October 19, 2008 in Business

Fans, sponsors no slam dunk

By MATTHEW FUTTERMAN Wall Street Journal
 
File Associated Press photo

Postgame ceremonies marked the New York Mets last game at Shea Stadium in New York on Oct. 1 . The Mets lost to the Florida Marlins, 4-2.
(Full-size photo)

Tough times for sports teams

The New Jersey Nets are trying to lure fans with a buy-now-pay-later offer that allows season-ticket buyers to attend games without paying for them until Jan. 5.

NBA Commissioner David Stern announced that the league would lay off about 80 employees, or 9 percent of its work force.

In Florida, construction of a new ballpark for Major League Baseball’s Marlins that was supposed to start this fall probably will have to wait for better economic times.

A spokesman for the Dallas Cowboys called finding a deal to put a sponsor’s name on the team’s $1.1 billion stadium a “monumental undertaking.”

The crisis in financial markets is sending a chill through the sports industry, cooling the ardor of many longtime season-ticket holders and formerly deep-pocketed corporate sponsors.

Fans have packed the nation’s stadiums for the baseball playoffs this fall, and end-zone tickets for next month’s game between the New York Giants and Dallas Cowboys are fetching hundreds of dollars.

But as the upheaval in global markets, mounting job losses in the U.S. and other signs of a worsening economy continue to undermine consumer confidence, it is already clear sports won’t escape unscathed.

“We’re not just competing for people’s entertainment dollars anymore,” said Brett Yormark, chief executive of the National Basketball Association’s New Jersey Nets. “We’re going up against milk and orange juice.”

Stealing a page from the retailing playbook, Yormark is trying to lure fans with a buy-now-pay-later offer that allows season-ticket buyers to attend games without paying for them until Jan. 5.

Yormark said the offer attracted 100 buyers in its first five days, helping to balance the team’s decreasing season-ticket renewal rate, which has fallen below 80 percent, compared with nearly 90 percent in the past several years.

The Nets’ ploy is just one sign of the angst the continuing economic turmoil is causing in a business once considered almost recession-proof.

On Monday, NBA Commissioner David Stern announced that the league would lay off about 80 employees, or 9 percent of its work force. And he said season-ticket renewals would be down leaguewide when the season opens next month.

For decades, long-term television deals helped to insulate big-time professional sports from the economy’s ups and downs. In fact, many major-league teams got the bulk of their revenue from such deals. But the business has changed in recent years. These days, teams rely increasingly on the money they collect by selling premium tickets to the sparkling new stadiums and arenas built during the past 15 years.

With a night out at a ballgame potentially costing hundreds of dollars for a family of four, cheering on the local team in person may be just the kind of expense that strapped consumers will start to balk at – especially with the advent of new large-screen high-definition TVs at home.

Some stadiums themselves are in jeopardy, opposed by taxpayers and public officials who don’t think investments in sports facilities are justified in the current climate. In Florida, construction of a new ballpark for Major League Baseball’s Marlins that was supposed to start this fall probably will have to wait for better economic times.

Katy Sorensen, one of the commissioners of Florida’s Miami-Dade County, said she expects support for the $515 million Marlins ballpark to dissipate. Florida’s real-estate market is one of the hotspots in a foreclosure crisis that helped to bring down several major banks and spark a selling frenzy in global markets.

Financing for the proposed stadium relies partly on bonds financed with hotel and tourism taxes. Sorensen said in the current economy it isn’t clear whether the county would have enough money to cover the debt.

“Everybody is a little skittish right now,” added Sorensen, who has always opposed the project. “It’s going to be a tough sell to the public to approve something like this.”

The Marlins declined to comment. Bruno Barreiro, the county commission’s chairman and a supporter of the project, said he hopes to submit a final deal for a vote in coming months, but he acknowledged that securing financing for the project might take a while.

“We have to wait until the market stabilizes,” he said.

Bad timing

The economic downturn comes at a particularly bad time for teams trying to sell their most exclusive sponsorships, naming rights to new stadiums. In the past, such rights frequently fetched nine-digit sums.

Within the past two years, Citigroup Inc. and Barclays PLC have signed deals to spend more than $300 million over the next 20 years to put their names on sports venues in New York City – one of them under construction, the other on the drawing board.

Citigroup will lend its name to Citi Field, the new home of baseball’s New York Mets. And the NBA’s Nets hope to occupy the as-yet-unstarted Barclays Center arena in Brooklyn, N.Y.

Both banks, which have been pummeled by a freeze in the markets they depend on for funding, would be hard-pressed to justify such an expenditure today, much to the chagrin of the National Football League’s Dallas Cowboys and the New York Giants and Jets, who are each seeking more than $10 million a year from a company willing to put its name on new stadiums. The Cowboys’ stadium is slated to open in 2009 and the shared Giants-Jets facility in 2010.

“These are 10- and 20- and 30-year partnerships that require companies to take a longer view,” said David Carter, executive director of the Sports Business Institute at the University of Southern California. “Unfortunately, right now everyone is focusing on the short term.”

Brett Daniels, a spokesman for the Cowboys, called finding a deal to put a sponsor’s name on the team’s $1.1 billion stadium a “monumental undertaking.” He said team owner Jerry Jones remains committed to finalizing an agreement before opening day next year. A spokeswoman for the stadium venture between the Giants and Jets declined to comment on the process.

Yormark of the Nets said he knew before the summer the sputtering economy would make this one of the toughest off-seasons in his 20-year career.

He arrived at the Nets in 2005, months after real-estate mogul Bruce Ratner bought the team with the intention of moving it to a $950 million arena in downtown Brooklyn. Yormark needed to persuade fans in New Jersey to invest in a team that planned to abandon them and which plays in one of the league’s oldest and dreariest arenas, set in a parking lot at the intersection of two New Jersey highways.

That arena, now called the Izod Center, is also surrounded by two massive construction projects at the Meadowlands Sports Complex that can cause logistical headaches. Last season, the Nets traded their biggest star, Jason Kidd, then unloaded the popular Richard Jefferson in June.

This off-season, Yormark told his sales staff to be creative. In the spring the team pledged to give back 10 percent of any season-ticket purchase in the form of a gas card. When the team secured the 10th pick in the NBA draft, it began slashing prices on season tickets.

Then came a buy-one-get-one-free season ticket offer. When the financial markets collapsed, taking out thousands of jobs in the Nets’ backyard, Yormark instituted the buy-now-pay-later offer.

Two weeks before opening night, he remains 20 percent short of his goal of selling 1,600 new full-season tickets to make up for the drop in his renewal rate. The team averaged 16,900 fans per game last year.

While the Nets aren’t expected to contend for a championship, Yormark hopes fans will come for a break from the reality of their financial woes. “We’ve never sold wins and losses,” he said. “We sell hope and fun.”


Thoughts and opinions on this story? Click here to comment >>

Get stories like this in a free daily email