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Volume 20 No. 41
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New Garden raises the revenue ceiling

Hank Ratner walks the main concourse at Madison Square Garden, looking up at a display of great moments in the arena’s rich history, one for every day of the calendar year.

The Garden 366 exhibit includes four arena sites over 133 years, and it is Ratner’s favorite part of the massive, $980 million renovation of the Garden, by far the most expensive arena project in sports.

When work ends later this year, MSG will have been remade.
Photo by: MSG PHOTOS
“We have a history like no other, not only in longevity but events,” Ratner said. “The fun thing about it is it lives and breathes, because every night there is potential to knock something off and put something new on.”

Nine months before the third and final phase of construction is to be completed, there is plenty to point out in a retrofit that has largely taken shape. The remodeled seating bowl brings all fans closer to the action, the repositioned suites are a hot commodity, and there is more elbow room on the two public concourses.

The renovation’s first two phases have been well-received by season-ticket holders and MSG’s corporate partners, said Ratner, the Madison Square Garden Co.’s president and CEO.

“We have the most iconic arena in the world, a great location and the best fan base anybody could ask for,” he said. “Our challenge was how to keep the history and memories here, yet turn it into a state-of-the-art building. The reviews from everybody — advertisers, fans and athletes — have been rave across the board. That’s a hard thing to accomplish.”

It started with redoing the bowl, pushing all seats 10 feet closer to the floor, which eliminated wasted space, said Murray Beynon, principal architect for the renovation.

The Garden 366 exhibit unfurls the arena’s history across the fascia along the concourse.
Photo by: MSG PHOTOS
The redesigned bowl, which Ratner calls “a brilliant piece of architecture,” flows seamlessly through a building that has always had the feeling of a small concert hall rather than a cavernous arena. It allowed for the redistribution of suites lower in the bowl, finally putting the 45-year-old Garden on equal footing with newer arenas. It freed up space to build permanent concessions behind the legendary “blue seats” in the west end of the upper deck. And the 71 skyboxes on the 10th floor at the top of the building, among the worst locations for premium seats in the NBA and NHL, were removed.

“I used to give out binoculars in our suite just to help people feel closer to the game,” said Gail Grimmett, senior vice president in New York for Delta Air Lines, whose company had one of those high-in-the-sky skyboxes.

As an MSG sponsor, Delta now owns naming rights to the Delta Sky360 Club, a premium lounge reserved for 20 event-level suite holders, and has one of the event-level suites. Grimmett has put the binoculars away.

“From a hospitality standpoint, it doesn’t get better,” she said. “Now, the people we bring feel valued, they’re part of the action right there on the floor.”

As the project draws to a close, MSG is well-positioned to pay off the nearly $1 billion construction tab by signing some of the most lucrative deals in sports with Delta and other top-flight brands: JPMorgan Chase, Anheuser-Busch, Coca-Cola, Kia and Lexus.

The new suite inventory, most of which has been sold for a minimum of $500,000 annually with terms up to 10 years, has also given MSG a leg up on retiring debt.

The 20 event-level suites are directly connected to premium seats in the bowl.
“Madison Square Garden is one of the few places that can do a renovation that expensive and pay for it,” said Bill Rhoda, a principal with CSL International and Legends Sales & Marketing, two firms with ties to selling premium seats for Yankee Stadium and MetLife Stadium.

Chase stands alone as MSG’s single marquee partner, a deal carrying the highest value among the six partnerships helping to offset the Garden’s construction expenses. In 2010, the bank signed a landmark deal

The Lexus Madison Suite Level on the arena’s seventh floor holds 58 new midlevel suites.
Photo by: MSG PHOTOS (2)
that industry sources valued at $300 million over 10 years. The agreement covers naming rights to the 1879 Club, named for the year that the original Madison Square Garden opened and the arena’s most exclusive lounge connected to the 100 best seats for basketball and hockey.

The bank also receives naming rights to the Chase Bridges and Chase Square, two design features that will make their debuts this fall.

The other five firms, including Delta, are signature partners, signing deals one level below Chase with yearly values in the low to mid-seven figures, sources said.

