Thursday, June 04, 2009

Analysis: Cowboys Stadium could generate extra $90 million

By GARY JACOBSON / The Dallas Morning News

Even without a naming-rights deal, the Dallas Cowboys could boost their annual revenue by at least a third – $90 million and probably more – in their new stadium this season, an analysis by The Dallas Morning News shows.

Such a jump, propelled largely by premium-priced club seats and suites, would probably make the Cowboys the top revenue producer in the NFL at more than $360 million and, possibly, the most profitable franchise, too, surpassing the Washington Redskins in both categories. Dallas already is the most valuable franchise.

The poor economy, if it lingers for longer than another year or so, would eventually dull the team's financial performance.

But the novelty effect of what arguably will be the grandest sports facility in the world could benefit owner Jerry Jones over a shorter term, some business experts say.

They expect Cowboys Stadium to be full this season.

"I don't think Jerry Jones is going to be hurting," said Tom Kelly, director of the Baylor Center for Business and Economic Research.

Still, it's clear that uncertainty about the economy is cause for caution at Valley Ranch and in Arlington. The Cowboys aren't talking much about the finances of their billion- dollar baby. The last official update on ticket sales – 85 percent of reserved seats sold – was months ago.

Interviewed at a recent team workout, Jones declined to be specific about new revenue. "We'll be the top revenue team in the league," he said.

After hearing The News' estimate for the team's revenue boost – more than $60 million – just from the club seats and suites, Jones said, "You're conservative, if anything. But that's what you should be."

For this analysis, The News studied the team's previous financial performance, its new seating price structure, the impact of new stadiums on other NFL teams and interviewed sports business experts.

There are four assumptions:

• The Cowboys will be able to attract an average of close to 80,000 for the eight regular-season home games this year, more than the base capacity of 73,000. For a couple of games – particularly the home opener Sept. 20 against the New York Giants – attendance probably will be much higher.

• The Cowboys' split of league-shared revenue will not decline appreciably. In general, professional sports are feeling the economic downturn, but the NFL is the premier league in the nation, and experts expect it to fare better than others.

• There won't be a significant number of defaults among ticket holders who financed their seat license purchases from the team.

• Even in a poor economy, Jones will be able to approach the same rate of gains made by fellow owners Robert Kraft and Jeffrey Lurie after they opened new stadiums earlier this decade. Revenue jumped 39 percent ($53 million) for Kraft's New England Patriots in 2002, and 48 percent ($64 million) for Lurie's Philadelphia Eagles in 2003, according to an analysis of data compiled by Forbes.

No information is available yet for Indianapolis' new stadium, which opened last year.

Premium moneymakers
Much has been made of the expensive personal seat licenses at Cowboys Stadium, costing as much as $150,000 apiece. They are important, but are essentially a financing tool that, over time, pays off the team's portion of the stadium's cost, sports business experts said.

The real revenue magic, year after year, is in the 15,000 club seats that didn't exist at Texas Stadium and in the 300 suites, which can hold an additional 12,000 or so fans. Together, these premium areas make up more than a third of the base capacity at the new stadium and account for more than two-thirds of the team's estimated revenue gains. Suite capacity at Texas Stadium was about 7,500.

At $340 a game, the club seats potentially can generate up to $50 million a year in new ticket revenue, some of it shared with the rest of the league and some of it used to pay off a league loan used during stadium construction.

At minimum, because of revenue sharing, Jones' new club seats should translate into an extra $300,000 a year for each of the other 31 owners in the NFL.

Players also benefit from the new revenue because of the league's labor agreement that gives them a large share. And, as expensive as they are, it appears that the club seats might make money for ticket brokers, too.

Scott Baima of Texas Tickets said that he hopes to sell his seats near the goal line for $1,000 for the Sept. 20 opener and $500 for other games. Seats behind the Cowboys bench are being offered by online brokers for $3,600 and more for the opener.

"I just need them to win," Baima said of the Cowboys.

