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Volume 20 No. 46


The Los Angeles Rams received Internal Revenue Service approval to structure personal seat license fees as loans from fans, meaning the team would not have to pay taxes on the money but also that the seat buyers would be paid back.

The Rams, who are expected to go to market with PSLs later this year, have not decided yet to use the structure, which would be a first in U.S. professional sports. PSL fees have always been accounted for as income to teams.

The disclosure is included in an Internal Revenue Service ruling from earlier this month that the team requested to determine whether it could structure the seat licenses as loans. A source provided a copy of the ruling to SportsBusiness Journal.

“Here, the fans are lending the PSL monies to the team and the team is obligated, after a long period of time has elapsed, to repay the funds” without interest, said Robert Willens, founder of his own eponymous tax and consulting firm. “In the loan case, the funds received by the team are not taxable, since one is not taxed on the proceeds of a loan.”

The Rams declined to comment.

The Rams plan to open their new Inglewood stadium in 2020, and PSLs are a critical funding ingredient, expected to supply well into the hundreds of millions of dollars. As a result, the tax savings would be significant.

To avoid tax on PSL fees at the new stadium, the Rams would have to return the money to buyers.

“The Rams did not want the PSL proceeds taxable to them as income. Section 61 is a very broad [tax law] provision and is supposed to require the Rams to include in income any assets that increase the net worth of the Rams,” said Richard Greene, a tax attorney and partner with Greene Radovsky Maloney Share & Hennigh. “The IRS ruled the PSL funds in the newly formed entity did not have this result for the Rams.”

The IRS decision, known as a private letter ruling, details other elements of the PSLs planned by the team: PSL holders are entitled to special events, including cruises and fantasy camps; exclusive access to the team website for content; special merchandise for PSL holders; and involvement in determining team player of the year.

It’s not hard to see why the Rams might take the PSL-as-loan approach. Say the club expected to raise $500 million in PSL proceeds. At a federal corporate rate of 35 percent, plus the steep rates in California, taxes would consume nearly half the amount.

As for repaying the $500 million, PSL terms often stretch 20 to 30 years, so the money due is paid back over decades. (The Rams have not announced the terms for the PSLs that they will sell.)

And that $500 million is worth considerably less in the future than today, because the funds appreciate in value over time.

No matter the IRS ruling, there is little doubt that the PSL money will add to the value of the franchise as one of the biggest cash flows in the team’s early years in Los Angeles.

The Rams relocated to L.A. from St. Louis last year after 20 years in the Gateway City, where they also sold PSLs. The team, in fact, is fighting litigation from previous PSL holders there over the team’s move. Those PSLs, like those of other teams, were structured as payments to the team and not reimbursable.

The Los Angeles Chargers plan to share the new Inglewood stadium and are expected to issue PSLs separate from the Rams.

The IRS private letter ruling also discloses that the Rams do not plan to sell every seat as a PSL.

“Tickets at the stadium for each Team game will remain available for purchase by public, nonmembers of Corp (the entity of PSL holders) at the same face amount ticket price that a member purchased the ticket,” the IRS ruling said. The stadium capacity will be 70,240.

Take the hottest brand in sports playing in the tech-rich Bay Area, add three consecutive NBA Finals appearances, plus the first arena to open in San Francisco in 78 years, and here’s the result — suites priced at a staggering $2.25 million a year at the Golden State Warriors’ Chase Center.

That’s the high-end cost for eight of 32 courtside lounges, the Warriors’ version of bunker suites at their self-financed $1 billion arena opening in 2019. The low end is $1.3 million annually for that prime real estate, according to sources familiar with the pricing. Separately, the Warriors are selling mid-level suites for about $1 million a year, and 60 theater boxes ranging from $350,000 to $525,000 per year.

Courtside lounges at Chase Center will have a video wall with cameras placed near the patrons’ seats.

Bottom line, the Warriors have set a new benchmark for pricing premium hospitality on a per-event basis, representing a critical piece of the team’s $1 billion private financing of the arena.

Madison Square Garden, a two-team arena that books about 275 events a year, is the only other venue that comes close to those numbers. As part of its $1 billion renovation, MSG’s 20 bunker suites cost $1.5 million a year starting in 2009. They now cost about $2 million, factoring in escalators, said sources familiar with the deals.

