When Loge Boxes Are Not the Answer (Part Two)

Premium seating continues to transition from suites to all-inclusive mid-level inventory. But sometimes loge and theatre boxes curb long-term revenue maximization. Are you considering all the variables associated with your owner’s bottom line?

  • When Loge Boxes Are Not the Answer

We have created a few financial models to take a closer look at the financial risks of deviating from a lease model. By limiting the number of patrons who order catering, venues are not only compromising large chunks of revenue due to lost leases; they are severely limiting the ability to drive ancillary dollars, especially of the non-revenue-shared variety.

Before making the decision to build less suites or to transform suites into areas with less revenue generating potential, goals must be defined and strategies aligned to better capture businesses in a modern and efficient manner.

Suite vs. Loge Box Lease

The chart below is based on a hypothetical arena team with 44 home games (including preseason) and 30 non-sports events. In the example, a 12-person suite is leased for $150,000 per season. Fifty-percent commission is calculated on catering sales. And 35% of lease revenue is considered non-sports-related for this model.

The comparison represents a shift to an eight-seat loge box leased for $100,000 per season. The box is inclusive of catering with zero commissions back to the team. A $50 all-inclusive expense per ticket for sports events is considered, as is a 50% commission for non-sports concession sales.

How we arrived at these numbers:

Ok, this part can get confusing. Let’s start with the $150,000 suite lease and the $100,000 loge box lease. Where did we get those numbers? Well, we made them up. Back-of-the-envelope math is more than reasonable for this exercise. To be clear, this article is not meant to be a research report. We acknowledge there are multiple suite types, capacities, and locations within buildings that can vary widely in price, and we did not weight the data to reflect these nuances.

But consider that according to the 2016-2017 ALSD Reference Manual, the average lease for all types of suites in aggregate across the industry is over $200,000, and the average lease for all loge boxes is under $100,000. So our numbers are both easy to use in calculations and are actually generous to current market conditions. In reality, the disparity between suite and loge real estate is skewed MORE, not less, towards the spirit of our argument.

Now we’ll consider some simple equations. If a suite is leased for $150,000 and includes all concerts and events, a certain percentage (in this case 35%) of revenue is assigned by collective bargaining agreements as non-sports-related and becomes pure ownership revenue, meaning 65% of revenue goes into a pool that is shared 50-50 with the players. $101,250 is 35% of the sale plus half of the remaining revenue shared at 65%.

$150,000 x 0.65 = $97,500 (sports-related revenue) ÷ 2 (50-50 split with players) = $48,750

$150,000 x 0.35 = $52,500 (non-sports-related revenue) + $48,750 (revenue remaining after split with players) = $101,250 (total team revenue from suite sale)

In this model, we assume $1,000 spent per game and per event per suite in catering, which is again generous, as per caps are historically higher for concerts than they are for games.

$1,000 x 44 (total home games) = $44,000 (sports-related F&B revenue) ÷ 2 (50-50 split with players) = $22,000

$22,000 ÷ 2 (50-50 split with concessionaire) = $11,000 (team revenue from suite F&B during games)

$1,000 x 30 (total non-sports events) = $30,000 (not shared with players)

$30,000 ÷ 2 (50-50 split with concessionaire) = $15,000 (team revenue from suite F&B during events)

$101,250 + $11,000 + $15,000 = $127,250 (total suite revenue)

Most loge seating includes food and beverage in the price of the lease. And all-inclusive menus typically provide no commissions back to the teams, and therefore, must be subtracted out first to gauge the true value of a loge sale. After subtracting out unrealized F&B revenue, the math is the same as the suite example above.

In this model, we assume that events do not include all-inclusive menu options, and therefore, provide some concession dollars back to the teams. We also assume a $50 per cap in loge areas.

$50 per cap x 8 tickets = $400 (sports-related F&B revenue)

$400 x 44 (total home games) = $17,600 (total unrealized sports-related F&B revenue)

$100,000 (loge lease) – $17,600 = $82,400 (actual value of loge sale for team)

$82,400 x 0.65 = $53,560 (sports-related revenue) ÷ 2 (50-50 split with players) = $26,780

$82,400 x 0.35 = $28,840 (non-sports-related revenue) + $26,780 (revenue remaining after split with players) = $55,620 (team revenue from loge sale)

All-inclusive food and beverage nets $0 back to the team and the players.

