The Jacksonville Jaguars are widely believed to be the first American professional sports team to use personal seat licenses, PSL's, to sell seats. With PSL's, a version of the familiar two-part tariff in economics, a fan must pay a flat fee that essentially gives that fan a right to buy certain tickets each year. Then the fan must pay for the tickets.
The two-part tariff is nothing new to American sports, having been used for years to distribute seats to college football and basketball fans. The flat fee in this case the donation made to athletic departments. The higher the donation, the better the seat quality.
I find it interesting that the supposedly non-profit protectors of amateurism were more creative in raising revenue than their for-profit brethren. Maybe that's what you have to be when you are "non-profit." But I digress.
Now some teams are trying a new pricing model in which fans can mortgage seats to games. Fans can buy these seats and pay for them over a long period of time, say 30 to 50 years, and pay an "administrative fee" (i.e. interest). This seat then becomes the property of the fan who can do with the seat as he/she, more or less, pleases.
The Wall Street Journal explains:
Earlier this month, the boards of regents at the University of Kansas and the University of California-Berkeley approved plans to fund stadium expansions and renovations by selling something called "equity seat rights." Fans who are approved for financing can buy their seats and pay for them—with interest, of course—over as long as 50 years. Once the seat is paid for, it's yours, just like a house.
If this "mortgage" model catches on, it will mark a radical departure from the past, when most new stadiums were financed with a combination of taxpayer dollars, private loans and corporate sponsorships.
Here's some back-of-the-envelope calculations. I'm using numbers for Cal. I called the Cal ticket office to check on my calculations, but did not receive a call back from a person in-the-know*. So if you have more info or find anything wrong with the calculations, let me know via email or in the comments.
The article notes that the University of Kansas is charging a 6% "administrative fee" - i.e. interest. According to the article, the cheapest mortgages for Cal games are $40,000 for 40 years. Assuming a 6% fee per year for Cal and payments to be made annually at the end of the season, the mortgage requires annual payments of just over $2,650, or $442 per game for a 6-game home season ($378 for a 7-game season). The highest priced seats would go for $220,000 for 50 years, or an annual payment of just under $14,000 or $2,326 per game for a 6-game season ($2,000 for a 7-game season). According to the Cal website (see here), these prices include tickets, donations, parking, and other amenities. Still, that's a large chunk of change.
The recession and the financial turmoil have played havoc with some universities' ability to raise revenue for stadium improvements, pushing administrators to be creative in the ways that they raise capital. That's the whole idea behind these mortgages. It's interesting that at a time when many consumers are reducing their debt, sports fans would shell out this kind of cash in this way for sports tickets.
That's one way to look at it. It is also a way for the teams to hedge against lower ticket prices that would come, say, if the economy remains sluggish for some time or if the relative quality of the team falls. The relative quality could fall if the average opponent Cal faces improves while Cal does not improve or does not improve as much. The relative quality would also fall if Cal simply gets worse.
The other issue I want to tackle is the investment idea. Fans can resell their seats at a profit if the opportunity presents itself. What type of investment return could be obtained on the tickets? The return will be dependent partly (mostly?) on the fortunes of the team. It's interesting that the two teams that are featured most prominently in the article, Cal and Kansas, are teams that are having a good run in D1 football but that do not have a long-term history of success. It's hard to say what these teams will do in the future, but the value of the tickets will surely fall, all else equal, if these teams fall to the wayside for a long period of time.
*Update: Dave Rosselli from the Cal athletic department returned my call today and confirmed my calculations above for the Cal Endowment Seat Program (ESP). Like KU, Dave confirmed that his university charges a 6% administrative fee.
Let me refer to the standard way of buying season tickets - giving a donation and then buying season tickets - as the, well, standard way. To get the choicest seats, a fan has to give $1,200 donation and then pay $350. That's for this year. So a fan would have to pay $1,550 for season tickets this year for seats in the best part of Memorial Stadium. Compare that to $2,650 for the basic ESP program seat. What fans get in exchange is, essentially, set ticket prices and donations, access to club facilities, and other amenities.
Dave also noted that the ESP tickets are transferable, say from terms set in a will upon the death of a ticket holder. He also noted that Cal and KU are the only two colleges that are using this type of program. However, about a dozen other schools are looking seriously at implementing it.
Dave also noted that Cal did a break-even analysis in which they calculated how many years it is before the ESP program essentially pays for itself. I don't recall the number of years they came up with and I don't have time at the moment to do one myself. But here's some information I did remember from Dave's call. In their break-even analysis, they assumed that ticket prices would increase at 3% per year. With the ESP, fans essentially lock in ticket prices at 2009 prices. Dave also mentioned that ticket prices will be higher in years where Cal plays 7 home games. They play 6 home games this year. I would safely say that donation amounts would also increase from year to year.
Lastly, I want to thank Dave for returning my call on a Saturday afternoon.