Tuesday, February 06, 2007

Suite-intensive arena promises millions in revenue

The city would earn only about $1 million a year in new tax revenues from the Brooklyn arena, according to 2005 analysis by the Independent Budget Office. (And that’s been criticized by analyst Neil deMause for too much optimism; depending how much of the city's seemingly doubled Atlantic Yards contribution were attributed to the arena, the cost-benefit analysis could look even worse for the city.)

But developer Forest City Ratner and other Nets owners stand to earn millions more from lucrative new suites, helping pay for the country’s most expensive arena ($637.2 million) by constructing nearly six times as many suites as the current Continental Airlines Arena, built in 1981.

Suites on the block

And those suites are on sale. Yesterday’s Sports Business Journal (subscription required, but there’s a summary on Nets Daily) reports that the Nets are selling suites to team sponsors and investors, with the sale open to the public around Labor Day. (Would the legal challenges be over by then?)

The suite business offers big profits, and has been the impetus for numerous sports franchises to seek sleek new facilities.

Suite-heavy arena

How would the arena compare? While no one from the Nets would comment to the publication, an audit conducted by KPMG on behalf of the Empire State Development Corporation offers this analysis:
[Forest City Ratner] assumes that approximately 162 of 170 suites will be sold annually through a combination of first ring suites, second ring suites, courtside suites, and loge boxes. The suite price includes the price of tickets to NBA games and approximately 25 percent of other events held at the arena. In addition, it is assumed that three of the four party suites, each with sixty suites, will be sold for all NBA games on an annual basis.
Given the competitiveness of the market, both the total number of suites and the average price per suite assumed by FCRC appear to be on the high end relative to other similar arenas. NBA arenas average approximately ninety suites. Facilities in Chicago, Detroit, Los Angeles, Dallas, Toronto, and Philadelphia are the only ones that offer more than 125 suites. Other than the Palace at Auburn Hills in Detroit, all of these facilities host both NBA and NHL teams.


The report notes that, while there are now about 1100 suites in the New York/New Jersey market, new or renovated facilities would add to that number, “which will further increase the competitiveness of corporate support.” That’s an argument for starting before those new baseball stadiums are built.

Revenue estimates

How much would the suites cost and how much would the owners earn? The developer assumes a range of $58,000 to $580,000, while KPMG notes that the market ranges from $65,000 to $450,000--and adjusts the Nets' top suite price to about $464,000.

How much would the developer earn? That’s tough to calculate, because we don’t know how many suites would be sold at different price points. At an average of 30% of the top price, the average suite would cost $139,200. At 40%, the cost would be $185,600. At 50%, it would be $232,000.

If 162 suites were sold as assumed, the annual revenue for each scenario would be $22.5 million, $30.1 million, or $37.6 million. In other words, it would more than complement the approximately $20 million annually that the developer would get from the Barclays Capital naming rights deal, estimated at $400 million over 20 years.

And Forest City Ratner might get a great jump on paying back much--maybe all--of the arena construction costs. As I noted, the state will offer Forest City tax-free bonds to construct the arena. At a 5% interest rate, $637.2 million would mean payments of about $41 million a year over 30 years, or less than the combined Barclays and suite revenue. (That's if my interest rate and suite revenue assumptions are in the ballpark, so the issue deserves further scrutiny.)

The Sports Business Journal article offers a brief mention of the KPMG report, citing a New York Post mention, but not the detail above.

No comments:

Post a Comment