The $1266 comes from the article above and thanks for the link showing cost data and revenue expectations. It looks like the luxury part of the project cost is $75 million; this money will pay for luxury boxes ($6-8 Million/year revenue) and box seats/chair backs ($9-10 Million/year revenue). The depreciation on $75 Million is about $3 Million/year. The interest is $75 Million * 4% = $3 Million/year. The loss of 4300 bleachers is $5 Million/year. This means the net revenue is (roughly) (7+9-5-3-3) = $5 Million/year. Now the discount rate should be about 9% since this is what the University’s endowment fund returns per year over the long run (the $75 Million could have been given to the endowment fund instead). It is also the case that the $8 Million a year should increase by about 3% per year due to inflation. So, the NPV (Net Present Value) of the $8 Million/year cash flow is about $5 Million/(9%-3%) = $83 Million. This is about 37% of the cost of the improvements (Bacon implies the luxury seating will pay 100% of the improvements.) Notice also that the luxury boxes only generate about $1 Million (7-3-3) of the $5 Million in annual revenue; however, these same boxes must count for most of the $75 Million incremental increase in cost (the link does not say what percent of the $75 Million pays for the luxury boxes). The bottom line is that the box seats probably offset the project cost but the luxury boxes are a huge negative and prevent future increases in seating capacity. Over-all, the luxury boxes barely pay for themselves and represent a move away from a more egalitarian experience.

If the fans like the improvements brought about by the other $150 Million in improvements, the University may be able to raise ticket prices to pay for them. Otherwise, this $150 Million expended for the stadium improvements could have been used to fund the University’s endowment and will therefor represent a net loss.

As I have eluded to earlier, I believe the 83 luxury suits are an attempt to improve the University’s ability to wine-and-dine VIP’s; who it is hoped, will donate generously to the U.

I’m not sure I follow. How do you come to $1,266 per season ticket? That’s almost $200.00 a game in a 7 game home season. Maybe some seats cost that much with a seat license but most tickets are about $60 a game, or $420-480 a season? On this topic, here’s an interesting exchange between the dean of Michigan bloggers, Mgoblog, and an opponent of the boxes. Link to Mgoblog

As I read the above, proponents are saying that the total amount of borrowing is $140 million, not $220 million, and that the interest rate is 4 percent, not 6. They also expect to generate $15-16 million from combined club and luxury box sales.

Just as matter of common sense, I can’t believe that the athlectic department would propose something that, if fully sold, wouldn’t cash flow. Now, if the boxes and club seats don’t sell that’s a whole ‘nother issue but from I’ve heard they are selling.

Check out, “http://www.savethebighouse.com/index.html”,
“Why won’t U-M comply with the ADA? Because the required wheelchair seats would cut into bleacher seat revenue that the Athletic Department is depending on to subsidize 83 luxury boxes, which don’t bring in enough revenue to pay for themselves. In essence, President Coleman and a majority of the Regents have taken the position that it’s more important to subsidize luxury boxes than it is to guarantee equal access to the stadium for all Michigan fans, in compliance with the ADA. We continue to urge U-M to change course and upgrade the stadium equally, for all fans.

President Coleman’s Luxury Box Plan is wrong for Michigan. It would:

* Cost at least $354.7 million, including debt service
* Subsidize luxury boxes with bleacher revenue
* Deny equal access for M fans in wheelchairs
* Restrict major expansion beyond 108,000
* Slash bleacher capacity by 4,300″

The opportunity cost of losing 4300 bleacher seats is 1266*4300 = $5.44 Million/year. The 83 luxury boxes will need to generate ($110 Million * 6% + $5.44 Million) / 83 boxes = $145,000 per box per year in revenue just to pay for the interest on the construction loans and opportunity cost.

So why the rush to build this financial turkey? I think Chief Justice of the US Supreme Court, Judge Roberts’ visit to Ann Arbor explains it. UofM wants luxury boxes to wine and dine VIP’s; screw everyone else!

I just finished touring the renovations earlier today and am very pleasantly surprised by what they are doing. I was skeptical before, but the design and execution is great. I’m a strong supporter of the project.