On-Field Success, Scarcity and Novelty Determine if PSL Purchase is a Sound Investment

JohnWallStreet

Back in April, the Atlanta Journal Constitution reported that Falcons season ticket holders had defaulted on thousands of personal seat license payments “essentially undoing about $30 million in sales.” Forbes’ Ray Glier (an Atlanta based journalist) recently speculated that a second straight losing season “could lead to more defaults” this offseason. But Falcons fans aren’t the only ones walking away from their commitment and the money invested to date. Steve Politi (Star-Ledger) spoke with some long-time Giants supporters planning to “give up [their] tickets next year” and “eat the PSL as a sunk cost.” While fans in Atlanta and New York have come to believe that paying for the right to buy a season ticket is “a scam”, the people of Las Vegas have been receptive to the stadium funding mechanism; the Raiders have raised $478.3 million in PSL sales to date, nearly twice their initial $250 million projection.

Howie Long-Short: Distinguished professor of sport management (Syracuse University) Rick Burton attributes the rise of the PSL phenomenon to Bill Davidson, the former Detroit Pistons owner. Back in 1988, Davidson financed the Palace at Auburn Hills with the pre-sale of 180 luxury suites. While it's believed to be the first time fans directly helped fund new stadium construction (i.e. not tied to a public subsidy), Davidson can't take credit for developing the concept. A year prior, the Charlotte Hornets awarded “Charter Seat Rights” - as a thank you - to the 10,000 individuals who made non-refundable deposits on season tickets (before the NBA had even awarded the city a franchise). The support showed the league that Charlotte, small relative to Miami and Orlando (two other cities looking for an expansion club), would be a viable market.

A franchise’s success on the field is among the factors that determine if the purchase of a PSL ends up being a sound investment. Burton explained that people seek affiliation with “teams that are consistently good - teams that have a track record of [making their games] the place to be.” In markets like Pittsburgh and Philadelphia, where the demand for tickets is high and fans can regularly profit on the sale of their seats, PSLs are like gold relative to their issue price. That’s certainly not the case in New York where both Jets and Giants tickets regularly sell for under face value on the secondary market. Of course, the Jets haven’t been to the playoffs since ’12 and Giants have been among the league’s worst teams for much of the last three seasons.

Scarcity (think: perception few seats will be available on the secondary market) and novelty can also drive value in a PSL for the holder. Burton attributes the Raiders success selling seat licenses to the “newness” of the franchise in the market. “It’s the first time anyone [in Las Vegas] has been able to get in on the ground floor [with an NFL franchise in the city] and fans who want to be seen [at the building when it opens] and sit in the best seats [feel pressured] to buy [PSLs] now.” The success of the Golden Knights and the prevailing assumption amongst brokers that Vegas will be the ultimate NFL destination also help to explain how the team has generated so much more PSL revenue than they had originally anticipated.

While the Raiders are currently being lauded for their efforts, Burton warns that the novelty of being a PSL holder wears off fast and without success on the field - or an exceptional fan experience (remember, PSL holders are paying a premium and thus expect a premium experience) - Mark Davis and Co. will find themselves in the same boat as Atlanta and San Francisco; two teams that initially oversold product to brokers only to see tens of thousands of fans dressed as empty seats when the team struggled (it must be noted that SF had no problems selling tickets this season). “When a new building is constructed buying a PSL is a real ego ride (being a member of a club and having a great seat), but it quickly turns into a question of how [am I] going to unload tickets to games between teams that are out of contention” and then the regret begins to kick in. At that point, fan ‘avidity’ determines if he/she continues to buy season tickets - knowing they’re overpaying relative to the secondary market - or cut bait.

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