Monday, December 15, 2008

Sayonara Arena Football 

At least for 2009. As posted in the comments, here is the story.

My take (as I've said before): investments in new forms of commercial sport will see both fan interest and financial backing dry up, until some sense of order returns to our balance sheets.

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Monday, November 17, 2008

Active bidding for BCS TV rights 

The story is pitched as "first major sports event goes to cable," but for me the real information is in the size of the bids:
On Monday afternoon, current rights-holder Fox Sports notified the BCS Group that it wouldn't match an offer from ESPN for a rights package that will begin in 2011. Fox Sports is in the middle of a four-year deal for the BCS Championship as well as the Orange Bowl, Sugar Bowl and Fiesta Bowl.

ESPN had offered $500 million for four years, compared to Fox Sports' $400 million. Even Fox's offer is still up compared to the current rights deal, which pays $330 million.
That's a 51.5% increase folks. Perhaps it's a sign that we'll avoid economic armageddon after all.

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Sunday, November 16, 2008

Olympic bailouts 

The developers who are Vancouver's partners in the 2010 Winter Games reportedly have ... financial issues. UBC's Professor Somerville sums up the implications nicely, I think: "We’re looking at a very real potential here for some levels of government to pony up more money. The alternative would be the Olympic tent city." The bailout business continues to boom.

Meanwhile, the cost of the 2012 games in London has escalated from £3.4 billion when they were awarded the bid to £10.3 billion at present. Private financing has gone the other direction however, and half of the government's £1 billion contingency fund has already been tapped.

Financial headaches are doubtless behind this statement from Olympic Minister Tessa Jowell last week: "Had we known what we know now, would we have bid for the Olympics? Almost certainly not." Jowell has since "clarified" her statement, going Keynesian and all that. I'm sure the British people are as happy as a hog in a wallow over the obligation to spend lavishly on Olympic infrastructure.

One thing that both the Vancouver and London plans have in common is "legacy development." More specifically, the idea seems to be to avoid building the proverbial white elephants, and instead leave behind assets that have value to private developers. This is an intriguing possibility, but it could be very, very expensive in the end.

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Thursday, November 06, 2008

Hockey in the Great Depression 

Given all of the talk that sports are acyclical -- and indeed some pieces of evidence -- I found the following set of facts very interesting.
There's no question the NHL is now riding high, bolstered by increased co-operation among players and owners, which was cemented in the text of the CBA.

Revenues, profits, attendance and franchise values are all at record highs, says writer Kurt Badenhausen of Forbes business magazine, which issued its annual report on the NHL's economics last week.

The average value of an NHL team rose 10 per cent to $220 million US this year.

According to Forbes, the Toronto Maple Leafs are the league's most valuable franchise, worth $448 million US. The Montreal Canadiens are worth $334 million, while the Vancouver Canucks are at $236 million; the Ottawa Senators are at $207 million; the Calgary Flames are at $203 million and the Edmonton Oilers are valued at $175 million.

"Hockey is on a growth cycle in North America," says Oilers team president Patrick LaForge. "There's reason to be happy or excited about some of our larger markets."

It's worth nothing, however, that the NHL was also riding higher than ever in the 1920s before it faced its greatest contraction, when the league lost 40 per cent of its franchises in the period 1931 to 1942.

It's a widely held belief in the modern world of sports that professional leagues managed to thrive during the 1930s because folks needed an escape from the gloom and drudgery of their lives. While this was true of Major League Baseball, which lost not one franchise during the 1930s, it didn't work that way for the NHL.

In the mid-1920s, the NHL had moved from its small Canadian base of Toronto, Montreal, Ottawa and Hamilton to become an international league with new franchises in Boston, New York, Pittsburgh, Chicago and Detroit. It was a time of escalating franchise values. In 1920, an NHL franchise could be had for $5,000, but by 1926 the NHL decided that $50,000 was the new asking price, writes John Chi-Kit Wong, a University of Washington State sports business professor in The Lord of the Rinks: The Emergence of the NHL, 1875-1936.

In the years following the 1929 crash, four teams went into receivership: the Ottawa Senators, Pittsburgh Pirates, New York Americans and Detroit Red Wings. Only one of those teams, Detroit, found a new owner and survived.

One problem was that there was almost no revenue-sharing among NHL owners of that time. Teams got almost all of their revenue from game-day ticket sales, but just three per cent of the box office went to the visiting team.

...
Ottawa had to sell its top players. Its revenues dropped 36 per cent from 1927 to 1933. On average, NHL revenues dropped 31 per cent from 1929 to 1933, with the average box office take from an NHL game falling from $11,000 to $7,600.

