selling more seats — something that should already have been obvious when you look at, say, the New York Yankees, who reduced the number of seats in their new stadium. And though Henry doesn't spell it out, if refurbishing or replacing Anfield would only generate an extra £20-30 million before debt service, then it's hardly going to be worth it, since debt service on, say, a £400 million stadium upgrade — about $600 million — would completely eat up any new revenue.

So, yes, privately financing stadiums is an "enormous challenge," at least if you're not in a market that will support dramatic leaps in ticket prices. Or to put it another way: Most new stadiums are only worth it if you can use somebody else's money to pay for them.