From the Box Seats, the Recession Looks Beatable

At the U.S. Open Tennis Championship last week, the 67 courtside boxes were all filled, at roughly $2,000 per seat. In Anaheim, Walt Disney Co.’s new Mighty Ducks hockey team has already sold 12,000 season tickets at prices ranging from $720 to $5,800, not including 82 luxury boxes leasing for $69,000 to $99,000 apiece.

In Chicago, a new arena is being built to house the Chicago Bulls basketball team and Blackhawks hockey team. The arena’s initial financing is coming from sales of five-year leases on 100 luxury boxes, starting at $55,000 per season. A similar scheme may be tried in Los Angeles to build a new arena for the Lakers and Kings--complete with luxury accommodations so businesses can entertain clients.

Welcome to the new and expanding world of sports, a major growth industry in an otherwise flat U.S. economy. Sports is growing in both the games people watch and those they play. Golf, for example, continues to increase 4% to 5% a year in games played, creating business opportunities and attracting shrewd investors.

It’s a trend that says a lot about business and society in the ‘90s, a decade that’s not half as austere as it’s sometimes painted. Baseball, basketball, football and hockey are now leading sectors in the entertainment and marketing industry, as the business lunch is replaced by an evening at the arena or an afternoon at the stadium, in the comfort of a well stocked skybox.

That makes sports a tax-deductible growth industry--the new tax law allows a 50% deduction for business entertainment. So even if rising ticket prices put attendance beyond the pocketbooks of most Americans, their taxes still support the games. It’s an industrial policy of sorts, although job potential is questionable. Stanford economics professor Roger Noll observes that a good industrial park would yield 10 times as many jobs as a stadium.

But industrial parks don’t draw sellout crowds and sports events do--increasingly. The scholarly may hear an echo of the Roman poet Juvenal, who criticized fellow citizens for abandoning military rigor to plead for “bread and circuses.”

But the more down-to-earth judgment is that “sporting events are the successors to other forms of entertainment, like the circus and theater,” says Paul Much, a managing director and sports franchise evaluator for Houlihan, Lokey, Howard & Zukin, a Los Angeles-based investment firm. Even rock concerts are having difficulty drawing fans these days.

But sports has become a social event, with tailgate parties and other trappings. Cities dote on teams: Denver and all of Colorado have gone wild for baseball’s Rockies; San Jose’s hockey Sharks sell more souvenir apparel than any other sports team.

Popularity spurs value. Five cities, Baltimore, St. Louis, Charlotte, Memphis and Jacksonville, are competing for a new National Football League franchise--the winner to have the honor of paying $140 million to other League owners. In baseball, the Baltimore Orioles sold this year for $173 million, 33% above the predicted price. The Orioles’ new, taxpayer-financed ballpark, Camden Yards, helped boost the price.

With such rising numbers, the upward march of athletes’ salaries will continue, says Bob Woolf, an attorney who negotiated $15,000 players’ salaries 30 years ago, but now gets $3 million for Raiders rookie, “Rocket” Ismail, who debuts Sunday night against Seattle.

More money is not necessarily bad. Sports has always been an avenue of opportunity for poor kids. Woolf, like other agents, advises athletes to plan their finances for the long life after the career and “to give something back, fund scholarships, teach other youngsters to play the game.”

Meanwhile, as America’s aging population watches more, it seems to play less (although the young are making single-line roller blading the nation’s fastest growing sport).

Tennis playing has leveled off. Golf is the growth game today and should remain so as Baby Boomers age. “The number of golfers has more than doubled since 1970 while the number of courses has grown 30%,” notes Lew Davies of Brentwood Associates, a Los Angeles venture capital firm.

Brentwood, seeing opportunity, has recently purchased six courses in San Diego County and set up Cobblestone Golf Group to buy 24 more golf courses in the next few years. Its idea is to bring professional management to ordinary golf clubs, improve the clubhouse and amenities, raise greens fees and earn a return for investors.

The venture capital crowd is inspired in part by the success of one of the fastest growing U.S. companies, Callaway Golf of Carlsbad, Calif., the inventor of a large-faced, metal driver named Big Bertha that helps hackers get off the tee.

“Success results from effort, not from trends,” says Ely Callaway, 74, who started the golf company at age 62 after a career in textiles--Burlington Industries--and the sale of another entrepreneurial venture, Callaway Vineyards.

Callaway bought a small maker of putters, developed that business and put money into research. The result in 1991 was Big Bertha which has attracted golfers worldwide. President Clinton hits with it; so does former President Bush.

Big Bertha is expensive at $270 and up per driver, but price is not the question, satisfaction is, says Callaway. “A good product brings the customer all of the advantages of the previous product, none or fewer of the disadvantages, and adds something more,” he says.

“People buy for satisfaction. If more American companies remembered that, they wouldn’t be running their business by cutting back and laying people off.”

Callaway Golf has grown to 1,000 employees and a stock market worth of $860 million, which is much more than the highly touted values of the sports teams companies and millionaires are investing in today.

Still, if the owners of the Ducks, Bulls, Sharks and others follow Callaway’s advice on customer satisfaction, their teams will prosper--and their communities may get their tax-money’s worth.