-------------------------------------------------------------------------------- In Uncertain Economy, Jets Are Willing to Take Risk By RICHARD SANDOMIR Published: October 13, 2008 In an economic crisis that is beginning to affect the sports world, the Jets will soon conduct a financial referendum on how dearly their fans value the franchise. Woody Johnson is not selling stock in his 3-2 team, but for eight days starting Sunday, he will auction 2,028 personal seat licenses to the stadium he is building with the Giants. Regardless of the 11 percent leap in the Dow Jones industrial average Monday, this is a risky time to sell expensive licenses, those unlovable fees for the right to buy season tickets that are being used by the Jets and the Giants to help pay their stadium debts. How many fans during this economic meltdown are willing or able to pay the $4,000 to $25,000 the Jets have established for their fixed-price licenses or the price for the 2,028 elite ones to be auctioned online at StubHub.com? ?We fully recognize the risk by letting the market set the price,? said Matt Higgins, the Jets? executive vice president of business operations. ?But people recognize these seats may never come around again, and we sense fans are looking past the crisis.? The pitch is one based on scarcity and capitalizing on the once-in-a-lifetime availability of licenses for the ?best seats in sports? (according to the team?s print ads). ? The team knows that many of its fans? wallets are thinner and their 401(k) accounts are slimmer, if not gone. But still, the message seems to be, make room in your budget for seats behind the Jets? bench that get you free parking and access to a great lounge and a 120-by-15-foot patio close behind Coach Eric Mangini and his men. ?Luxury items like this will be under pressure,? said Raymond D. Sauer, chairman of the economics department at Clemson University and an expert on sports finance. ?I think this is going to test the axiom that sports are recession-proof. I don?t think they are. And this auction will tell you a lot.? Such an auction has never been tried before so it is difficult to predict behavior. Are the thousands of season-ticket holders and others registered ready for bidding wars? Or are they devoted bargain hunters willing to play online chicken in hopes of keeping the top price below $25,000? The auction could, in the end, mimic the squeeze in capital markets where people, instead of banks, lack sufficient liquidity. Sauer said it was possible that the Jets might pull some licenses back for lack of interest, but Higgins said that would not happen. ?We went into this four weeks ago with the economy not in great shape,? he said. ?We went into this with eyes wide open.? The 2,028 licenses will be split into several mini-auctions, some of which will overlap. If fans lose bids in one, they can join others. Only those willing to bid on at least two licenses for floor bids of $5,000 each can play the Jets? P.S.L. game. Eric T. Bradlow ? the K. P. Chao professor of marketing, statistics and education at the University of Pennsylvania?s Wharton school ? said the Jets grasped auction psychology, particularly in setting the $5,000 minimum bid well below the highest fixed price of $25,000 in other prime sections of the stadium. ?The advantage of a low minimum is almost everyone feels they got a good price despite the fact that they might pay a higher price than if it had been a fixed price,? he said. ?People like to gamble, they like to win, they like to compete.? In simultaneous auctions, he added, bidders who lose in one, are often willing to go higher in others. ? If the team fails to get at least $25,000 for each license, Bradlow said, ?They?d have a bunch of satisfied customers, and maybe they?ll spend more in other ways at the stadium.? Still, even if the average price does not exceed $25,000, gross revenues would be $50.7 million ? nice for creating money out of thin air. But the Jets are hoping for a windfall. In promoting their 5- to 15-year payoff plans, the Jets list the annual costs, with interest rates of 6.5 to 8 percent, for licenses costing between $10,000 and $50,000 each. ?Irrational or not, people might feel they will have more disposable income for sports events in 5, 10 or 15 years,? Bradlow said. Irrationality, indeed. Isn?t that the emotion that leads some fans to buy steeply-priced seat licenses (that will also require tickets priced at $700 a game in the Jets and Giants? case)? Or $2,500-a-game tickets at the new Yankee Stadium? ?In times like this, people want something they enjoy or really connect to,? said Leila Dunbar, a former Sotheby?s executive who runs a collectibles appraisal firm. ?There are people who will go without in other areas for sports and entertainment.? E-mail: sportsbiz@nytimes.com __________________
Financing the PSL's- Journal News I ran into Jets business guru Matt Higgins before the Bengals game and we talked a bit about the Jets decision to allow fans to finance their PSLs over the course of 15 years. Imagine you are a Jets season ticket holder. You have been loyal to a team which hasn?t won a Super Bowl since Nixon was impeached. If you have had seats for long enough and they are pretty decent, you are probably annoyed about the whole PSL concept. And in the last few months, your 401K has shrunk by tens of thousands of dollars. Do you really have an extra $10 grand to spend on your coveted seat? Even a team you love? Higgins was talking to a fan, who explained he was having a hard time convincing his family that six PSL seats in the new stadium was the best use of the family budget. Higgins did the math and calculated that each $10K PSL seat would cost a little less than $600 a year over 15 years after the initial down payment of $5,000 or 20 percent. It puts the seats back into a more realistic budget. Since the Jets are doing the financing themselves, they can extend to fans the option of such an unusually long time period to pay off the debt, and a reasonable interest rate of 6.5 or 8 percent. It takes the whole credit meltdown out of the decision-making process. The team takes on more risk in that case because fans may default on the loan in hard economic times, but Higgins said team owner Woody Johnson is confident that the experience in the new stadium will keep fans there. Any season ticket holders out there who feel one way or another about this?
