United States Sports Academy - "America's Sports University"

The economic value of media rights fees and luxury suites in professional sports are enormous. As a result of increasing revenue in professional sports, team values have risen and will continue to rise to unpredictable levels.

The purpose of this study was to examine the economic values of media revenue, luxury suites, and club seats in North American professional football, baseball, basketball, and hockey franchises. Secondary data from league offices and networks were used to further describe the significance of media and luxury seats revenues to professional sport franchises, and their symbiotic relationships.

INTRODUCTION

Unlike industrial or financial business, which is generally valued on cash flow and assets, sport franchises are valued on their revenues. There are two reasons for this. First, in the long term, the operating expenses within each league are about the same for every team. Second, revenues most closely measure the quality of a team's venue and track athletic performance, ultimately the two most critical elements in team evaluation (Ozanian, 1994). Professional sport team values have risen over the past decade and are expected to rise to unpredictable levels for the next few years. The reasons for this rise are the revenues from the leagues, including gate receipts, broadcasting right fees, luxury boxes, club seats, concessions, advertising and membership fees.

Professional sport leagues and network television have enjoyed significant growth for more than thirty years. Needless to say, there are a lot of people participating and enjoying major professional sports games. For example, 62 percent of Americans call themselves "Major League Baseball (MLB) fans" according to 1997 ESPN/Chilton sports poll (John, 1998). Professional sports and the media, especially television, are mutually dependent institutions, and extremely popular forms of entertainment. Although both had independent origins, their relationships now make it hard to imagine one without the other. In total, 98 percent of all American homes have television sets, with TV on an average of 7 hours and 51 minutes a day (Sage, 1998). Spectators consume sports to a far greater extent indirectly through television than directly through personal attendance at events. More than 2,100 hours of televised sports are programmed per year by the four major networks, and cable television provides an additional 6,000 hours. ESPN, which reaches 70 percent of American homes with televisions, broadcasts more than 8,000 hours of sports each year. Regional sport cable networks and direct satellite broadcasts are growing rapidly, and they broadcast countless thousands of hours of sport each year (Sage, 1998).

DEVELOPMENTS OF REVENUE STREAMS

In understanding professional team sports, it is important to recognize that it is not just a game, but a business. The overall logic of professional sport is grounded in the principles of buying and selling goods, services, and labor. In the major professional sports leagues, the revenues are divided among league members in varying percentages. National Football League (NFL) teams split ticket sales, or gate receipts, with 60 percent going to the home team and 40 percent to the visiting team; MLB's split is approximately 80-90 percent to the home team and 10-20 percent to the visiting teams. Basketball and hockey permit the home team to keep all of the gate receipts. Depending on the individual contracts, the stadium or arena owner or outside contractor may keep the revenues, or there may be a split with the franchise-tenant. In case of national broadcast revenues, they are shared equally among the teams within the football, basketball, baseball, and hockey leagues (Shropshire, 1995). By the end of 1961 Congress had passed the Sport Broadcasting Act. This act permitted the professional sports franchises to negotiate the sale of national broadcast rights as a single economic unit. These antitrust exemptions applied to professional baseball, hockey, and basketball as well as football. In 1962, CBS contracted the exclusive rights to the NFL with a package worth $4.6 million a year. Two years later, assisted by a 50 percent increase in ratings and therefore even fiercer bidding by all three networks, CBS agreed to a 300 percent increase and a package of $14 million for each of the next two years. This contract incidentally, ensured the survival of the Green Bay Packers, who proceeded to dominate the league for years afterwards (Barnett, 1990). Thirty-six years later, television rights for the NFL have increased dramatically. In 1998, the rights to televise NFL games, as well as the Super Bowl, were sold to several networks for eight years for $17.6 billion. All NFL television money is split evenly among the teams; this averages $73.3 million per year for each team. This is much higher than that with MLB's network TV deal, which pays each club, not quite $11 million. About 65 percent of all revenues of NFL teams come from the sale of television rights (Sage, 1998).

