Luxury Suites Rule in Professional Sports Revenue
Senior Editor, CNBC
With a minimum reported price of $80,000 per box, that kind of money has turned luxury suite revenue into one of the most dominant forces in sports, analysts say.
"Luxury suites have been growing in importance since the 1990s and are an essential part of any new stadium being built," says Emily Sparvero, assistant professor at the Sports Industry Research Center at Temple University.
"In fact, most new stadiums are built not because they are physically obsolete, but they are financially obsolete," adds Sparvero.
In the past 20 years, 75 percent of American sports teams have either built or remodeled their venues, with luxury suite additions being a major reason for the construction and renovation.
Ticket sales, once the main source of any professional team's financial success, are now just part of the revenue mix, along with television contracts and heavily marketed merchandising.
Whether it's the NBA, NHL or Major League Baseball, suites now account for anywhere between five percent and 20 percent of total team revenue, according to the latest statistics. What started out as a status symbol has evolved into a necessity.
"With greater payroll expenses from player free agency, owners have to find ways to raise more revenue," says Mark Conrad, an associate professor at Fordham University's school of business. "Luxury boxes provide a constant flow no matter how good or bad the team is playing. The payment is already made and it's part of the revenue generated by the facility."
Demand is high, even if the suite — or stadium — has yet to be built. The NFL's San Francisco 49ers want to build a new facility, and even though the project is still being planned, the team says it's already sold $138 million in luxury suites.
As for who's buying the suites, it's a matter of money, as well.
"Corporations and high net-worth individuals are purchasing suites," says Chad Estis, president of Legends, the premium ticket sales company that handles teams such as the Cowboys and Yankees.
"The most common reasons to purchase a suite is to entertain and build relationships with clients and prospects or for families to spend time together," adds Estis. "And if you deliver the right experience, suiteholders can be some of the most loyal supporters of a team."
What suite holders get for their largesse is definite luxury. The benefits most often include:
- Luxury, theater-style seats
- Multiple flat TVs
- Private entrance to the stadium on game day
- High-end food and premium liquors
- Access to team events and players
Luxury suite buyers get sweet tax benefits as well. Corporations that buy them can deduct anywhere up to 50 percent of their cost, as well as that of refreshments for business purposes.
Not everyone, however, sees a perfect game plan with luxury suites. Larry DeGaris, an associate professor of sports marketing at the University of Indianapolis, says there are pitfalls.
"The danger in chasing corporate dollars is that they tend to evaporate during down financial times," DeGaris argues. "Though luxury suites seem to have weathered the recent economic storms well, probably because corporate profits have been healthy."
Players Now Get A Piece
But not all luxury suite buyers make it through the bad times.
Phil Matalucci runs Luxury Suite Alternative, an online firm that matches event buyers with suite owners. He once sold luxury suites for the Philadelphia Eagles and the NBA's 76ers, but found some buyers wound up over their heads.