Column: Big House Luxury Boxes?
John U. Bacon
At the dedication game of Michigan’s new 84,401-seat stadium in 1927, the Wolverines sent new rival Ohio State home with a 21-0 thumping. In that informal era, it was perfectly natural for athletic director Fielding Yost to walk back to campus with the game’s star, Bennie Oosterbaan.
“Mr. Yost was feeling pretty good,” Oosterbaan told author Al Slote. “We’d won, and the stadium was completely filled. He turned to me and said, ‘Bennie, do you know what the best thing about that new stadium is? Eighty-five thousand people paid five dollars apiece for their seats – and Bennie, they had to leave the seats there!‘”
While no one can be certain what Yost would think of the luxury boxes that are going up right now (and no matter what the university is calling them, that’s clearly what they are), the record suggests he would approve it – and for the very reasons he pushed to build the Big House in the first place.
As Michigan’s athletic director from 1921 to 1941, Fielding Yost worked tirelessly to elevate the profile of Michigan athletics – and along with it, his own. When someone asked famed sportswriter Ring Lardner if he ever talked to Mr. Yost, Lardner replied, “No, my mother taught me never to interrupt.”
Given Yost’s massive ego, it’s no surprise he was obsessed with massive stadiums. It galled him that Ohio State, Illinois, and other rivals built theirs before Michigan got around to it. After years of lobbying, Yost finally overcame the objections of the faculty, the students, The Michigan Daily and the regents – who twice vetoed the plan before passing it – to build his Big House.
Michigan Stadium originally boasted a permanent capacity of 72,000 – including hundreds of pricier box seats – plus 12,401 temporary bleachers. All this, to serve a city of just 35,000 people. It’s hard to argue Yost was anything but a dyed-in-the-wool capitalist who fully intended to maximize the profitability of his football team.
Yost also installed footings for a balcony of some 70,000 seats – which strikes me as a pretty clear invitation to future generations that Michigan Stadium was not to be regarded as a sacred mausoleum, but an organic building designed to meet the changing needs of the athletic department and its fans. As proof, Michigan Stadium has undergone 21 major renovations, expansions and improvements, starting in the building’s second year, when Yost added 13,753 permanent seats.
The Big House helped pay for Yost Field House, the baseball stadium, and – for all students – the golf course, the Intramural Building and the Waterman Gym, arguably the best women’s facility of its time.
Fielding Yost invented the linebacker, the no-huddle offense, and the quick kick. But his most important innovation, by far, was the financially self-sufficient athletic department – a tradition worth protecting.
While it’s undeniably true that the arms race in college sports – for bigger and better practice facilities, weight rooms, arenas and coaches’ salaries – seems almost completely out of control, it’s an arms race that seems impossible to stop unilaterally.
When Michigan opens its luxury boxes in the fall of 2010, the only Big Ten schools without them will be Indiana and Northwestern – hardly Michigan’s football peers. Michigan’s proposed luxury boxes won’t require anything from the university’s general fund nor its students, which is how most schools’ pay for a healthy portion of their athletic departments’ budgets.
The luxury boxes will help fund 25 varsity teams – 13 of them women’s – all but three of which cost millions every year. And, it must be said, they are infinitely more tasteful than the abomination that was the “Maize Halo” a decade ago.
The luxury boxes will also keep ticket prices down for the average fan. In the early ’70s, the average tickets cost $120 per season. Those exact same seats now cost $1,266, an increase of over 1,000-percent. The luxury boxes will serve as a progressive tax on the wealthiest Michigan boosters, effectively subsidizing both non-revenue sports and tickets for the average fan – the very traditions Yost established in 1927.
The athletic department needs more money to fund its teams, and if I have to make a choice between extracting more from starving students or corporate fat cats, I’ll take the fat cats, every time.
And the best part is, when the game is over, they’ll have to leave the luxury boxes there.
About the author: John U. Bacon lives in Ann Arbor and has written for Time, the New York Times, and ESPN Magazine, among others. His most recent book is “Bo’s Lasting Lessons,” a New York Times and Wall Street Journal business bestseller. Bacon teaches at Miami of Ohio, Northwestern’s Medill School of Journalism, and the University of Michigan, where the students awarded him the Golden Apple Award for 2009. This commentary originally aired on Michigan Radio.
John Bacon demonstrates a lack of understanding of basic economics. The price of a good is exactly what it will fetch, no more, no less. The cheap tickets will not go for anything other than what the market will bare; this is regardless of the money made on luxury boxes. In fact, with the $220 Million price tag on said boxes, look for the flow to be the other way around (the cheap tickets subsidize the luxury boxes.) UofM needs to make about $1.5 Million per game just to pay the interest on the bonds used to build the luxury boxes; so, I would not hold my breath waiting for all those profits from the luxury boxes to subsidize the cheap seats!
CHUCKL,
You are giving the cost of the entire project to the luxury boxes. Factually that is incorrect, about half of the $220 million price tag is for the improvements in the stadium that are being made to benefit all, the new concession areas, the bathrooms, wider aisles and a new press box (ok this probably won’t benefit the average fan, but has been needed for years). This means UofM had two options, spend over 100 million dollars with no new revenue stream, or spend 220 million dollars and and let the bulk if not all of the cost of both the needed improvements and the luxury boxes be paid by businesses and wealthy individuals. In my mind it’s a no brainer, and in my pocketbook I’m hoping the future ticket price increases (which I’m sure will still be coming) will be held in check somewhat.
I strongly agree that U-M didn’t have a choice. They had to upgrade the entire football stadium facility to comply with ADA, updated security and safety concerns and just new expectations. Therefore why not help fund the entire project with a future revenue stream.
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.
Andy,
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!
ChuckL,
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.
John, this is fantastic stuff. It is much needed, given the heartbreaking conflict that erupted among some of our beloved M men. Thank you for applying your substantial talents in such an impressive, and important, manner. I’m sure Bo is very proud of you, up there in Football’s Valhalla. Let’s Go Blue!!
Thanks for the history. I’m not a football fan but it was made clear to me at my first arrival how important the “Big House” is to some members of our community. We blew in on a house-shopping trip from sunny California to a cold November day with fresh snow on the streets. I didn’t have a suitable coat for the cold. Our realty agent (referred from a friend in California) picked us up in the morning and said that he would first give us a tour to get a feeling of the town. He pulled up first to the Michigan Stadium and led us up steps to look out over the sea of seats. (In retrospect, I’m surprised we were able just to go in.) As we stood in the cold wind, he said, “Isn’t it just great?”.
I’d rather work for a world where sports viewing is a shared, egalitarian experience, the way it was in the Big House for the previous 92 years.
Pete Mooney,
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.
There is a typo in my above comment: the $8 Million should be $5 Million.
Whatever the cost, nearly a quarter billion dollars will seem poorly spent if the team doesn’t play a lot better in the next couple of years. I fear the U-M football team has become a lower echelon Big Ten team, something that seems to be tolerated – for now.