Monday, February 26, 2007

Suite Surrender?

This is a bit late, but there was a pretty interesting article in the Wall Street Journal last weekend regarding how stadiums are removing suites and skyboxes, as they find them tougher to fill and less of a revenue driver. Safeco Field in Seattle, Comerica Park in Detroit, Jacobs Field in Cleveland, and Milwaukee's Miller Park were all cited as MLB stadiums which are modifying, or considering modifying, their stadiums by removing some of their corporate suites for other alternatives.

Reasons cited for the difficulties filling these suites include tougher accounting and tax rules, internal company audits finding the perks are going to employees rather than clients, and even a proliferation of suites such that they aren't a novelty anymore. (Long post due to lack of free link.)

It was like watching an era of sports history being erased. In early December, construction workers sawed through the multiple layers of drywall and metal studs separating a row of skyboxes at the Seattle Mariners' Safeco Field. They tore up the suites' beech-hardwood floors and carted away their oriental rugs and leather furniture. By the end of the week, the eight skyboxes were gone.

In a reversal that strikes at a cornerstone of pro-sports finances -- and of the way corporate America entertains -- teams around the country are ripping out luxury suites. These perches have been used to justify billions of dollars in stadium construction over the past two decades. But in many cities, they are losing luster with surprising speed, partly the result of factors that couldn't have predicted five or 10 years ago, from changes in tax laws to scandal-driven reforms on corporate entertaining.

"At GM, you can't even buy them a cup of coffee anymore," says Lin Cummins, the marketing chief at automotive supplier Arvin Meritor in Troy, Mich, which has let the leases expire for its suites in four different sports.

Bank of America cut back on its use of a handful of suites in part because it wasn't getting enough clients to fill the seats. At Pepco, an electric-products company that decided not to renew three of its four suites, the CEO says taking clients on fishing trips is a better -- and more cost-effective -- way to get face time.

The Milwaukee Brewers eliminated five of their 69 suites this off-season to make room for a lower-priced, 9,000-square-foot upscale party area that will be ready for opening day. The Chicago White Sox, one season removed from a World Series title, recently gutted 10 of its 103 suites to build a new press box. Other teams are hoping they can hold onto some of their suite customers by showering them with perks ranging from cooking classes to free suite renovations.

In some big cities, the skyboxes continue to draw consistently -- the Boston Red Sox, for instance, have a waiting list. But the Mariners' experience over the last decade shows why some teams are now having to rethink the suite concept.

When Seattle's Safeco Field was completed in 1999, the $517 million ballpark was a huge draw for a business community that included titans like Microsoft and Boeing. Those companies helped boost the team's revenue by more than $20 million a year by signing multiyear leases in the stadium's 68 suites. The suites, which sell for as much as $200,000 per season, are a key reason why the team went from struggling financially a decade ago to being one of the most profitable teams in Major League Baseball.

By 2003, the suites had become a tougher sell. For one thing, the pool of companies that needed or wanted to entertain 16 people at a time for 81 games was shrinking, according to Bob Aylward, the team's executive vice president of business operations. The Mariners made several moves to try to lift sagging demand. In 2003, the team began offering 10-game packages for some suites that previously had been sold on a 20-game, half- or full-season basis.

Then, late last year, following the lead of teams like the Tigers and Brewers, they knocked down eight of the suites and created a lounge where people could get all the food, drinks and other amenities of a suite but have it included in the price of a ticket. The new All-Star Club is a bit short on intimacy -- with a capacity of 140 people -- but it is $100 to $125 per game versus at least $17,000 for a 10-game suite package. The lounge has the potential to generate well over $1 million annually, which the team says would be a net gain because on a typical night 10 to 14 suites were sitting vacant. "We're smarter now than we were when we planned this facility," says Mr. Aylward....

In the late '90s, almost all of the more than 120 luxury suites at the Cleveland Indians' Jacobs Field were sold. The team says it has fewer than 90 suites leased for this season. The Seattle Supersonics used to lease more than enough of the 48 suites at Key-Arena to cover the team and city's debt on the facility. Now only half of the suites are full and the team is deep in the hole and asking for $300 million in public funds to build a new arena.

Teams currently charge anywhere from $50,000 a year for loge-level suites in small-market ballparks like Tampa Bay's Tropicana Field to as much as $450,000 for the suites at the Palace at Auburn Hills. The Red Sox this season will charge as much as $350,000 for their suites at Fenway Park after upgrading them with flat-panel televisions, heated outdoor seats, surround sound and granite countertops.

For all the structural changes that Frank McCourt has done to Dodger Stadium (replacing every seat and revising the stadium's color scheme; further reducing foul territory by adding seats up both foul line; and removing (or not selling) cheaper seats from the top deck), he hasn't made big changes to the club level as of yet. I don't think suites will ever be out of favor in a star-filled entertainment-driven town like Los Angeles (see Staples Center's unprecedented and cavernous three-level luxury box structure), but it's something to consider before bringing out more wrecking balls to Chavez Ravine.