Wednesday, August 19, 2009

The "Favre Effect" 

The Favre effect is in full swing, and this short AP article gives some numbers to things I alluded to in my post below. The Vikes have sold 3,000 season ticket packs and about 10,000 single game tickets since the news broke yesterday. I just checked Vikings.com and was quoted a price of $741 as the price for the best available season tickets plus a $75 flat fee. Here's a couple of screen shots for those who might be interested.

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If all season tickets were bought at this price, then the 3,000 sold would lead to $2,223,000 in additional season ticket revenue. The 10,000 single-game ticket sales, assuming a low-ball price of $40 per ticket gives an additional $400,000 in ticket revenue for a grand total of $2,623,000. Remember that the Vikes get to keep only 60% of this money, or $1,573,800 with the other 40% going to the visiting teams. Moreover, some of these tickets would have been bought even if Favre weren't going to play for the Vikes.

While this is a nice bump for the Vikes, they've got a long way to go to get the cash to pay his salary.

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Is Brett Favre Worth $25 million over 2 Years? 

If you live in a hole or do not follow American sports whatsoever, then you may have missed the big news of the day: Brett Favre, formerly of the Green Bay Packers and formerly retired, unretired for the second time in the past two years. Not only did the former Face of Green Bay unretire, he unretired to join the Packers' hated rival, the Minnesota Vikings. At least last year he had the common decency to play in New York for the Jets when he unretired.

In Wisconsin, someone, somewhere is making a purple-wearing #4 Brett Favre doll and green and yellow push pins - with barbs that have barbs, probably rusty ones.

But I digress. Favre has reportedly signed a one year contract with a club-option for a second year that would pay him $25 million over the two years. Is he worth it?

In economics, the gross worth of a resource in a profit-maximizing world, depends on that resource's marginal contribution to revenue.

  • Favre's signing won't impact league-wide media revenues, which are set by contract and account for somewhere around 60% or so of league-wide (and thus per-team) revenues. His signing should have little impact on local radio revenues for the Vikes as well.
  • Favre should have a positive influence on ticket revenue earned by the Vikes this year and next. Keep in mind that ticket revenues are shared 60-40 between the home and visiting teams. The home team gets 60%.
    • Favre is a star. Even if his marginal contribution to team wins is 0 over the next two years, he'll still have drawing power this year. If you go to vikings.com (at least as of today), you are greeted by a smiling Favre, not by a smiling Sage Rosenfels.

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    • Most NFL games are sellouts because of the blackout rule. Favre's signing should have little if any impact on attendance at Vikings games, home or away, per-se.
    • Ticket prices are set before the season begins, so Favre's signing won't affect them this year.
    • According to the Vikings website, as of this morning there were season tickets still available for Viking home games (see the picture above). Favre's signing should drive more of these sales. Teams like season ticket sales because they guarantee that a seat will be filled.
    • Favre's signing should help the Vikings avoid any price discounting required to sell remaining tickets to games that would otherwise be blacked out.
    • Likewise, when the Vikes travel, Favre's signing should help Vikes' opponents sell more tickets to their game against the Vikes at face value.
    • If Favre is successful in leading the Vikes to the playoffs, Viking home ticket prices will be higher next year.
    • If Favre is successful in helping lead the Vikings to the playoffs, season and single game ticket sales should be higher next year.

  • Merchandising sales will be up for Vikes apparel. Merchandising revenue is shared equally among the teams, so while more Vikes apparel will be sold this year, the Vikes will only get 1/32nd of the revenue. Still, he'll drive more revenue into the Vikes' coffers although the amount will be relatively negligible.
  • Luxury revenue is not subject to sharing in the NFL. The Vikings' luxury revenue situation is one of the worst in the NFL, and a big reason why they were dead last in overall revenue, according to the most recent data generated by Forbes. Even so, Favre's signing should help the sales of luxury tickets this year and, especially if the Vikes make the playoffs, next year.

So Favre is likely to generate more revenue for the Vikes. According to Forbes, the Vikings generated $195 million in revenue in 2008 from all sources combined. Did I mention that was dead last in the NFL? Yes, I did.

Anyways, if you take that $195 million figure as a spot-on estimate and if you hold all else equal for the 2009 season, the signing of Favre for $12.5 million per year tells you that the Vikes expect Favre to generate at least 6.4% more in revenue this year than if he did not sign (did I bother to mention the overall economy???). That seems a stretch for a 39 year-old injured QB, albeit a star.

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