Friday, May 14, 2010

The Paradigm Shift in the Sports Premium Seat Market : An Important Lesson for Ecnomists

CNBC has a guest post up today by Bill Dorsey of the Association of Luxury Suite Directors.

What he describes going on in the luxury seat market supports Wenzel Observation #2 that a good can be a capital good or a consumer good depending on its use.

In fact, when I  first described WO2, I used NBA tickets as an example of a product that could be either a consumer good or a capital good depending on the purpose of the purchase.

Here's what Dorsey is reporting is going on today:

I have served as the executive director of the Association of Luxury Suite Directors (ALSD) for the past 20 years, and I have seen a tremendous paradigm shift since the financial meltdown of 2008...the days of long-term ten year “Founders” leases and exclusively publicly financed venues appear to be over — at least for the next 18 to 24 months.

In their place is a new reality for the premium markets, one that in the long run might actually be better for the sports business marketplace, because it relies on developing a larger customer base. 

Welcome to the age of the per-event suite.
With occupancy rates down at least 10 percent on the premium side, more teams are beginning to tap into selling suites on shorter leases, shared leases, split leases or day of game leases.

In the old days, a typical company that could afford a suite lease usually had to do about $20 million in the local economy. In an average size major league market, that translated to about 400 or 500 major companies..However, where there is occupancy, there is also opportunity. In most markets now, you can buy suites on a per-event basis. This increases the base of suite company prospects from 400 to 500 at least tenfold, from 4000 to 5000. For MLB suites, which can often be purchased for less than $2000 per-game (16 tickets averaging not much more than $100 per ticket), that number is even higher. It is not unusual for bachelor parties, weddings and other personal events to buy suites these days. Indeed, per-event suites are common today.
We know from Austrian Business Cycle Theory that a downturn phase of the business cycle is about the consumer re-asserting the structure of the economy away from the central bank's money manipulated economic structure. Thus goods that can be switched from a capital goods use (in this example, entertaining clients) to a consumer goods use (bachelor parties) occurs.

This further points out the problem with a much of the data collected by government. It is too aggregated to be of value. The richness is in the details. I don't want to know that consumer spending is up because money is spent on NBA suite tickets. I want to know if the tickets are being spent for a bachelor party or by GE to entertain its clients, that will tell me a lot more about the economy then the apples and oranges mixed aggregate data.

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