$400 (per event in catering) x 30 (total non-sports events) = $12,000 (non-sports-related F&B revenue)

$12,000 ÷ 2 (50-50 split with concessionaire) = $6,000 (team revenue from loge F&B during events)

$55,620 + $6,000 = $61,620 (total loge revenue)

Suite Rental vs. Loge Box Lease

The chart below is based on a hypothetical arena team with a suite rental sold for $3,000 per event for 20 regular season home games and 15 events. Fifty-percent commission is calculated on sports catering sales for all rentals with half of that revenue going to the players.

The comparison represents a shift to an eight-seat loge box leased for $100,000 per season. The box is inclusive of catering with zero commissions back to the team. A $50 all-inclusive expense per ticket for sports events is considered, as is a 50% commission for non-sports concession sales.

How we arrived at these numbers:

Suite rental and catering commission, set at 50% for this model, for games would include a 50% split between players and team owners for the revenue sharing model. Concert rentals and catering commission would not be included in any revenue sharing.

All-inclusive menus typically provide no commissions back to the teams. In this model, we assume that events do not include all-inclusive menu options, and therefore, provide some concession dollars back to the teams.

$3,000 x 20 (home games) = $60,000 (sports-related revenue) ÷ 2 (50-50 split with players) = $30,000

$3,000 x 15 (events) = $45,000 (non-sports-related revenue) ÷ 1 (not split with players )= $45,000

In this model, we assume $1,000 spent per game and per event per suite in catering, which is again generous, as per caps are historically higher for concerts than they are for games.

$1,000 x 20 (home games) = $20,000 (sports-related F&B revenue) ÷ 2 (50-50 split with players) = $10,000

$10,000 ÷ 2 (50-50 split with concessionaire) = $5,000 (team revenue from suite rental F&B during games)

$1,000 x 15 (total non-sports events) = $15,000 (not shared with players)

$15,000 ÷ 2 (50-50 split with concessionaire) = $7,500 (team revenue from suite rental F&B during events)

$30,000 + $45,000 + $5,000 + $7,500 = $87,500 (total suite rental revenue)

Refer to our loge box lease example above for further explanation of the equations. The math is the same in this example: Total loge revenue is $61,620.

 

In summary, this analysis isn’t meant to illustrate that mid-level inventory is always a bad idea. As discussed in part one of this article, loge seating and theatre boxes are a good fit for some businesses. The question isn’t: Are loge boxes bad? The question is: Are too many loge boxes bad? Our analysis indicates that more loge boxes is not always the right answer for an owner’s bottom line.

The success of these hypothetical financial models is obviously contingent on an organization's ability to actually sell suites, including nightly rental suites. What makes sense on paper isn't always true in the flesh. This arithmetic might not be the real world in some venues. But for others, suites can still sell if marketed for ROI and not amenities, and staffs are trained in modern B2B best practices. It's all related. So don't just follow the herd or settle for the quick and easy sale. Do the math for yourself, and see if your venue has any revenue gaps that can be closed by refocusing on suite leases and nightly suite rentals.

Is there truly a significant drop off in demand for suite hospitality in the B2B community? Or as an industry, are we sacrificing too much long-term revenue for quick and easy wins today? And further, is our transactional mentality, accompanied by slow adoption of B2B marketing and staffing best practices, hindering our ability to sell C-level executives the products that deliver them ROI and deliver wider margins to our organizations?

Mike Guiffre is currently the VP of Sales at TicketCity. In the first 17 years of his career, he served stints as the Director of Premium Seating for the Pittsburgh Penguins and at American Airlines Center in Dallas, Texas. He can be reached at mguiffre@ticketcity.com.

 

Read Part One of this article to learn the five questions all team owners should ask themselves before retrofitting their suite levels into loge box areas.

 

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