Luxury suites and clubs seats are becoming one of the most lucrative of revenue sources. The revenue generating potential of these luxury seats is tremendous and represents the fastest growing revenue source (Hoffman & Greenberg, 1989). Luxury seating has become a critical strategy to maximize cash flow per seat in most stadium construction projects (Howard & Crompton, 1995). The potential revenue stream from luxury seating has been instrumental in securing financing for Oakland-Alameda's $121 million arena and Detroit's $235 million Tiger Stadium. Realizing this tremendous potential revenue, many stadium and team owners are trying now to renovate and repair their seats to make luxury boxes. In addition, professional sport franchises are adding to their revenues from the contracts with local Pay-Per-View (PPV) networks. Current trends show increasing Pay-TV revenues for the next few years. From $435 million in 1991, total revenues hit $1.1 billion in 1996 and nearly $3 billion in the year 2000. The National Basketball Association's (NBA) Dallas Mavericks, Houston Rockets, Portland Trail Blazers, San Antonio Spurs are involved in Pay-Per-View (Worsnop, 1991). It is possible in the near future that the World Series and Super Bowl may appear on Pay-Per-View (PPV). Professional sport franchises see PPV as a new source of revenue beyond what the broadcast networks pay them. This additional source will help keep pace with escalating players' salaries.

Table 1. Average Salary Climbs of MLB Players

Year	Average Salary	Increased Rate*	Decreased Rate*
1977	$76,066	47.70%	N/A
1979	$113,558	13.70%	N/A
1982	$241,497	30.08%	N/A
1985	$371,571	12.80%	N/A
1987	$412,454	N/A	-0.02 %
1990	$597,537	20.17%	N/A
1992	$1,028,667	20.81%	N/A
1995	$1,110,766	N/A	-4.92 %
1997	$1,336,609	19.34%	N/A
1998	$1,398,831	4.65%	N/A
1999	$1,611,166	15.18%	N/A
2000	$1,895,630	17.65%	N/A
2001	$2,138,896	12.83%	N/A
2002	$2,384,779	11.50%	N/A
* means that compared to the previous year (source from USA Today)

Table 2. Top 5s of Values and Revenues of NBA and NHL Teams
(1999-2000 season)

Teams	Values	Revenues*	One-Year Change in Value
NY Knicks	$395	$152	18 % ^
LA Lakers	$360	$133.2	28 % ^
Chicago Bulls	$314	$112.2	2 % ^
Portland Blazers	$272	$97.3	6 % ^
Phoenix Suns	$252	$96.8	5 % ^
NBA Average	$207	$79.9	15 % ^
NY Rangers	$263	$97.6	12 % ^
Philadelphia Flyers	$240	$88.9	14 % ^
Detroit Red Wings	$218	$80.7	12 % ^
Boston Bruins	$217	$77.6	10 % ^
Toronto Maple Leafs	$203	$84.4	35 % ^
NHL Average	$148	$60.6	10 % ^
$ in million. * Revenues include media revenue, gate receipts, and stadium revenues (source: Forbes)

MEDIA REVENUES OF PROFESSIONAL SPORTS

Television contributed to the nationalization of sports by making the prosperity of professional sports dependent on the creation of a broad-based national constituency. When NBC provided the first live network coverage of the World Series in 1949, fewer than 12 percent of U.S. households had television sets. By 1953 fifteen of the sixteen baseball clubs had local television contracts, and ABC introduced the first network game-of-the-week format. The share of U.S. households with television grew rapidly through the 1950s, reaching 67 percent (34.9 million households) in 1955 and 87 percent (45.8 million households) in 1960 (Zimbalist, 1992; Gorman et al., 1994). During the 1950s, none of the networks considered sports programming critical to their overall success. They put far more of their resources and effort into comedies, Westerns, and popular dramas. But in the early 1960s, ABC broke with this pattern. ABC gambled that increased sports programming would give its network greater visibility, bring in new local television stations as affiliates, and improve the audience ratings for all shows.Sports telecasts contributed substantively to ABC's sudden rise from third place in prime-time audience ratings in the 1950s to the top in the 1970s (Rader, 1999). In today, up to 40 hours of professional team sports are beamed to home television sets per week by the major networks, and hundreds of additional hours are provided by cable networks spread across the country.

