Hurricanes watch Pt. 1

Yesterday, I opened the sports section to the News & Observer and found two Chip Alexander stories concerning the Carolina Hurricanes. More to the point, they were both business stories.

I’m not a hockey fan, but I did write about the Hurricanes and PNC Arena in a N&O opinion piece in October. My argument was that with the news that team owner Peter Karmanos has put the team on the market, we should be prepared for a shakedown of local taxpayers. Given the team’s poor performance on and off the ice, it would make sense for a buyer to want to try his or her luck in a different market. The shakedown part comes when said buyer demands arena improvements as a condition of staying put.

The first of today’s stories, which was placed below the fold on the front page, concerned the declining attendance at PNC Arena thus far this season (the Canes are presently 29th in the NHL). I have some detailed thoughts on the story below, but the important takeaway for me is that Hurricanes were unusually generous with financial information in Alexander’s story, as well as telling him some of the reasons season-ticket holders have declined to renew their subscriptions.

Alexander’s second story concerned an announcement by the Centennial Authority, the quasi-public body that owns PNC Arena, that they are drawing up plans for a hoped-for makeover to the facility, which opened in 1999. While it seems unrelated to the story about the Canes’ ticket woes, there’s a long-established playbook for teams that want an improved business environment—either in the form of a new stadium or a new city: pull out the pants pockets and say, “See? I got nothing!”

If and when a buyer for the Canes starts making noise about relocating, the Centennial Authority surely wants to have plans in place for an arena makeover in order to keep its anchor tenant from flying the coop.

At any rate, Centennial seems to be moving quickly to come up with a proposal. From Alexander’s story:

[Centennial president Jeff] Merritt said a construction price for the expansion – and a funding source – still was to be determined. The design firms’ plans will be presented to authority members at the Dec. 4 meeting, Merritt said.

“Right now we haven’t funded anything other than just vision,” Merritt said. “As far as a master-plan phase, we’re months away from that.”

One initial estimate for a north-end expansion was $15 million to $20 million. Merritt said a “ballpark price” for the new concept could be presented to the authority in January.

This story was buried on page 6, seemingly unrelated to Alexander’s page 1 story. I tried giving him and his fellow Canes reporter/columnist Luke DeCock a gentle poke over Twitter but got no response:

Some thoughts on the page 1 story after the jump.

  • Alexander leads off with the most startling statistic, that Canes attendance is down by more than 3,000 a game over last year. However, team president Don Waddell says that ticket revenue is only “down fractionally.” The difference is that fewer tickets are being discounted or given away.
  • Season ticket renewals are at 77 percent. Waddell suggests that 85 percent is more typical across the NHL.
  • Season-ticket sales represent about 75 percent of the Hurricanes revenue.
  • The Hurricanes presently have a ticket sales staff of 11, the smallest in the NHL, but they plan to beef it up to 24. (Alexander doesn’t tell us why the team allowed its sales staff to shrink so, and is scrambling to more than double its size only now.)

The most striking number to me is 8,000. That’s the base of season-ticket holders. Depending on how you look at it, it’s either a small or large number of people who are such hardcore hockey fans that they’ll watch a middling team like the Canes 41 times a season, and will pay four-figure sums up front for that privilege, or punishment.

There’s no good way to estimate how much money that represents, because there are 23 tiers of full-season ticket plans, ranging from $8,041 to be in the “Champions Club Preferred,” down to $559 to peer through binoculars in the “Fan Zone.” (View all 23 pricing tiers here. Warning: Music might start playing.)

But let’s pick a number in between to serve as an average season ticket price: $3,000. Waddell says the season ticket base is about 8,000 (although it’s not clear whether he’s referring to last year or this year), so that works out to $24 million in season ticket revenue. If that’s 75 percent of the team’s ticket revenue, then the total revenue would be $32 million.

But in order to achieve a healthy-looking average attendance—for simplicity’s sake, let’s say 16,000 per game—the Canes have to sell tickets to another 8,000 non-hardcore or not-wealthy fans each game. If season-ticket holders represent 75 percent of the team’s ticket revenue, than the other half of the fans, then, represent one-quarter of the team’s ticket revenue. If 8,000 season-ticket holders generate $24 million, than the other 8,000 who show up each game have to generate only $8 million.

The most efficient way to sell all those other tickets is via group sales. A large company might be willing to buy a block of tickets for its employees, but such sales are much easier to make with a steep discount.

How much could the non-season tickets be discounted? Using the arbitrary scenario outlined above, let’s divide the $8 million generated by the non-season ticket holders by 41 games, and that again by the 8,000 spectators who have procured single-game tickets at any given game. We end up with an average single-game ticket price of $24. That’s cheaper than the cheapest walk-up price of $38, and cheaper than the per-game price of all season tickets but the nosebleed sections on each end of the arena.

There’s nothing new here, of course. This is just the economics of selling seats in a large venue. After the operator has extracted the maximum price from its core customers, the task then is to generate income by discounting the seats the operator can’t sell at the premium price. Once all possible money has been extracted, if it’s deemed important for the house to be full for the sake of appearances, there’s the final option of “papering” it, that is, giving tickets away.

The question remains, why are the Canes suddenly struggling to sell tickets? It’s not as if they just started to suck this season. They’ve been poor for years. In a 30-team league that allows 16 teams into the playoffs, the Canes have not been in the postseason since 2009.

Evidently, some season-ticket holders have been miffed by having to sit next to people who flaunt how little they paid for their tickets—either as part of a group purchase or through a third-party reseller like StubHub. Alexander quotes Doug Warf, marketing VP for the team, as saying that they’ve decided to rein in the discounts. “The key for us is to cut out a lot of promotions that undermine season-ticket value,” he tells Alexander.

As I wrote at the top, I’m not a hockey fan. But I’ll be an interested observer as the Hurricanes lurch onward, and as Centennial proceeds with its ambition to overhaul an arena that is still costing Wake County taxpayers about $8.6 million a year.

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