Executive Summary
- There are $8 Billion worth of luxury suites leased annually in North America. Leaseholders are projected to resell $100 Million of these suites in 2017.
- This ‘secondary market’ for suites is growing rapidly with the rise of online marketplaces solely dedicated to supporting suite leaseholder resale.
- This paper focuses on how teams/venues, suite leaseholders and single-event suite buyers stand to benefit from a larger secondary market:
- Teams: Suite resale is happening in nearly all venues in North America that have suites. Teams can either contest resale or embrace it. This paper argues that by sanctioning suite resale, teams will improve their lease renewal rate, bring in new buyers to the stadium, and gain and additional revenue channel.
- Leaseholders: Suite leases are key to the funding of new stadiums. Many newer venues are pushing the length of suite leases to ten years or more. Leaseholders are increasingly seeking solutions to monetize the events they don’t plan to attend over the course of a lease.
- Buyers: Entertainment in luxury suites has a proven ROI for corporations. Concurrently, increasing levels of spend are being directed towards experiences over possessions. As buyers learn that they can access suites on an event-by-event basis, the overall size of the resale market will continue to grow. Dedicated online marketplaces have been established to allow buyers to purchase the unused suites being offered by sellers.
- There will be an increased level of collaboration between venues and secondary market platforms as venues look to keep their suite leaseholders satisfied and foster incremental revenue streams. While the level of sophistication and liquidity in the resale market for luxury suites is far behind the market for tickets, the suite market is advancing rapidly for the benefit of teams, venues, leaseholders, and buyers.
White Paper: Analysis of the Resale Market for Luxury Suites at Sporting Events and Concerts
Imagine the sales team of a regional insurance company, standing in the parking lot outside Ford Field in Detroit. The Lions are playing the Bears, but the sales team is missing the game. They take $50,000 cash out of a duffel bag and burn it in a nearby trashcan. Why would anyone do such a thing? Actually, this happens more than you think at stadiums around the country. Allow me to explain:
Companies that don’t fully utilize their multi-year luxury suite leases at stadiums and arenas are burning cash just like that poor insurance company. The Association of Luxury Suite Directors estimates that $8 Billion per year is spent on sports on sports and concert suites. InviteManager estimates that 43% of these already leased suites go unused or underutilized. When you do the math, that’s a lot of figurative piles of cash going up in flames in parking lots around the country.
Mirroring the broader rise of the sharing economy, the companies and individuals who own suites are beginning to take action to achieve a better return on their investment, while venues increasingly push for longer and longer terms on their suite lease agreements. It’s a market in want of liquidity, and leaseholders are increasingly seeking-out and finding ways to monetize the suites they can’t use.
Proactive leaseholders have taken to listing their suites on far-ranging sites, including Craigslist and eBay, to offload the games they cannot attend. Those sites, however, do not provide an adequate user experience or protection for buyers or sellers. As a result, sophisticated suite-focused vertical marketplaces, such as Suite Experience Group, have stepped in to fulfill the needs of leaseholders.
Guests socializing in a luxury suite at AT&T Stadium
This paper examines the shifting needs of venues, suite leaseholders, and single-event buyers and predicts how the industry will play out for all the parties involved.
Live sports are a proven business development and marketing tool. Suites are often used for extended face time with clients and prospects in an intimate and exciting environment. As Steph Curry makes electrifying plays on the court, business executives high above on the suite level of Oracle Arena are closing deals of their own.
Businesses understand the value of luxury suites and the cachet that they bring. The most expensive suites on a per-event basis can be found in the NFL, where the typical cost of leasing a suite for an 8 game NFL season is $200,000, or about $25,000 per game (note: pre-season games are included in the leases but hold very little value on the resale market).
The challenge is that the long-term leasing model is vitally important to the teams. The contractual revenue of the suite lease is used to justify bonds issued to build stadiums (Lawrence, Kahler and Contorno, Ohio University). This structure heavily favors teams and venues by locking in suite leaseholders to a multiyear commitment. However, increasingly, suite leaseholders are expecting increased salability of individual events from this large investment, analogous to what they now achieve with other assets (e.g. earning revenue from unused time at a beach home listed on Airbnb). As suite leaseholders pursue resale opportunities, the response from teams and venues has been varied: progressive teams are adjusting their business models to accommodate and support leaseholder resale, while other teams have been slower to respond.
Irrespective of whether a particular team or venue has adopted a sanctioned resale platform, leaseholders can lean on numerous resources that facilitate peer-to-peer sharing of suites, for which owners and renters would otherwise encounter difficulty finding each other.
A secondary market for luxury suites benefits all actors involved: the teams, the suite leaseholders, and the single game/event suite buyers. As evidence of how teams have started to embrace suite resale, many of the nations leading venues have decided to sell a number of suites directly to ticket brokers, including Staples Center, Verizon Center, TD Garden, Wells Fargo Center, Angel Stadium, and AT&T Stadium. Concurrently, professional secondary market suite platforms are beginning to bring order to this previously illiquid and unreliable industry.
