What does it mean for an 11 year-old baseketball arena to be obsolete? Does it mean that the building is falling down? No. Does it mean that the owner of franchises housed in the arena doesn't have the physical capital to generate revenue from new sources "discovered" by fellow owners that would improve the owner's bottom line? Very likely. PowerReader Kirk sent me this lengthy but excellent article on the Seattle Supersonics request for a new lease and public funds for the renovation of 11 year old KeyArena.
Modest, city-run KeyArena, team officials say, won't work anymore in modern professional sports, where breaking even means extracting every penny from every fan, and where millionaires lavishing money on millionaires makes perfect sense but paying for the engine to generate those millions is an anathema.
"With each new stadium that is built, some sharpie thinks of another revenue stream that can be captured by the team," and the next guy wants it, too, said Kevin Quinn, an economics professor at St. Norbert College in Wisconsin who has studied the stadium-building phenomenon.
"It's a keeping up with the Joneses. I think of it as an arms race," he said. "You have this leapfrogging arms race that's going on."
And it's not always about the quality of the team. Sometimes it's about non-sports amenities.
(Luxury box lessee Peter) Rose, the chief executive officer of Expeditors International, a freight logistics company, knows he's paying a bunch of money to watch a losing team. Still, the Seattle resident is not unhappy he bought a share. "There's a great variety of stuff," he said. "The Rolling Stones. Paul McCartney. The Sonics are no good, (but) you get to see shows."
This is no small point to Sonics officials. In the ideal professional sports arena or stadium lease, the team books and profits from non-sport concerts, the Ice Capades and other shows. This is true in the leases for the Seahawks and the Mariners. It's true in most NBA arenas.
But the Sonics get no receipts from KeyArena concerts, such as last year's U2 appearance or any of the shows Rose watched.
...Rose, for one, isn't sympathetic. As a businessman, he understands the need to make money efficiently. As a taxpayer, he doesn't see why the Sonics can't pay their own expenses and invest wisely to meet needed income. His business must.
"It's corporate welfare, just like Qwest Field and Safeco," he said.
As I've written before and before, this corporate welfare is in large measure a response to the market power of the NBA in that it keeps viable cities open to use as threat points in negotiations with cities.
Success in business (like competition) is often trial and error.
More than any organization in modern professional sports, the Pistons rewrote the financial possibilities and expectations when it built The Palace for $90 million in 1988 with private money, giving the team complete control of the arena.
...For a visionary plan, it was a bit of a gamble. Recalled Wilson, who went to work for the Pistons in 1977: "It wasn't like we knew it would work. The previous year we'd lost in the first round of the playoffs. The Redwings had half their suites empty. Same for the Lions. When we decided to do this, everyone thought we were crazy."
First, the team recognized that the potential money was in the boxes, not in the average fan's pocket. Up until that point, suites in most stadiums were the highest-price bad seats available -- exclusive, elite but not all that desirable. The Pistons dropped the boxes to prime viewing spots, just 16 rows up.
As a substantial side benefit, Pistons managers learned, suites more directly tapped potential business clients who use favorable federal tax laws to write off some of the expense and use the boxes to entertain potential clients.
The result:
Other teams in almost every sport followed Detroit's lead in the 1990s, but with a twist. While the Pistons' organization paid for its own building, other arenas and stadium builders turned to the public. Seeing the money the Pistons raked in -- even when the team's record was average -- arenas across the United States, places that had been fine for three generations, suddenly became obsolete.
That, PowerReaders, is market power at work.
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