Sports Biz: Personal Seat Licenses are a license to print money
May 17th 2009 11:00AM
Updated Dec 4th 2009 11:37AM
In the late 1980's, America's major league sports teams were caught between the need for newer and larger facilities and the public's growing unwillingness to foot the bill. Fearful of raising ticket prices to the point of diminishing returns, teams looked for a way to raise more money without incurring more expense. Taking a cue from the options market, personal seat licenses turned out to be their ticket to easy street.
When you buy a personal seat license (PSL) for a stadium or arena, you buy the rights to a specific seat; say section 32, seat 3B. With this comes the right to buy the ticket for your seat for any public event that is held there. If you decline, the venue can still sell the ticket to someone else, and they don't have to share the money with you.
If you do decide to attend an event, you still have to pay for the ticket. The PSL simply gives you the option to buy the ticket before it is offered to the public.
For fans, a PSL guarantees that they will never again miss a game of their beloved team, be it the Giants, Raptors, Cardinals or Maple Leafs. For an investor with a high tolerance for risk, the PSL is a product that can be resold, sometimes at a huge markup. For the teams and venues, the PSL is free money with an added bonus; anyone paying for a PSL is unlikely to let the seats go empty very often.
Since its inception, PSL revenue has been a major source of income for many pro and amateur sports. The New York Giants and Jets are currently building a new stadium in the Meadowlands, and 20 percent of the $1.7 billion price tag will be covered by PSLs (to the dismay of longtime season ticket holders who suddenly have to come up with tens of thousands of dollars to secure their tickets in the new stadium.) In 2004, Churchill Downs, home of The Kentucky Derby, sold 3,000+ 30-year PSLs for $18,000 -$75,000 each. Ohio State sold 40-year PSLs for its men's basketball program for up to $15,000 each. The Texas Motor Speedway, NASCAR track, sells PSLs as well.
The resale market on PSLs is extremely volatile, and dependent largely on the success of the sports franchises that play in the venue. On eBay at the time of this writing you could buy eight Dallas Cowboy PSLs for $160,000 or two for the Pittsburgh Steelers for $60,000. In contrast, two PSLs for the hapless Cincinnati Bengals can be had for under $500.
When it comes to a business model, how can you go wrong selling people the option to buy something you want them to buy anyway? Genius. Pure genius.