SBJ/Nov. 1, 2010/SBJ In-Depth
How to increase revenue as industry evolves
Published November 1, 2010
During the massive North American sports facility building boom of the 1990s and early 2000s, nearly every new sports venue developed incorporated a significant inventory of luxury suites and club seats.
A healthy economy and seemingly insatiable corporate demand helped to fuel the new building trend and the incorporation of significant premium seating, as businesses were eager to snap up luxury suites and club seats to entertain clients, reward employees and pitch new business.
Between 1990 and 2010, the total luxury-suite inventory in the four major sports leagues in the U.S. (MLB, NFL, NBA and NHL) grew by 147 percent to more than 10,000 luxury suites (see chart). Meanwhile, club-seat inventory experienced explosive growth during the same time period, increasing by a whopping 624 percent to reach an estimated total of 450,000 club seats.
But the building boom had a catch. As more new venues opened, the premium seating marketplace began to get crowded, increasing the competition for premium seating revenue in many cities.
Now the economic downturn has tempered the appetite for premium seating. Many corporations have tightened spending practices, with some bailing on premium seating altogether and others becoming more reluctant to sign long-term deals. Teams have responded by slashing prices, adding amenities, shortening term lengths and offering smaller packages, such as half- and quarter-season packages.
The future of premium seating will be defined by three key factors: diversification, flexibility and location.
In order to maximize revenue in an ever-evolving industry, franchises must be prepared to offer a more diverse mix of premium products.
Many teams are already on their way. Take the Orlando Magic (a CSL client), for example. The new, state-of-the-art Amway Center, which opened this season, features three types of suites — Founders, Presidents and Legends suites — along with loge boxes and terrace tables.
Teams that are not moving into new buildings must be able to adapt to changing demand, converting less desirable inventory with waning demand into fresh, popular new options.
In 2009, United Center in Chicago, just 15 years after opening, underwent renovations that reduced its suite inventory from 203 to 169, converting unsold suites into new products such as Theater Boxes and a membership program called the Harris Club. The upscale, four-person Theater Boxes include a reserved table in an adjacent, all-inclusive lounge. The 32 Theater Boxes, which are leased for approximately $90,000 a year, are sold out and have a waiting list. Meanwhile, the Harris Club allows customers to enjoy a suite experience for a fraction of the cost of a suite.
Another recurring theme in the evolution of premium seating is location, location, location. Once-popular mezzanine club seats have seen a decline in popularity in many facilities, as more and more premium customers prefer to sit closer to the playing surface.
For instance, Cowboys Stadium (another CSL client) features lower-level club seats, field-level suites and even a private club through which the players walk on their way between the locker room and the field, creating a unique, up-front-and-personal experience for premium customers.
In addition to diversity, flexibility and location, teams will continually be challenged to offer improved benefits and amenities. One recent trend has seen an increase in teams using all-inclusive packages to entice premium customers, countering the rising costs of food and beverage in premium areas.
In the end, however, pricing for premium seating products is the most important variable as it relates to the probability for success. It is critical to create a pricing plan that is reflective of the marketplace, accounts for interest in the products and is relative to other comparable products.
To help our clients develop the appropriate pricing strategies, we spend a considerable amount of time in the local markets talking with existing and potential premium seating clients. We conduct focus groups, one-on-one interviews, and use a variety of other survey methods.
Along with a review of historical pricing and occupancy levels, we are able to develop a pricing strategy that best maximizes both the short-term and long-term revenue potential.
Bill Rhoda and Ben Wrigley are principals, and Eric Habermas is an analyst, with CSL International/CSL Marketing Group. The consulting firm, based in Plano, Texas, has done market research for 75 percent of new facilities in the big leagues and college sports.