The Book of Mike

"This is no junior college. This is the notorious University of Miami.” -- Marlins starter Dontrelle Willis, after getting knocked around for six runs in 2 1/3 innings by the Canes.

Tuesday, September 29, 2009

Interesting Concept / Partial Redemption

Despite last week's rant, I'm still reading the Wall Street Journal's sports page (but only because it shows up -- gratis -- on my front lawn each day). Today, the WSJ partially redeemed itself with an interesting, yet highly incomplete, article about a new "trend" in sports stadium financing.

Here's a summarized version (although you're welcome to read the entire article here): to help finance new stadium projects (or wholesale refurbishments of existing stadiums), some teams (colleges) are selling "seat mortgages" to fans who are willing to make a long term committment. This is entirely different from a personal seat license (PSL), which has been common for at least a decade. PSL's give fans the right to buy tickets. They're simply a money grab.

These seat mortgages are very different. While they're still a money grab, they work very differently from PSLs. Fans who pay up front for their seat mortgage are guaranteed rights to their particular seat for a long term (30, 40, or 50 years). Cal-Berkeley has sold a few thousand such seats for $175,000 to $220,000 each.

While that obviously sounds like a lot (plus you're paying interest -- or as the school likes to call it, an "administrative fee"), it may not be such a bad investment. If you're a lifelong fan (or planning to be one), you can guarantee yourself tickets for a long time. By paying today, you protect yourself against future price increases (leaving you to assume that football tickets continue to increase in price as they have over the past 10-20 years -- which is a big assumption).

Should your team do well and should prices increase over the years, you could theoretically profit from reselling your seats (possibly even at the prevailing "face" value) for a tidy profit.

What's not clear is how this works for the school/team in the long run. They're guaranteeing a lot for money up front (details here). This is great in terms of the facility enhancements it permits. But what happens to alumni giving and ticket revenue in the long run?

Cal is selling their best / highest price seats (between the 30's on the home sideline) for the next few decades. Today those seats require a $1,200 annual donation per seat, plus the purchase of season tickets. In the future, that annual revenue stream is gone. So Cal has to be sure that their $200,000 price tag is worth it.

Should the school need money in 2035 from football revenue to help fund women's basketball or men's baseball, will they be able to raise that money? Today they likely can, from football related donations and ticket sales. That becomes tougher in the future when the prime donatable seats are pre-sold and no longer require an ongoing donation.

Granted, I haven't done all the math here. And surely the folks at a school as prestigous as Cal have. But Cal has clearly placed their bets on facility enhancement and has put future revenue streams at risk in order to do so. Is that the right risk to take? Time will tell.

Interestingly, the WSJ article doesn't explore this angle at all. They simple laud the concept and the creativity of financing projects. This is interesting. Again, not to blame the WSJ for the current financial situation in the USA / world. But as with numerous other dubious financial schemes that have developed over the past few decades, the WSJ lauds the short term upside and completely ignores the potential long term implications.

It's fine for the paper to be so short-sighted (being as such will likely cause them to not exist in a few more years). But the rest of us should keep our eyes open and think things through a little farther down the line.


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