Delta and Lexus, another new arena partner, found reasons to align with MSG because each company is rolling out changes of its own.

Manhattan three step

Major renovations included in each part of the $980 million renovation of Madison Square Garden.

Phase One (2010-11)
New lower bowl seating
Expanded Madison Concourse with more restrooms and concessions
20 new event-level suites
Delta Sky360 Club
1879 Club

Phase Two (2011-12)
New upper bowl seating
Expanded Garden Concourse
58 new midlevel suites
Return of upper deck “blue seats”

Phase Three (2012-13)
Chase Square entrance
Chase Bridges, new platform seating
Budweiser Fan Decks, connecting bridges
New center-hung video board
Restoration of ceiling

Source: MSG

“We were looking for the last remaining iconic opportunity in New York, and this is it,” said Scott Wracher, general manager for Lexus’ Eastern region. “The timing is perfect for us partnering with the new MSG at the same time they see a whole new face of Lexus.”

Lexus has naming rights to the Madison Suite Level on the arena’s seventh floor, where two concierges provide car service for those with postgame dinner reservations. This fall, on the terrace level on the third floor, another premium level, vehicle displays will showcase Lexus’ new front grill designs and upgraded dashboard technology.

Delta signed its contract with MSG in October 2009, one year after striking similar deals at Citi Field and Yankee Stadium. Grimmett had no interest in signing another sports sponsorship until MSG officials persuaded her to walk down the street from her office and listen to their story. The airline is going through a $1.2 billion expansion of Terminal 4 at John F. Kennedy International Airport in New York, and Grimmett felt a connection with MSG’s project in addition to recognizing a great opportunity to reach a vast majority of potential customers in the region.

“I left there that day thinking, ‘I want that deal,’” she said. “When you look at who they touch … 82 percent of all entertainment tickets purchased in New York are for MSG venues. That in and of itself is a compelling argument.”

Beyond sponsors, the new suite options have clicked with New York’s corporate community. Five years ago, there were about 30 unsold skyboxes on the 10th floor, close to half the inventory on that level, said a source familiar with MSG’s sales process.

Since the transformation, vacant suites are no longer an issue. At midlevel, 55 of the 58 new suites this season are sold, with locations up to 50 percent closer to the floor than the old suites, providing high-end customers with a better connection to the game. MSG doesn’t make its suite prices public, but four skyboxes on the stage end, open for sports only, cost $500,000 a year, according to a pricing document obtained by SportsBusiness Journal. From there, pricing goes up to $900,000 annually for the 14 sideline suites at midcourt and center ice.

Two floors below, 20 event-level suites debuted last season, prime real estate that quickly sold out at $1 million a year, sources said.

Both suite products have 12 seats with terms covering the cost of tickets to all Knicks and Rangers games and concerts.

The event-level suite design is unique among big

league arenas, said Beynon, whose firm, Brisbin Brook Beynon, designed some of the original bunker suites 15 years ago at Air Canada Centre in Toronto. Bunker suites at other arenas have interior spaces set apart from floor seats where patrons must walk down a hallway to entertain guests in a private box. At the Garden, seats, behind the glass for hockey and a few rows back for basketball, are directly connected to a lounge with a kitchen, a living room with a working
Grand gathering spaces (from top): The Delta Sky360 Club, a premium lounge reserved for event-level suite holders; the Madison Club presented by Foxwoods on the Madison Suite Level; and the 1879 Club presented by JPMorgan, the arena’s most exclusive lounge.
Photo by: MSG PHOTOS (3)
fireplace and a bathroom.

“What’s most special about it is where you end up,” Ratner said. “You get the best seats in the house and a New York City-style studio apartment right behind it.”

As a publicly traded company, MSG officials say they cannot discuss suite pricing, but it’s like talking apples and oranges when comparing the new suites to the old setup, Ratner said.

“How do you compare the 10th-floor suite that’s no longer here with the 20 event-level suites?” he said. “It’s not just a matter of raising prices but providing different products of different value. There has been a nice bump as a result.”