The new suites cost $100,000 to $500,000 a year on long-term leases, generating more than $80 million in annual revenue, The News estimates. More than 270 of the suites have been leased. The Cowboys share only game ticket revenue ($125 each) related to suites with the rest of the league.

When Jones added a ring of suites to Texas Stadium in 1993, he sold some for $2 million apiece, according to reports in The News at the time. The top-of-the-line suites at the new stadium will generate at least five times that amount over a 20-year lease.

There are 46,000 other reserved seats, with ticket prices ranging from $59 to $125 a game. On average, these prices increased less than 7 percent from last season at Texas Stadium.

Counting full suites, base attendance capacity for Cowboys games will be about 73,000, team spokesman Brett Daniels said. Supplemental seating areas and standing room-only tickets would allow attendance to swell.

Seating for the 2011 Super Bowl will be 93,000, the NFL recently said. With standing room, the new stadium could challenge the Super Bowl record of 103,985 set in 1980 at the Rose Bowl

Growing fortunes
Despite the emphasis on premium seating, Jones said, tens of thousands of fans will be able to attend each game at some of the lowest prices in the league.

NFL teams equally share revenue from the league's rich TV contracts as well as money from league sponsorships and some ticket revenue. Teams do not share revenue generated by local sponsorships, concessions, merchandise and parking.

Less than a third of the Cowboys' estimated increase this season will come from these categories. Wingstop, for example, recently signed a five-year sponsorship deal with the Cowboys.

Gains in food, beverage and merchandise areas could be especially steep if the team averages 80,000 fans, which would be about 25 percent above last year.

Plus, fans in premium seating areas spend much more on food, drinks and merchandise than fans in other areas. More people buying more stuff at higher prices create a powerful force for increased revenue.

A naming-rights deal, when it occurs, would be considered local revenue and would not be shared. Some have speculated that, in a good economy, the value of a Cowboys Stadium deal could approach that of the New York Mets' Citi Field, $20 million a year for 20 years from Citigroup.

The Cowboys are already a league leader in revenue, with $269 million during the 2007 season, according to Forbes. That ranked behind only the Redskins ($327 million) and the Patriots ($282 million). Numbers for 2008 aren't yet available, but based on past performance, the Cowboys' 2008 total was probably in the neighborhood of 2007's.

Other than the Green Bay Packers, NFL teams are privately held and stingy with financial information. Forbes releases its estimates every September, as a new season begins. Some in the NFL dispute the Forbes numbers, but they are considered reasonably accurate by many academics, who use them in their own studies.

Craig Depken, a sports business expert who teaches at the University of North Carolina at Charlotte, used the Forbes data to assess the impact of new stadiums on the profitability of teams.

On average, Depken said, a new stadium means about a $20 million annual boost in operating profit for the first seven years it is open. Not all new revenue goes to the bottom line. There will be new expenses, too, such as for air conditioning during hot August preseason games.

Beyond seven years, the impact diminishes. Depken expects the Cowboys to be above average.

So, what does the stadium mean for Jones' personal fortune, estimated at $1.3 billion by Forbes in March?

Two University of Chicago economists, Kevin Murphy and Robert Topel, said in a paper early this year that the best way to measure total financial returns for an NFL owner is to consider the change in the value of his team as well as its operating income. The study of ownership economics, which found that team values had nearly quadrupled since 1998, was done for the NFL Players Association.

By that measure, Jones already has realized considerable personal gain. According to Forbes, the value of the Cowboys increased by $327 million to $1.5 billion in 2007, the year after ground was broken for the new stadium. That dwarfed increases for the Redskins ($44 million) and the Patriots ($23 million) in the same period.

Last September, Forbes valued the Cowboys at $1.61 billion.

One sure way for Jones to increase team revenue, team value and his personal net worth is to start winning playoff games again.

The Patriots, perennial winners, doubled their annual revenue in the six years after their new stadium opened.