In the end, Ottawa moved to St. Louis, while the failed Pittsburgh Pirates moved to Philadelphia, but the St. Louis Eagles and the Philadelphia Quakers survived only one year each.

The Montreal Maroons and the New York Americans also went under, leaving the NHL with just six teams.
Here's more, in a great story by David Staples in the Edmonton Journal. Staples argues that the NHL is currently better prepared for a serious downturn given the existence of long term contracts, and the increased sharing of gate revenue. Let's hope so!

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Tuesday, October 14, 2008

Mixed signals on the sports economy 

Season ticket renewals for the LA Lakers ran at 99%, "despite price hikes that raised the cost of Jack Nicholson's seats at Staples Center to $2,500 a basketball game." In contrast, the NBA itself has let 9% of its staff go, and the Nets are resorting to a "buy now, pay later" promotion to combat a decline in their renewal rate to below 80%. Purchasers can watch the games this fall but aren't obligated to pay until Jan. 5. The scheme bears an eerie resemblance to a sub-prime mortgage....

NHL ticket sales are up, but newspaper coverage is in serious decline. (HT: Ken Houghton) Although the latter may say more about newspapers than the nexus of sports and the economy, having a reporter on the team's beat would seem quite valuable for a team. Were it not for conflict of interest issues, perhaps even worth subsidizing! ;)

One interesting experiment will begin on Sunday, when the NY Jets launch an auction of 2,028 premium seat licenses at StubHub.com. It's an awkward time to turn what has traditionally been a renewable subscription into a capital asset, with callable loans being called in, credit drying up for all manner of businesses, etc. The Jets claim they won't hold any tickets back, and are going into this "with eyes wide open." Could they be desperate for cash as well?

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Tuesday, October 07, 2008

Two on the economy & attendance demand 

"Economic downturn isn't slowing luxury box sales," at the NY Times. The focus is on the New York market and sales at the new stadiums. The article stresses the size of the market in sustaining demand. My hunch is that demand is indeed less than anticipated, but that much of the adjustment will come through negotiations on price.

"Wall Street woe could transform team-fan divide," at Bloomberg, with anecdotes about company and team responses to the economic situation. One of note: GM will take a pass on Super Bowl ads next February.

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Thursday, September 11, 2008

Re-pricing Triathalons 

Some interesting items reported in this NYT story on triathalons. First, the demand to compete in a triathalon is increasing and so is price.
The triathlon is a sport that has grown increasingly expensive in the last five years. Entry fees for the sport’s premier Ironman-branded events have risen 40 percent since 2003. But even at $525 for a standard Ironman entry, the price has not put a dent in demand.
Second, branding is important:
Today the Ironman logo (a symbol called M-dot) can be found on baby strollers, suitcases, organic Kona coffee and even tattooed on the bodies of race finishers.

Entry slots for the original Hawaiian Ironman race (now called the Ford Ironman World Championship, to be held Oct. 11) are so coveted that last year, more than 8,000 people entered a lottery for 200 slots; the handful of entries sold through a race-sponsored charity auction on eBay regularly go for more than $40,000 each.

The lottery and auction are the only ways for athletes who are not the fastest in their age group to race the Kona event; organizers reserve most of the 1,800 entries for athletes who qualify through a top result in another branded event.

Races without the M-dot logo generally cost about $300 versus $525 and don’t garner high demand.

“I don’t know of one that sells out in panic mode,” said Mike Greer, the founder of the Ironman 70.3 Buffalo Springs Lake in Lubbock, Tex., and a three-time Ironman Hawaii finisher. “When you spend a year training for something, you want all the hoopla. You want the M-dot.”
Finally, public agencies appear to supping at the trough:
Tom Cotton, a race organizer with Firstwave Events in Los Gatos, Calif., said that over the last few years, his budgets have increased by 50 to 100 percent, mostly because of city, county and state agency fees.

“California State Parks now wants 25 percent of the gross,” he said. “Police overtime has doubled in one city I work in.”
Memo to Tom: maybe it's time to play the "economic impact" card!

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Wednesday, July 09, 2008

Success in Year t, Greater Demand in Year t+1 

Two things are well-known among sports economists.

  1. Ticket prices do not drive team performance. In other words, when a team says it must raise ticket prices to become/stay competitive, you should detect a whiff of stinky sulfur.
  2. When a team performs well in one year, especially when the performance is unexpected, it faces a higher demand curve the following year, all else equal. This results in higher ticket prices and in the following year.

The Missouri and Kansas football programs provide a nice anecdote.

In sports, winning sells, especially the year after.

When a team posts a better-than-expected season, the financial rewards through ticket sales typically follow in the next calendar year.

So it should be at Missouri and Kansas, both on a record season-ticket sales pace with football programs coming off 12-victory seasons and high-profile bowl triumphs.