According to Zimbalist (1992), when the Yankees signed that first contract in 1946, radio and television combined contributed only 3 percent of MLB's revenues. That figure rose to 16.8 percent by 1956, and continued to increase through the years until in 1990s television money represented more than one-half of baseball's yearly earnings. In the case of football and basketball, broadcasting monies also amount to about one-half of their overall revenues. Only hockey, whose history with national television can only be described as spotty, has thus far been left out of the formula. For example, MLB was in the middle of four-year pacts with ESPN and CBS that earned $400 million and $1.06 billion, respectively. Four-year NBA contracts with NBC and Turner, expiring in 1994,
totaled $875 million. Hockey was not completely left out; the NHL's five-year contract with ABC and ESPN, signed in 1992, was worth nearly $80 million (Gorman et al., 1994). In addition, to revenue from national broadcasting contracts, the leagues negotiated with over-the-air and cable networks to further increase their revenues. Deals cut between individual teams and local stations are crucial in sports and weigh heavily on a team's financial success or failure. In the case of MLB, local television, radio, and cable generated more than $350 million for the 28 teams in 1993. For the NBA, revenues from local radio, cable, and over-the-air television come to over $100 million each year.

Table 3. Values and Revenues of MLB Teams Between 1998 and 2001

Team	Values 1998	2001	Increased Rate	Revenues* 1998	2001	Increased Rate
NY Yankees	$491	$730	48.68 % ^	$175.5	$215	22.51 % ^
Cleveland Indians	$359	$360	0.27 % ^	$149.7	$150	0.87 % ^
Atlanta Braves	$357	$424	18.77 % ^	$142.7	$160	12.12 % ^
Baltimore Orioles	$305	$319	4.60 % ^	$130.5	$133	1.91 % ^
Colorado Rockies	$311	$347	11.58 % ^	$124.6	$129	3.53 % ^
Arizona D'Backs	$256	$280	9.38 % ^	$116.3	$127	9.2 % ^
Texas Rangers	$281	$356	26.69 % ^	$108.1	$134	23.96 % ^
LA Dodgers	$270	$435	61.11 % ^	$107.9	$143	32.53 % ^
Boston Red Sox	$256	$426	66.40 % ^	$106.9	$152	42.19 % ^
NY Mets	$249	$482	93.57 % ^	$99.7	$169	69.51 % ^
$ In million. * Revenues include media revenue, gate receipts, and stadium revenues (source from the Forbes)

Sport and television coexist in a high-priced equation. The leagues of the major sports sell the rights to broadcast their games for millions of dollars each season. The networks in turn sell advertising by the half-minute to sponsors on a national, regional, and local level. The sponsors, confident that sports reaches "the right" customers for their products, pay hundreds of thousands of dollars for their flashes of exposure. The Baseball Network (TBN) is an example of creativity in advertising. TBN, in partnership with MLB, NBC, and ABC, was scheduled to run for six years beginning in 1994. TBN, as a media entity, was charged with generating revenue for MLB by selling advertising time and promotional rights. Rather than take a projected 55 percent cut in rights fees and receive a typical rights fee from the networks, MLB agreed to accept 88 percent of the net revenue from the sale of advertising and corporate sponsorship generated by TBN. Consequently, MLB shared the financial risk with the networks. It was thought that TBN would help the networks, MLB, corporate sponsors, and players market in sport, if the advertising rates it charged were reasonable. The networks stood to benefit because they reduced the risk associated with purchasing the broadcast rights outright. For example, in 1993, the year before the TBN deal, CBS had lost approximately $500 million on its four-year, $1.06 billion contract due to its high bid and a shortfall in advertising revenue. MLB and its players liked the new arrangement because the recently expanded playoff format would further line their already bulging pockets. Finally, the advertisers were excited about the arrangement with TBN because the new package included several changes intended to boost ratings, especially among younger viewers. Since this type of partnership appeared to please all parties involved, many thought other major sports leagues and their affiliated networks would eventually adopt it, thus furthering the growth of sports sponsorship and advertising (Carter, 1996).

