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Record revenues, but empty seats . . . a warning sign for the future of sports?

Sports teams are mortgaging their future for the present - and the bill is coming due

(Photo by Streeter Lecka/Getty Images)
(Photo by Streeter Lecka/Getty Images)

There is a fundamental shift coming to sports and the first symptom appeared front and center this past weekend in college football stadiums around the country. For the past 25 years, many major sports teams and leagues have mortgaged their future health for present gains. Declining student attendance at games is the first sign that the proverbial bill is about to come due. The kids aren’t coming to the games in droves anymore, and that simple fact will see billions change hands and new pastimes rise.

A number of terrific articles, led by Darren Rovell’s extensive study last February and Ben Cohen’s recent piece in the Wall Street Journal, establish that student attendance at college football games is down almost eight percent – a fact we discussed on Fox Business. The fallout, however, is not limited to college football. It is the wholesale focus on revenue today versus health tomorrow which will lead to a mass erosion in attendance and revenue over the coming decades as fans drift to the more open arms of new up-and-coming content providers offering access aligned with generational needs.

How to Build a Lifetime Fan

Eliminating the variable we cannot control, team performance, which over a fan’s life will fluctuate for all teams, building a fan is easy. Invest in a fan at every level of their buying power and they will invest in you. An example: When I was a kid, I would catch San Francisco Giants games for $2.50 in decent seats (albeit in a terrible ballpark, yes). The games and coverage were available in the media available at the time, at no extra cost, so it was easy for me to grow up a fan even though my parents didn’t care about baseball. I followed the team, bought merchandise, bought tickets, and matured as a buyer as I grew. Now when I go, I buy more expensive seats, more gear, and bring my family. I watch on TV, buy the out-of-town TV package and the team or league sells the rights to a buyer knowing that I am a loyal fan who they can put in front of their advertisers.

At each point of my financial buying power, there was a product available for me which I found valuable (read: not nosebleed seats) at a price I could afford. It’s a simple formula, if the teams reciprocate.

Looking back now, most of this was by mistake. Teams were underpricing tickets, as StubHub has exposed, in an inefficient market. It meant a family could get great seats right next to a deep pocketed corporation. There were no luxury box seats or club seats and there was a blending of fans of different generations creating an ambiance that looked desirable on TV and in print. This was by accident, as the market hadn’t yet evolved, and it worked to present-day teams’ favor as there is a healthy crop of 30 to 60 year-old fans with big buying power that grew with the teams.

Metrics Driven Growth – A Healthy Future

Any growing business has a finger on the pulse of the core growth equations needed to take and own a market. There are a number of key equations used, which differ by industry, however most of those roll into a select few key performance indicators used to forecast current and future success. Those used today include:

  • How much does it cost to acquire a customer?
  • What is the lifetime value of that customer?
  • What should that customer be paying right now to maintain a maximum value over the lifetime of being a customer?
  • What is our total addressable market and how do we move customers into our pipeline?

First, any business must define the opportunity. How much market is there to address, who are the key competitors, what is the current place in the market (first mover, imitator, incumbent, turnaround), market timing, and future prognosis. Teams and leagues are well aware of their opportunity – through necessity – thanks to numerous financial controls and outside interests.

In a vacuum, the questions are simple: What is my Total Customer Acquisition Cost (TCAC)? Once I acquire them, what is their Lifetime Value (LTV) to my business (a business’ churn rate, or the number of customers who leave, is built into the LTV)? And finally, how much in possible revenue do I have in my raw pipeline (possible customers engaging with the business)? In our example: How much does it cost to gain a fan and how much can we generate from that fan?

Any business will identify customers, add them to the pipeline and maximize what they can make off of that customer over the lifetime of the relationship, and work together to scale the business. Except there’s one problem — it doesn’t work that way in today’s sports world.

The Current State

In sports, it’s all about right now. How much can we get from our customers right this second to show our success? How is this happening? A new exec takes over a team, conference, or league with the goal of increasing the bottom line. Most of these execs will be in this position for a relatively short time period before they leave. They are not incentivized to do anything beyond their employment. So what happens? They mortgage the future for the present, as any shrewd exec would do, looking to squeeze as much money out of the mature fan as possible at the expense of those fans just entering the pipeline.

