Sacramento officials are looking at equity seat rights as a way to finance a new Kings arena — but the controversial method is not without risk.
Sacramento officials are talking with Lou Weisbach and his Sports Capital Financing Group about setting up equity seat rights as a way to finance a new Sacramento Kings (NBA) arena.
Under the plan, fans in the more desirable 2,000 or so seats in the new arena would be asked to pay upwards of $100,000 per seat for a 30-year agreement for tickets to every event in the arena. It takes control of the best seats of the house away from the main tenant — in this case, the Kings — and eliminates any resale of tickets to events.
The idea has been floated more than once by Weisbach, who has yet to close on a big deal in the United States. The Chicago Cubs and the Illinois Sports Facilities Commission looked at such a plan in 2008 as a way to renovate Wrigley Field and rejected it. Here's what we wrote in Ballpark Digest in 2008 when Weisbach pitched the Cubs on the plan:
Chicago Cubs owner Sam Zell has rejected the idea of selling Wrigley Field to the Illinois Sports Facilities Authority because the plan relies on a controversial funding method called equity seat rights, a method proposed by Lou Weisbach where fans would purchase the rights to seats and be guaranteed tickets at a set price. Zell and the Cubs legal department have determined the practice would run afoul both of the Internal Revenue Service and MLB revenue-sharing rules. We happened to speak with Weisbach a few weeks ago about his concept, and at this time he hinted he was on the verge of a major deal; this was it, we assume. Basically, a fan would step forward and "buy" a seat in a sporting facility, with the team promising to supply tickets to every event in the facility for the lifetime of the deal. The teams would get their cash up front but be committed to providing tickets at a fixed price for the entire term; there would be no resale rights a la MLB's current deal with StubHub. "The team would be getting a lot more money than they would be at the current time, and the team would have use of the capital at the time," Weisbach said. "It balances ownership between fans and the owners." As a financial tool, it would be a way for a team owning their own ballpark to totally monetize the value of the franchise immediately, he said, although obviously Tribune Co. lawyers found enough problems with the plan to scrap the sale. And, as a practical matter, we're not entirely sure there's enough money in the plan to work. Let's say the Cubs wanted to raise $300 million for renovations by selling equity seat rights to 8,000 seats. That puts a price of $37,500 on each equity seat, and the Cubs would need to provide free tickets to the equity seatholder for the life of the deal (which would probably need to be longer than the 20 years we normally associate with bond issues). With us, Weisbach discussed a 50-year term. So, dividing that $37,500 by 4,050 games — the number of Cubs games expected over a 50-year period — the Cubs would be receiving $9.26 per game up front from equity seat sales of a premium seating area, and that doesn't count any revenues lost at concerts, playoff games and other special events. And, if you're the Cubs owner after the state bought Wrigley Field and sold rights to 8,000 of your best seats, you've walking into a situation where you are looking at some serious revenue deficiencies. No wonder MLB types disliked the plan; the numbers just don't add up.
We hear Kings and NBA officials are not especially keen on giving up so much control of prime seating.
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