So Long to the Suite Life

A shift in corporate schmoozing has stadiums ripping out skyboxes. What it means for the business of sports.

It was like watching an era of sports history being erased. In early December, construction workers sawed through the multiple layers of drywall and metal studs separating a row of skyboxes at the Seattle Mariners' Safeco Field. They tore up the suites' beech-hardwood floors and carted away their oriental rugs and leather furniture. By the end of the week, the eight skyboxes were gone.

In a reversal that strikes at a cornerstone of pro-sports finances -- and of the way corporate America entertains -- teams around the country are ripping out luxury suites. These perches have been used to justify billions of dollars in stadium construction over the past two decades. But in many cities, they are losing luster with surprising speed, partly the result of factors that couldn't have predicted five or 10 years ago, from changes in tax laws to scandal-driven reforms on corporate entertaining.

"At GM, you can't even buy them a cup of coffee anymore," says Lin Cummins, the marketing chief at automotive supplier Arvin Meritor in Troy, Mich, which has let the leases expire for its suites in four different sports.

Bank of America cut back on its use of a handful of suites in part because it wasn't getting enough clients to fill the seats. At Pepco, an electric-products company that decided not to renew three of its four suites, the CEO says taking clients on fishing trips is a better -- and more cost-effective -- way to get face time.

The Milwaukee Brewers eliminated five of their 69 suites this off-season to make room for a lower-priced, 9,000-square-foot upscale party area that will be ready for opening day. The Chicago White Sox, one season removed from a World Series title, recently gutted 10 of their 103 suites to build a new press box. Other teams are hoping they can hold onto some of their suite customers by showering them with perks ranging from cooking classes to free suite renovations. The Detroit Pistons have begun giving some suite holders a $50,000 food credit and a $20,000 credit to buy tickets to concerts and other events held at their arena.

In some big cities, the skyboxes continue to draw consistently -- the Boston Red Sox, for instance, have a waiting list. But the Mariners' experience over the past decade shows why some teams are now having to rethink the suite concept.

When Seattle's Safeco Field was completed in 1999, the $517 million ballpark was a huge draw for a business community that included titans like Microsoft and Boeing. Those companies helped boost the team's revenue by more than $20 million a year by signing multiyear leases in the stadium's 68 suites. The suites, which sell for as much as $200,000 per season, are a key reason why the team went from struggling financially a decade ago to being one of the most profitable teams in Major League Baseball.

By 2003, the suites had become a tougher sell. For one thing, the pool of companies that needed or wanted to entertain 16 people at a time for 81 games was shrinking, according to Bob Aylward, the team's executive vice president of business operations. The Mariners made several moves to try to lift sagging demand. In 2003, the team began offering 10-game packages for some suites that previously had been sold on a 20-game, half- or full-season basis.

Then, late last year, following the lead of teams like the Tigers and Brewers, they knocked down eight of the suites and created a lounge where people could get all the food, drinks and other amenities of a suite but have it included in the price of a ticket. The new All-Star Club is a bit short on intimacy -- with a capacity of 140 people -- but it is $100 to $125 per game versus at least $17,000 for a 10-game suite package. The lounge has the potential to generate well over $1 million annually, which the team says would be a net gain because on a typical night 10 to 14 suites were sitting vacant. "We're smarter now than we were when we planned this facility," says Mr. Aylward.

Even in an era of rocketing television revenue for sports leagues, ticket revenues remain a sizable part of overall revenue, accounting for as much as 65% of overall revenue for some baseball teams. Premium seating, which includes luxury suites and club seats, can make up close to 40% of that.

Prior to the 1990s, sports stadiums and arenas were built mostly with public money and bonds. But in the 1990s, the formula changed, as public money dried up, along with taxpayers' appetite for subsidizing sports teams whose contributions to the local economy were being increasingly questioned. The new model called for sports-team owners to pay some of the cost upfront or back the bonds with specific revenue sources like parking, concessions and tickets.

The emergence of luxury suites and other premium seating gave teams a huge boost in the stadium-financing game. It created a big pot of money -- in the form of longterm leases that companies signed on the suites -- that teams could use to guarantee their bonds or contribute to stadium projects in other ways. Bank of America's decision to cut back on suites got started last summer. The company examined employees' use of the suites to find out how many of the free tickets were actually going to customers. It found that in certain markets, which the bank declines to identify, the suites weren't attracting enough clients to justify a full-season lease. In response, the bank decided to sublease a handful of its 83 suites, and says it is considering doing the same with as many as 15 more of its suites.

Bank of America employees now have to fill out a form detailing the names and affiliations of the clients they are bringing and why those guests deserve a spot in the suite. The tickets, which are kept in a central location, are assigned a client identification number and are sent only after the company grants approval.

For other companies that are cutting back on suites, different factors are in play. One is a 2004 tax provision that requires executives to pay taxes on business expenses (like entertaining clients in a skybox) that aren't a formal part of their compensation. More broadly in the post-Enron, Sarbanes-Oxley landscape, executives are skittish about accepting both in-house freebies and outside gifts that could be construed as a conflict of interest. In Washington, Congress has already been tightening its rules on gifts such as access to skyboxes.

There are other reasons for declining interest in suites. Now that a greater number of companies have them, the perk has become less glamorous and is thus less of a draw. At the same time, more executives believe they can schmooze clients more easily and more effectively -- and at less of a cost -- in other ways.

In the late '90s, almost all of the more than 120 luxury suites at the Cleveland Indians' Jacobs Field were sold. The team says it has fewer than 90 suites leased for this season. The Seattle Supersonics used to lease more than enough of the 48 suites at KeyArena to cover the team and city's debt on the facility. Now only half of the suites are full and the team is deep in the hole and asking for $300 million in public funds to build a new arena.

Teams currently charge anywhere from $50,000 a year for loge-level suites in small-market ballparks like Tampa Bay's Tropicana Field to as much as $450,000 for the suites at the Palace at Auburn Hills. The Red Sox this season will charge as much as $350,000 for their suites at Fenway Park after upgrading them with flat-panel televisions, heated outdoor seats, surround sound and granite countertops.

Some teams are trying new approaches to win over people like Mr. Borkey, from extra perks to new lounges. When the Atlanta Braves had 25 of the 66 suites at Turner Field come up for renewal this year, they made an offer to companies who decided to renew. Companies that signed long-term extensions paid lower automatic annual price increases than other subscribers; the Braves also brought in one of the area's top interior decorators to renovate those suites according to the personal tastes of the occupants. Some teams, like the Braves, are selling suite packages as small as five games, and many others are offering up a growing portion of their suites for single-game rentals. The trend has even spawned a fractional-ownership market similar to what's happened with private jets and luxury vacation rentals. Owner's Pass LLC, a California company that purchases suites from professional teams and sells them as part of entertainment packages, already has over a dozen professional sports teams as suppliers since launching in 2004.

Another tack some teams are taking: replacing their suites with VIP rooms or rebuilding them not in the nosebleed section but below the stadium or arena. These subterranean suites come with courtside or field-level seats, so ticket holders can move back and forth between the lounge and their seats. The Detroit Pistons popularized this trend, and now everyone from the Dallas Cowboys to the New Jersey Devils have similar plans in the works.

Jack Borkey Sr., the CEO of Cleveland's Pepco, says he won't miss his suites much. His suite for Cleveland Browns games cost $600 per person per game, which comes to about $10,000 per game. "You're not really getting your money's worth and you get the same thing done," he says. "Plus, the team stinks."

Posted:
21/03/08
image description