Why put college kids who can only afford a $50 ticket into some of the best seats when the 50-year-old booster will pay $400 and donate $10,000 to the athletic department? Why not have the game at Noon, where there is more TV money even though we know the students, who are the ambiance of the event, don’t go to Noon games? It’s a simple cash grab which isn’t new in any economy, let alone a capitalist economy. It’s how investors treat distressed companies on their way to pasture, not growing businesses with big opportunities. Most importantly: The students that get the shaft today are the CEO’s of the future. Twenty years from now, they’re not buying $500 tickets nor are they making donations.

People Do What They’re Incentivized To Do

The CEO and his or her charges are not to blame for the environment most are inheriting. As a longtime mentor told me, “people do what they’re incentivized to do.” I know from experience. Prior to Spotlight, I sold tickets and suites at the Los Angeles Dodgers, then Staples Center, and then tickets to companies at StubHub. At each position, and with all staff we see at every team, staff is incentivized to get the most possible right now. Executive compensation plans and sales metrics throughout the organization are built around revenue numbers for the near future, not for the LTV of the customer. Reps’ and execs’ financial and career success is being defined by their ability to talk someone who should be buying ten games into a three-year full season deal, even though that person or company is at high risk of cancelation. Teams and leagues look to maximize how much they can charge for TV rights, how many premium products they can build and sell, and how they can sell multi-year deals to sponsors. These actions are more magnified when the team is winning big.

That same model holds true for entire leagues. Maximize the customers that have already been built and boast about growth numbers.

(Kirby Lee/USA TODAY Sports)
(Kirby Lee/USA TODAY Sports)

The Fallout & Solution

On a macro level, we will see a change in which sports are most popular. In my lifetime, MLB ceded that mantle to the NFL. It will happen again if we continue down this path. We’ll hear pundits give a number of reasons: the game is too slow, concussions, Wi-Fi isn’t good enough, fantasy sports, etc. Many will be valid to an extent. None will be the root cause, however, which is: those running teams and leagues in the recent past have upsold the pipeline dry without enough focus on seeding and nurturing the next generation of fans. Many were the beneficiaries of an immature market which was then exploited without a focus on how to assure those opportunities are available in the future.

There are a number of solutions which can stop the process going forward, though they will take time:

  1. Owners must focus on LTV as much as the bottom line, giving customers access that matches their generational buying power. A large part of that equation is forming loyal fans at youth. This loyalty is what sells TV rights, sponsorships, merchandise, and tickets in the future. A loyal fan is worth exponentially more than a season ticket holder that comes and goes in three years…and it’s not close. There is plenty of room for high-priced corporate deals, however it behooves teams to leave some of that revenue on the table as an investment in the next crop of fans.
  2. Teams must incentivize around LTV. In our college example, students need better seats with athletic departments able to forego that small incremental revenue in the interest of the fan base without penalty. Families need to be able to afford games and be mixed in with the big-time buyers, and not just the Tuesday night early in the season “clash” with the bottom dwellers for $10 that they wouldn’t go to for free. Team staff needs to be incentivized towards these goals and not maximum short-term bottom line.
  3. Content providers must embrace the “average” fan because they create the ambiance being sold to corporations. Doing so will also make the experience more valuable to sponsors and companies. A packed student section on the 50-yard line cheering and bouncing up and down sells. It sells TV, it sells sponsors, and it sells companies that want to be a part of that ambiance expensive luxury suites. The cameras never pan to the booster section of Gen Xers and older sitting calmly between plays. They show the kids with their signs, their organized cheers, and their painted faces.

Historically, companies that are willing to push the envelope without being beholden to past revenue streams succeed. Those that realize the way of doing things now may not work in the future. Think Apple Computer, which now receives less than 20 percent of its revenue from computers. If major sports don’t start focusing on filling the pipeline for the future, while passing on some incremental revenue today, somebody else is going to woo those customers. They will grow with that content provider into their peak buying power and spend with them while the execs that left an empty pipeline and caused the fallout will be long retired with a legacy of “success and growth.”

As for me, every time I happen to be in a city the Giants are playing in, they can count on my attendance. I’m not so sure my kids will feel the same way.

****

Tony is the Co-Founder and CEO of Spotlight Ticket Management. At Spotlight, Tony is responsible for the day-to-day executive management of over 9 million corporate and business owned tickets globally with a value over a billion dollars. Bio

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