How The Secondary Market Helps Leaseholders Avoid Excess Inventory
For leaseholders, the secondary suite market provides flexibility. The nation’s marquee arenas, such as New York’s Madison Square Garden, may host over 200 events per year. Filling suites for these events becomes a full-time job for leaseholders, a job they may not have the time or capability to carry out effectively. When arenas force leaseholders to commit to the events from multiple franchises and non-sports events, the financial commitment rises, while the marginal benefit of each incremental event decreases. Owners who resell their suite for games they can’t attend feel more secure knowing that games they inevitably cannot attend will be monetized.
A vacant suite at the Golden 1 Center
Ticket management software such as TicketOS and InviteManager make it easier for firms to understand the ROI on their tickets and suites. The data shows that small to medium-sized companies and high net-worth individuals are the leaseholders most likely to take advantage of the increased liquidity in the market.
From a buyer perspective, a suite lease agreement is a multi-year commitment that can scare off all but the largest of companies. Indeed, many entities simply don’t need so many events. For example, the organizers of trade shows, conferences and conventions may host only one or two networking events a year, (often in different cities from year-to-year). However, buying a suite for a single game on the secondary market is a less significant investment that is much more appealing to these types of companies who otherwise could not afford a multi-year lease (or for companies that want to spread their event spend across multiple cities). The value here is that these smaller companies now can work on their client relationships the same way the largest businesses do. In addition to being cost efficient, it helps level the playing field where small companies can project a more impressive image, even if it’s just for one night.
The luxury suite market is beneficial for all constituents involved: the team, the leaseholder, and the single event buyer.
How Is Supply And Demand Affecting Suite Prices?
Suite prices are directly correlated with a number of factors, including the strength of the matchup, the day of the week, the location of the suite, and the number of the suites on the market. In general, re-sale is becoming more lucrative due to the fact that supply of suites in new stadiums is actually declining after a multi-decade rise in the number of suites in North America. Following the basic laws of supply and demand, as the number of suites in new and existing venues declines (and demand remains at least constant) the value of any given suite will rise. As owners and city municipalities pool resources to create state-of-the-art stadiums, suites serve as an important staple of the building plans. However, stadium builders are wary of an over saturation of suites that could result in supply far exceeding demand. As a result, there are fewer suites for more prospective owners, driving up the price both on the primary market as well as the secondary market. These suite leases serve as a form of bond for the stadium, as the majority of leases are signed before the inaugural season begins, the money is used to help finance the stadium construction (source: Wall Street Journal).
Here is a breakdown of the number of suites for a number of the most recent stadiums built with a comparison to the number of suites in the prior venue. The new venues, on average, have 23% fewer suites.
Comparison of the number of suites in legacy venues and their new replacement venues
Though there may be fewer physical suites in newer venues, this is counterbalanced by the trend towards the multi-tenant and multi-use venues – there are more and more events being packed into each venue. As expenses continue to rise for building stadiums, team owners try maximizing revenue by booking as many events per year as possible. For example, Madison Square Garden may host a Knicks game on Thursday, the Rangers on Friday, and a Billy Joel concert on Saturday. As this trend grows, many suite owners will be forced to deal with an excess supply of events.
The Sharing Economy Model of Suite Resale
Peer-to-peer sharing is becoming a staple of the economy, as illustrated by the extravagant market value of companies such as Uber and Airbnb. Successful platforms implement sharing by minimizing the marginal cost of new user acquisition (e.g., the headache and expense of identifying a qualified renter of a summer house) compared to the marginal revenue that is brought in.
Oxford defines the sharing economy as “An economic system in which assets or services are shared between private individuals, either free or for a fee, typically by means of the Internet.” This paper will not go in depth about what the sharing economy is, or why it is important. There is already a good deal of writing about the virtues of this business model. Rather, it should be emphasized that the sharing economy model applies to luxury assets, not just normal goods, because it makes them more accessible.
A suite being prepared for an upcoming game at Dodger Stadium
While luxury goods have different characteristics from normal goods, the mechanisms of collaborative consumption still apply to both in the same manner. Luxury suites or villas can be re-sold while still maintaining initial value. One could worry that the stigma of renting as opposed to owning might dissuade potential buyers with high socioeconomic standing. However, the ease and availability of goods on sharing economy platforms counteracts this.
The sharing economy model has been at work in the ticketing business since the early 2000’s, when StubHub created a marketplace for the resale of regular seats. While there was skepticism regarding the viability of these types of companies at their inception, today the secondary market for tickets is an essential aspect of the ticketing landscape.