Table 4. TV Sports: Sports Rights Fees

Network	Years Covered	Avg. Cost Per Year	Total Cost
MLB
CBS	1990 - 1993	$265 million	$1.06 billion
ESPN	1990 - 1993	$100 million	$400 million
ABC/NBC	1994 - 1999	$0-revenue sharing	$0-revenue sharing
ESPN	1994 - 1999	$42.5 million	$255 million
	Voided after 1995 season
FOX	1996 - 2000	$115 million	$575 million
NBC	1996 - 2000	$80 million	$400 million
ESPN	1996 - 2000	$87 million	$435 million
FOX Cable	1997 - 2000	$40.5 million	$162 million
FOX	2001 - 2006	$417 million	$2.5 billion
ESPN	2000 - 2005	$141.8 million	$851 million
NBA
NBC	1990/91 - 1993/94	$150 million	$600 million
TBS/TNT	1990/91 - 1993/94	$68.75 million	$275 million
NBC	1994/95 - 1997/98	$187.5 million	$750 million
TBS/TNT	1994/95 - 1997/98	$87.5 million	$350 million
NBC	1998/99 - 2001/02	$437.5 million	$1.75 billion
TBS/TNT	1998/99 - 2001/02	$222.5 million	$890 million
ABC/ESPN	2002/03 - 2007/08	$400 million	$2.4 billion
AOL Time Warner	2002/03 - 2007/08	$366.5 million	$2.2 billion
NFL
ABC (Mon. Night)	1990 - 1993	$225 million	$900 million
CBS (NFC)	1990 - 1993	$265 million	$1.06 billion
NBC (AFC)	1990 - 1993	$188 million	$752 million
ESPN (Sun. Night)	1990 - 1993	$111.25 million	$445 million
TNT (Sun. Night)	1990 - 1993	$111.25 million	$445 million
NBC (Superbowl)	1994	$40 million	$40 million
ABC (Mon. Night)	1994 - 1997	$230 million	$920 million
FOX (NFC)	1994 - 1997	$395 million	$1.58 million
NBC (AFC)	1994 - 1997	$217 million	$868 million
ESPN (Sun. Night)	1994 - 1997	$131 million	$524 million
TNT (Sun. Night)	1994 - 1997	$124 million	$496 million
ABC (Mon. Night)	1998 - 2005	$550 million	$4.4 billion
FOX (NFC)	1998 - 2005	$550 million	$4.4 billion
CBS (AFC)	1998 - 2005	$500 million	$4.0 billion
ESPN (Sun. Night)	1998 - 2005	$600 million	$4.8 billion
NHL
SportsChannel	1989 - 1991	$17 million	$51 million
ESPN	1992 - 1996	$16 million	$80 million
FOX	1994 - 1998	$31 million	$155 million
ESPN (ABC & ESPN2)	1999 - 2003	$120 million	$600 million
(source from the Forbes)

