The microeconomic behavior of professional sports arenas

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Date

2005

Authors

Lubrano, John Edward, 1968-

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Abstract

A model of a prototypical professional sports arena is developed based on architectural references and blueprints from actual arenas. The pricing policies of NBA/NHL franchises are superimposed on the seating bowl based on detailed ticket price data. This generates new details about how revenues and costs behave under different utilization rates. The revenue behavior of modern arenas is compared to the previous generation of facilities. The return on equity of the upper tier is compared to that of the lower tier and the presence of gentrification effects in newer arenas is tested for. Contrary to popular opinion, luxury amenities in new arenas actually benefit the average fan. The upper tier represents 37%-42% of the construction cost and 35% of the capacity, but only 16%-23% of revenues under the best assumptions. At most, the upper tier has half the return on equity than the lower tier under the most favorable set of assumptions. The gross profit margin for an arena consisting of just a lower tier and luxury suites is higher than the gross profit margin of an arena with two tiers and luxury suites.

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