Compared to a seller of a single event seller on StubHub, a suite leaseholder must be careful when deciding who to sell to- leaseholders don’t want a rowdy bachelor party in their suite damaging items. In response to this concern, sharing platforms of high value assets, such as Airbnb and Suite Experience Group have implemented systems to vet prospective buyers and protect the asset owners from liability and damages.
The liquidity and sophistication of the luxury suite market is currently 10 years behind the ticket market. The suite market is at an inflection point where teams now have a chance to better control and monetize the secondary suite market in a way they were slow to act on in the early days of the ticket market. As the secondary market for suites continues to grow, savvy teams are forging partnerships with secondary market platforms to benefit from transactions that are already taking place.
Teams – The Business Case For Teams And Venues To Embrace Leaseholder Suite Resale
There are four primary reasons why suite resale is good for the teams. First, it allows suite leaseholders (often the team’s best customers) to achieve a better ROI on their lease, and they will be more likely to renew that at the end of the term. Second, new buyers are introduced to suites, establishing a pipeline of future lease prospects. Third, the ambience in the venue improves when suites that would otherwise have sat empty are now bustling with fans. Lastly, resale contributes revenue to teams in the form of increased catering spend, as well as direct revenue from secondary market partners.
A team’s approach to resale should be tailored specifically to the market size and demand level of the team. Low-demand teams should pursue different strategies from high-demand teams. Specifically, high demand teams should partner with secondary players to gain insight into and control over the resale activity occurring by their suite leaseholders. Low demand teams should sell their own inventory by using secondary market as a wholesale channel. Resale is already happening at varying levels at every venue in North America, and teams would be wise to find a strategy to benefit from it rather than ignore it.
Leaseholders – Selling Unused Capacity Maximizes The ROI Of The Suite Lease
The largest beneficiary of suite resale is perhaps the suite leaseholder. Prospective leaseholders are increasingly taking the time to investigate their secondary market options even before they sign a lease. The long-term commitment required becomes less of a concern if they know that they can sell their suite for the events they don’t want. If leaseholders are assured that they will be able to find buyers for these events, then they will be less hesitant to buy the suite initially. In this regard, the secondary market is boosting confidence in the primary market.
Prudent businesses will not leave money on the table if the alternative is just handing out tickets for free to family members or whoever is in the office the latest on a Friday. The money they are saving from the events they don’t attend can now be re-invested into the company.
Buyers – Single Event Usage Of Luxury Suites Introduces Smaller Companies To The Big Leagues of Business Entertainment
One of the inherent benefits of the sharing economy is that more individuals and firms can punch above their weight class. Through buying single game tickets, these firms are in a better position to host more important clients. A college student can use Uber to get to the bar in a new Mercedes. A young couple can rent a luxury villa for a weekend in Hawaii. And while a local insurance company can’t afford a long-term lease at Heinz Stadium to watch the Pittsburgh Steelers, they can still afford to buy a suite for one game. Companies often buy luxury suites on the secondary market to appear as though they are on the same level as larger competitors. This pays dividends in the form of increased legitimacy in the eyes of their clients. Additionally, the amount saved from avoiding a long-term lease can now be redirected to other aspects of the business. Companies like SEG have made it easier than ever before to rent suites for only the desired events.
Suite Experience Group’s Approach To A Win-Win-Win For Teams, Leaseholders, And Buyers
SEG’s business model allows leaseholders list their idle suites on SEG’s platform. SEG facilitates the sale of the suite, and shares the revenue with the leaseholder at a predetermined amount.
The new Mercedes-Benz Stadium
Teams are also listing their excess inventory on the platform as well as introducing their suite owners to the website. Teams who embrace the secondary market have seen increased renewal rates from leaseholders as well as an increased sell through rate on rental suites. The teams are also benefiting by ensuring that more suites are full on game day.
The SEG platform creates an unprecedented level of transparency in the market. Prospective buyers can search for the specific suite they are looking for, tailoring the search based on either event type or venue. Buyers have all the relevant information needed to make a purchase: suite leaseholders offload the time-consuming back-and-forth with buyers. A win-win-win for teams, leaseholders, and buyers.
The Path Forward For The Suite Resale Market
Remember that sales team from the Detroit-based insurance company? They are no longer burning cash outside of Ford Field. Instead, they are attending the games they want to, and earning money from the ones they can’t attend by selling their suite. As buyers learn they can access suites without signing a long-term lease, the total size of the suite market is expanding. This liquidity gives leaseholders the confidence to sing longer-term leases. One of the largest beneficiaries here are the teams and venues, who now find it easier to lock-in long-term leases, while concurrently having fewer suites sitting dark on an event-by-event basis. The secondary market for suites is evolving quickly and, one the whole will be a positive force in the premium seating industry.
Are you a leaseholder looking to resell your suite? Are you a team or venue considering how to partner with the secondary market? For additional information of Suite Experience Group’s services, please contact [email protected] or visit www.suiteexperiencegroup.com