GOLDEN SEATS IN STADIUM

The revenue of luxury suites, alternatively called sky boxes, luxury boxes, execution suites has become an important marketing strategy to maximize cash flow per seat among professional franchises (Howard & Crompton, 1995; Funk, 1997). Luxury boxes are those fancy rooms inside stadiums and arenas that allow corporations and some private individuals to entertain clients and friends while also watching events. They are always up high, often around press-box level and usually equipped with closed-circuit television for close-ups of the action. Every facility built within the last 20 years has luxury suites, and most of the older ones have been retooled to include them (Gorman & Calhoun, 1994). Wrigley Field at Chicago, for example, added 67 sky boxes for the 1989 season, each accommodating 12 to 15 people. Most of them rent for $45,000 to $65,000 a year. The revenue generating potential of these luxury boxes would go untapped until the late 1980's. However, by the early 1990's, luxury suites had emerged as the most coveted and profitable of the venue based revenue sources contributing to an unprecedented growth in sport venue construction. Club seats, sometimes called premium seats are also another kind of source to increase revenue. Even if club seats have no private entertainment or reception area adjoining the seats, they are usually more comfortable than those found elsewhere in the stadium or arena (Rosentraub, 1997).

Luxury suites in stadiums hosting NFL franchises range in number from 47 in Seattle's Kingdome to 370 in Irving's Texas Stadium. MLB facilities have suites from 19 in New York's Yankee Stadium to 161 in Toronto's Sky Dome. Arenas for NBA range from 12 Charlotte's Coliseum to 360 in Detroit's Palace at Auburn Hills. NHL teams play in facilities that have suites ranging from 16 in Florida's Miami Arena to 135 in Montreal's Molson Center. Table 5 shows the number of luxury suites and club seats in professional sport venues.

Table 5. Luxury Suites and Club Seats in Professional Sport Venues

Team/League	Luxury Suites	Club Seats	Total Capacity
Florida Marlins	215	6,750	47,662
Cleveland Indians	129	2,058	42,400
Texas Rangers	120	4,099	49,292
MLB Total	1,841	40,500	N/A
Atlanta Falcons	203	6,300	71,280
Carolina Panthers	135	10,800	72,300
St. Louis Rams	120	6,200	65,300
NFL Total	3,091	60,978	N/A
Chicago Bulls	216	3,000	21,500
Detroit Pistons	180	3,000	21,454
Cleveland Cavaliers	92	3,000	20,562
NBA Total	2,057	32,780	N/A
NHL Total	1,860	28,978	N/A
(source from USA Today)

The revenue-generating capability of luxury suites and premium seats are enormous. Luxury suites at Jack Murphy Stadium in San Diego rented for $29,000 to $49,000 a season; at Candlestick Park in San Francisco from $24,000 to $60,000 for the baseball season and $40,000 to $80,000 for football; and Houston's Astrodome, $25,000 for the baseball season and $15,000 to $45,000 for football (Gorman & Calhoun, 1994). Dallas Cowboys, for a specific example, use of luxury suites if the primary reason stadium revenue is such a significant portion of the franchise's total revenue. The Cowboys have approximately 360 luxury suites that represent more than $23 million annually in potential revenue. Table 6 indicates the economic value of the Cowboys' luxury suites.

Table 6. Economic Values of the Cowboys' Luxury Suites

Suites Category	# of Suites	Average Price	Potential Revenue
Circle	180	$31,000	$5,580,000
Crown	172	$57,000	$9,804,000
Platinum	8	$1,000,000	$8,000,000
Total	360		$23,384,000
			(22.8% of Total Team Revenue)
(source from Howard and Crompton)

The economic power of the sale of luxury boxes and club seats for the gross revenue has the potential to reach over $625.8 million and $329.9 million respectively. As these millions of dollars indicated, the luxury seats and premium seats illustrated how a number of factors the amount of revenue a team realizes from the sale of these seats. Curently, there are 8,090 luxury suites and 151,451 club seats available for sale at the amount of total $955.7 million in professional sport venues as detailed in Table 5 and Table 7. The potential revenue from the sale of luxury suites and club seats in professional leagues are showed in Table 7.