Wow, very interesting article, thank you! Not that I have ANY intention whatsoever of even participating in this auction ($700 seats per game, no thanks), did I read this correctly? The Jets are now letting people finance their PSL's over 15 years??? Or is this just for the Coaches Club seats? If this is true, that we can finance PSL's over 15 years, this completely changes the ballgame for a lot of people. Now if this is true, why have the Jets not made this a bigger deal?? Or have they, and I have not seen it yet? Does anyone else feel less of tightening around their necks if they had this ability to finance over 15 years? Now please don't take this post as advocating PSL's at all...I'm just saying it's going to happen, and this seems the lesser of two evils.
"Sauer said it was possible that the Jets might pull some licenses back for lack of interest." Interesting. A little backpeddling perhaps? Now they want the right to remove the listing if the bidding is weak? This whole thing is completely lame. What a farce.
Sauer is a professor at Clemson...no disrespect to Sec 227, but what sort of insider information does this guy have on the Jets PSL process? This is his humble opinion...I don't think there is any shot the Jets "pull back" any PSL's, especially if they are offering a 15 year financing window.
This is just for the licenses. The tickets could theoretically cost anything, particularly the floor seats. I think people have to be nuts to purchase a license that they don't know that they'll be able to afford to exercize moving forward. The real question is do the Jets have 2,028 fans in Paris Hilton's economic range who come to the stadium regularly? My guess is those fans, if they exist, are Giants season ticket holders.
JETS FO is not doing you any favor with a 6.5% to 8% interest rate! They're making more money on the PSL's that way! And their risk is basically non-existant. In a default they sell the PSL to someone else. It's up to them to state terms but it'll probably be 30 days late and you're a goner. The only way a fan can get good out of this is if the aftermarket prices of the PSL's are higher than the original prices. Starting next year, what is a tickets value at face? It has to be the actual price of the ticket, plus some value of the PSL. If the PSL prices in the aftermarket are higher, then the value of a ticket is correspondingly higher. We can dedicate a book to the economics of this--but the FO has everything going their way and its highly unlikely things won't work out for them.
The beauty of a 15 year sell is when they build the new stadium in 20 years the PSL is worthless and they reset to the new building.
^Exactly--this is why certainly the aftermarket prices will depreciate eventually. It would be a fairer deal if there was some value that carried over to a new stadium.
This is much clearer than the original article. You can pay your PSL all at once, with 0% interest. Or over 5years, with 6.5% interest. Or over 15years, with 8% interest. But your initial deposit has to be a minimum of $5,000, or 20% of the total PSL cost. http://www.newyorkjets.com/blog/posts/732-15-year-pay-plan-for-coaches-club-auction
Excellent points in posts #8 and #9 above by Winstonbiggs and Revis Flytrap. The PSLs are ONLY good in the stadium they are building and evaporate in any subsequent buildings. Therefore, a 15-year payout is completely assinine. Flytrap then offers the correct prognosis that future PSL values will diminish substantially the older the "new" stadium gets. Who will want to give you a profit on the PSL you purchased, knowing it could be worthless in 10 years? The whole thing is a suckers scam which is actually worse than any Ponzi scheme, but slightly more profitable than a "Reverse Mortgage." The only ones "investing" in these PSLs will be losers or complete idiots with lots of money, which are very rare to say the least.
It would also be a fairer deal if the buyer knew (and was guaranteed) what his ticket prices would be up front and for the next 20 years, before he ever bids, so he knows how badly he's going to get screwed. As it stands now, it's an open-ended concept. "Buyer Beware" never rang so true. If you take pleasure in putting your nuts in a ringer, go ahead and bid on this first set of tickets.
^holy shit--I had no idea the ticket prices have yet to be established. For most folks, it seems like it might be a better deal to wait out the first couple years and buy tickets from a broker or on ebay in year 1 and year 2. You can always buy the PSL down the road and as we've spoken about, its highly likely to be less valuable--although it could conceivably go higher in the first few years. Regardless, if you're paying $10,000 for a PSL and spread out that cost over 25 years (say the stadium lasts that long), that averages out to $50 extra dollars over face per ticket (200 home games not counting playoffs). If you think the stadium will last only 20 years, the cost per game is $62.50 over face. Take this $50 or $62.50 and put it towards buying tickets and parking the first and second years and then buy the PSL at a cheaper price. If its still high after year 2, wait until it comes down. It will have to eventually. If that $10,000 PSL depreciates in a straight-line for 25 years, it will be worth $9,200 after two years by losing $400 a year. Like I stated before, the possibilities could fill a book.