In San Francisco, the courtside lounges at Chase Center carry 10- to 15-year deals and buyers have snapped them up quickly, with about half of them sold since the team started its sales campaign in March, sources said. Team officials have not made the prices public, but confirmed suite prices.

The courtside lounges are built at the event level beneath the seating bowl with no views to the action. But the Chase Center courtside suites will have a short, direct path to seats in the first 10 rows from the floor, said David Manica, the lead architect designing Chase Center.

The $2.25 million courtside lounges include 16 tickets to all Warriors games, including potential playoffs, all other concerts and other events at the arena, plus food and beverage for all Warriors games, parking, and a common wine vault where suite holders can store their own bottles of cabernet in private lockers, similar to high-end spaces at Staples Center and SunTrust Park.

The remaining 24 courtside suites come with 12 seats in the lower bowl. All 32 courtside suites include four extra lounge passes good for suite access only.

In a tech-savvy market, the Warriors are offering a unique feature: Each courtside lounge contains a video wall with cameras placed near the patrons’ seats in the bowl to showcase the view from their hospitality spaces. The aim is to project the actual live view from the courtside seats into the lounges as if there is a large window in the suites looking out to the floor.

The lounges are spacious, about 500 square feet and feature tall ceilings. The look and feel is “five-star hotel,” Manica said. By comparison, they’re about twice the size of traditional suites at Oracle Arena, the Warriors’ current home and the NBA’s oldest facility, where the average suite costs $200,000 to $300,000 a year.

Separately, the Warriors have sold all but five of the 44 mid-level suites, an impressive number considering it’s more than two years before the Chase Center opens. Marketed as club suites, the price includes 16 tickets to all arena events, playoff games, plus food and beverage for Warriors games. Terms for these suites range from eight to 12 years.

The 60 theater boxes are being sold with terms ranging from seven to 11 years.

“We visited every arena in the NBA in the past three years,” said Brandon Schneider, senior vice president of business development for the Warriors. “We looked at what every building has done. It is also important that the experience is unbelievable for all fans whether they are sitting on the floor or in the last row of the building.”

The Warriors are selling the premium inventory on their own at the Chase Center Experience, the name of their preview center that opened in March.

Since financing is private, the team isn’t disclosing total suite funding, but the strategy comes in a market where the San Francisco 49ers sold 150 suites with top prices of $500,000 when Levi’s Stadium opened in 2014, generating more than $400 million.

The Warriors suite sales come in a hyper-competitive but also high net-worth market given the wealth of Silicon Valley. The 49ers sold 96 seats along the 50-yard-line for $250,000 each, which covers food and beverage, owner’s club access and tickets to all events, including the Super Bowl, for 20 years. A minimum purchase of four tickets was required, or $1 million per season-ticket purchase, team officials said.

For the Warriors, a big part of their strategy is the combination of the supercharged Bay Area, a dominant team, and demand created by a city starved for a modern entertainment facility. Chase Center is the city’s first arena since the Cow Palace opened in 1941.

Due to the thriving tech space, real estate prices have peaked in the Bay Area, where the cost of living is already among the highest in the country.

“Even in Oakland, real estate per square foot is more valuable than New York,” said Bay Area native Chris Allphin, a senior vice president with Van Wagner Sports and Entertainment, the sales agency for U.S. Bank Stadium and SunTrust Park. “Look on Zillow … it’s totally saturated.”

Apart from Warriors games, the Chase Center will be an entertainment mecca, commanding the attention of big name concert promoters who soon will have a state-of-the-art facility to compete against the Oracle Arena and SAP Center in San Jose. In 2016, those two facilities ranked among the top-25 arenas worldwide in tickets sales for special events, according to Pollstar magazine. Starting in the fall of 2019, the dynamic is expected to shift to San Francisco with a heavy flow of events going through Chase Center.

“Demand will outstrip supply,” said Bill Sutton, principal of Bill Sutton & Associates, a sports consultant that counts NBA teams as clients. “It is the first downtown arena in that market and there is pricing like nowhere else. Besides basketball, it will be on everybody’s must-play list as a performer.”

The Warriors also have 40,000 people on a season-ticket waiting list, creating pent-up demand for both premium and standard ticket products.

“It’s unique versus other markets from the standpoint that people have been fans all their lives along with the high-tech companies and venture capitalists,” Schneider said. “The suite products are mostly corporate but the vast majority of our ticket holders tend to be individuals.”