Table 7. Potential Gross Revenue from Luxury Boxes and Premium Seats

League	Luxury Boxes	Premium Seats	Potential Revenue
NFL	$204,119,771	$56,231,120	$260,350,891
MLB	$130,270,819	$84,115,293	$214,386,112
NBA	$149,975,179	$115,627,254	$265,602,433
NHL	$141,446,090	$73,982,339	$215,428,429
Total	$625,811,859	$329,956,006	$955,767,865
* Adjusted for facilities housing more than one team (source from the Forbes)

CONCLUSION

The significant development of the professional sports industry during the past decades has been phenomenal. Prior to 1960, there were only a few independent sports leagues whose members could legitimately claim "major league" status. However, today the situation is dramatically different. As professional sports have grown in recent decades, they have gained recognition as a vital part of the burgeoning mass-entertainment industry (Worsnop, 1995). The teams in the NBA, NHL, MLB, and NFL are worth a combined more than $12 billion. Over the next decade, professional sports team values are going to rise to unpredictable level. Traditionally, the revenue of professional team sports is combined of media revenue, game receipts especially by luxury boxes and club seats. In particular, the media revenue will increase up to the unthinkable position. The main reason will be the consolidation of media and entertainment companies and the voracious appetite these companies will have for many sports programming. Also, of the private revenue sources (from stadiums and arenas based on parking fees, concessions, advertising, corporate naming rights, luxury suites, and club seats), luxury boxes and club seats have become one of the most valuable economic elements in professional sport franchises. The revenue generating potential of luxury boxes and club seats for professional sport franchises are second only to media revenue. In conclusion, professional sport franchises now see attracting fans to their stadiums or arenas to increase their private funds. Sports, especially, professional sports earn money in more ways than one.

Reference

Badenhausen, K. (2000). Name games. Forbes, 166(15), 132-135.

Badenhausen, K., Fluke, C., Kump, L., & Ozanian, M. K. (2002). Double play. Forbes, 169(9), 92-94.

Badenhausen, K., & Sicheri, W. (1999). Baseball games: Revenue sharking has struck out. So why does Bud Selig want another inning? Forbes, 163(11), 112-117.

Barnett, S. (1990). Games and sets: The changing face of sport on television. London: BFI Publishing.

Bodley, H. (1998). Disparity in team payrolls is alarming: Fans know without high priced talent, hopes for title are slim. USA Today, Friday November 20, 1998.

Carter, D. M. (1996). Heeping score: An inside look at sports marketing. Grants Pass, OR: The Oasis Press.

Funk, D. C. (1997). Economics of professional sport franchises: Luxury seating's impact on construction and renovation of sport venues in North America. Paper presented at the 12th Annual North American Society for Sport Management Conference, San Antonio, TX.

Gorman, J., Calhoun, K., & Rozin, S. (1994). The name of the game: The business of sports. New York: John Wiley & Sons, Inc.

Hoffma, D., & Greenberg, M. (1989). Sportsbiz: An irreverent look at big business in pro sport. Champaign, IL: Leisure Press.

Howard, D., & Crompton, J. (1995). Financing sport. Morgantown, WV: Fitness
Information Technology.

John, A. S. (1998, October). Baseball's billion-dollar question: Who's on deck?
American Demographics, 20(10), 60-69.

Ozanian, M. K. (1994). The $11 billion pastime: Why sports franchise values are soaring even as team profits fall. Financial World May, 1994.

Rader, B. G. (1999). American sports: From the age of folk games to the age of televised sports (4th ed.). Upper Saddle River, NJ: Prentice Hall, Inc.

Rosentraub, M. S. (1997). Major league losers: The real cost of sports and who's paying for it. New York: A Division of Harper Collins Publishers, Inc.

Sage, G. H. (1998). Power and ideology in American sport: A critical perspective (2nd ed.). Champaign, IL: Human Kinetics Publishers.

Shropshire, K. L. (1995). The sports franchise game: Cities in pursuit of sports franchise, events, stadiums, and arenas. Philadelphia: University of Pennsylvania Press.

Worsnop, R. L. (1991). Pay-per-view. CQ Researcher, 1(21), 731-751.

Worsnop, R. L. (1995). The business of sports: Are greedy owners and players hurting pro leagues? CQ Researcher, 5(6), 121-144.

Zimbalist, A. (1992). Baseball and billions. New York: Basic Books.