Transformation-related revenue figures taken from MSG’s public filings show increases of about $22 million in season-ticket revenue for Knicks and Rangers games for the fiscal year ended June 30, 2012. During the same period, MSG saw an increase in suite rental fees for sports alone of about $7 million after the event-level suites opened in the fall of 2011. On the concessions front, MSG’s in-house food, beverage and merchandise sales rose by about $1.5 million after doing deals with gourmet chefs to recreate their signature dishes at revamped food stands.

A source with knowledge of the sales effort said MSG’s total suite revenue will jump to $80 million this season from $35 million last year. With price escalators built in for inflation, the cumulative number will grow to $100 million for all 96 units over the next few years, including the 18 suites on the ninth floor set for renovation this summer.

Ratner said: “The full economics of the transformation will roll out over time as you see products being introduced now and sponsorships that will come in the future related to the bridges and the lobby. Those won’t fully appear in our financials for a couple years.”

The road to all this new revenue was not an easy one. In fact, looking back at the first two phases, it has been a daunting process. MSG started planning a major renovation of the Garden in 2004, and as the redevelopment grew in scope over the years, the project more than doubled in cost over the initial $375 million estimate.

At one point, MSG considered building a new arena across the street on the site of the old Farley Post Office building in midtown Manhattan before committing to renovating the existing facility. The complex three-year construction schedule, erecting temporary walls to get work done behind the scenes during the season before shutting the building down over the summer for demolition and rebuilding, added more challenges to renovating North America’s busiest arena.

In addition, the Madison Square Garden Co. spun off from Cablevision in October 2010 as construction started, forming a separate, publicly traded entity operating the arena, the Knicks and Rangers, and MSG Networks. Then early last September, Scott O’Neil abruptly left the organization as the second phase was being completed. As president of MSG Sports, O’Neil was largely the public face of the project, playing a key role in conceptualizing the early design, promoting the renovation and selling the associated multimillion-dollar arena sponsorships.

The next big thing: Rendering shows the Chase Bridges, set to open in the fall.
Image Courtesy of MSG
Layer in all those factors, plus the lingering effects of the recession, and the reconstruction has been a difficult project to manage but a rewarding one, Ratner said.

Come September, when the project is finished, the Garden will have a new front door called Chase Square, a two-story enclosed space with 25-foot-high ceilings, a 3,000-square-foot retail store and wiring infrastructure for MSG Networks to set up live shots. Inside the bowl, the new Chase Bridges, two 500-seat platforms suspended directly above the event floor, will connect to the arena’s most recognizable feature, the finished ceiling from which the structures hang.

Both bridges will extend 230 feet across the top of the arena with Budweiser-branded party decks at the ends set up with concessions for those ticket holders. The bridges are modeled after the open-air catwalks from storied venues such as old Boston Garden and Wrigley Field, where writers covering major league sports decades ago were situated. At MSG, they became a focal point of the transformation after season-ticket holders for both teams told project officials of the need for the arena to maintain a high level of energy.

“It’s very much a New York thing where you are literally on top of the action,” Beynon said. “It will be one of the most spectacular seating locations in the country.”

MSG expects the bridge seats to be the most sought-after tickets in the arena because the vantage point does not now exist in sports, Ratner said. Bridge seat ticket prices for Knicks and Rangers games will be released in March.

The ceiling will be restored this summer. Madison Square Garden is the only big league arena in the country with a finished ceiling, Ratner said, and the arena’s superior acoustics are one reason why touring artists love it.

“Even though it’s an entirely different bowl than people were in last year, you still know where you are because of the ceiling,” he said. “It’s an important trademark of the building.”

MSG’s most important trademark, though, is the way it brings in people, and the improvements will do nothing but strengthen that drawing power. One of the most impressive aspects about the entire project is that MSG has sold its new suites at top-shelf prices in a market flooded with fresh premium inventory for the Mets, Yankees, Jets and Giants, Devils and Nets, who combined have opened three stadiums and two arenas over the past five years.

“I’m happy to be able to say the Garden’s the Garden,” Ratner said. “It’s in a class by itself.”