With that kind of wind in the sails, the schools haven’t needed to launch major ticket-selling campaigns.

...In 2007, KU set an attendance record, averaging 46,784 for seven games at Memorial Stadium. That happened with a record 31,000 season tickets sold.

The Jayhawks expect to top those marks this year, even with an increase from $275 to $300 for a full-priced season ticket. Priority seating goes to donors of the Williams Educational Fund, and that’s where associate athletic director Jim Marchiony said the school is seeing growth.

...Last season, the Tigers averaged 60,232 and sold about 34,000 season tickets. Earlier this month, MU had renewed 90 percent of its season tickets.

“That’s a figure we’re used to seeing in August,” Grinch said.

Missouri also had 3,500 new season-ticket accounts. When it’s added up by the Sept. 6 home opener, the Tigers should easily surpass the season-ticket record of 34,800 set in 2004.

Cross-posted at Market Power

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Wednesday, March 26, 2008

MLB in Japan & the EPL too? 

From today's WSJ:
The number of MLB licensees in Japan has grown to 61 from just six in 2000, according to MLB. Retail sales revenue from licensed products has nearly tripled during that time to $103.7 million, according to MLB figures.

Local partnerships include Uniqlo, a unit of Fast Retailing Co. and one of Japan's leading clothing retail chains; LB-03, a fashion line for young women; and Toys "R" Us, whose stores in Japan have MLB corners selling branded toys and apparel. MLB apparel is also sold at some 2,000 sporting-goods stores around the country, according to Miki Yamamoto, senior vice president of IMG Licensing Asia, which handles licensing here for the league.

At the 109 shopping mall in the Shibuya neighborhood, a popular hangout for Tokyo's young and fashionable, "you can see kids with very hippy, trendy designs with a Red Sox logo or shocking pink Yankees clothing," Ms. Yamamoto says. "Those girls are buying those products without knowing how Daisuke is doing or how Ichiro is doing. This is not just about baseball; it's a culture now."

In terms of TV viewership, pitcher Hideo Nomo, who joined the Los Angeles Dodgers in 1995, was the wedge in the door, with the public broadcaster NHK showing the games he pitched. But the advent of Ichiro, a center fielder, took things to another level, because a position player plays every day, while pitchers rotate in every few days.

"Now you had an everyday player, who's out playing 162 games a year," MLB's Mr. Small says. "That made great television: Folks could tune in every day knowing he was going to play."

MLB soon negotiated a new six-year TV deal with Japanese advertising giant Dentsu Inc. valued at a reported $235 million, three times as much as the previous deal. The money from the broadcasts, as well as from sponsorship deals and sales of licensed merchandise, is split equally among the 30 major-league teams. Fans also can catch a nightly news feed with highlights of Japanese stars in the majors.
So the money is there. No question about that. A similar prospect is roiling the waters across the Atlantic. English fans are out of sorts over the Premier League's consideration of playing "games that count" abroad. In MLB's case it is just two games out of two thousand or so, and the home field advantage is slight. The competition is marginally affected, at best, by playing games abroad at the start of the season. In English football, home field advantage is significant, and every point is precious when relegation is a threat or European places are at stake. But the money tide will be very difficult for EPL owners to ignore.

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Friday, November 30, 2007

Non-profits Often Behave Like For-Profits 

This morning's St. Louis Post-Dispatch has an article on the Southlake (Tx) Carroll Dragons football program. Southlake, a suburb of Fort Worth, is a wealthy enclave whose residents have a high willingness to pay for the local high school football program. What the author, Tim O'Neill, describes could as well describe many major college programs and professional programs. A couple of excerpts:

The domination on the field of play:

Call it Texas football pageantry on afterburner, fired by championships. Since 1988, the school has won eight state football crowns, including three of the last four at the big-school level. Over the past five years, the Dragons are 72-2.

There is the use of two part tariffs:

The concrete grandstand includes 1,621 reserved seats for season-ticket holders, who buy $90 three-year seat licenses to ward off the long waiting list.

There are the first-rate facilities:

Having great facilities certainly helps. This suburb of airline pilots, business executives and Dallas Cowboy football players living in $500,000-plus homes provides the Dragons with three outdoor practice fields and an indoor center that covers a 60-yard-long turf field.

There is revenue sharing:

The Carroll Independent School District is among the Texas districts that pay into a "Robin Hood" fund for less-fortunate schools. This year it will send $11 million.

After having studied various facets of sports economics for the past 13 years or so, it still interests me how similar the motivations are for for-profit and not-for-profit sports programs. Of course being not-for-profit doesn't really mean that you can't have profits as your objective. All having this status does is restrict how profits can be distributed.

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