Memorial Stadium premium seat sales see decline in quarterly report

Recent report prompts questions about debt repayment plan for renovation costs

Derek Remsburg/File

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UC Berkeley’s new Memorial Stadium has emerged from retrofit and modernization efforts ready for its first Big Game Saturday and equipped to withstand California’s notorious quakes. But a recently released report indicates that the stadium’s finances might rest on less sound financial foundations.

Plans for the retrofit were put in motion after the UC Board of Regents declared in 2008 that continuing to play football in the stadium would amount to a safety hazard. In order to finance the project, the university borrowed $276 million of the $321 million projected total cost of the project through the sale of bonds. In addition to revenue from ticket sales, philanthropy, naming rights and a yet-to-be-determined sum from PAC-12 broadcasting contracts, the campus is counting on its Endowment Seating Program to pay for about $272 million of that debt.

The seating program was designed so it would raise money parallel to the debt’s 40-year repayment schedule, which stipulates that Cal Athletics must attend to interest payments of around $11.6 million annually for 20 years beginning in the 2012-13 fiscal year. After 20 years, Cal Athletics will begin paying off the principal in addition to the interest. The annual payments are expected to increase once the university issues the remaining $44 million of debt in the spring, according to campus spokesperson Dan Mogulof.

Nestled on the western rim of Memorial Stadium between the 30-yard lines, about 3,000 specialty seats come with price tags ranging from $2,741 a year for 30 years for those located by the midfield to $15,421 a year for 30 years or a one-time upfront fee of $225,000 for plush, padded University Club seats. Participants can elect to pay the upfront fee or to spread their payments over five or 30 years, just enough time for Cal Athletics to service the debt.

At the start of the program, there was positive response from donors, though critics were wary of a slowdown in the rate of incoming pledges since 2011. But now, most recent financial figures may represent the beginning of what critics have long said would result from the university’s $321 million gamble.

A quarterly financial report released in September shows that the number of sold ESP seats in last fiscal year’s fourth quarter between March 31 and June 30 actually decreased by 51, from 62 percent of the final goal in the third quarter to 60 percent in the final quarter.

However, those numbers do not include funding from 71 additional seats that the campus secured after the close of the fiscal year as well as 60 seats that are currently in the process of being finalized.

Empty seats

Since the Cal football team’s first home game in September, UC Berkeley alumnus and season ticket holder Hank Gehman can’t help but notice what he calls the  “shocking” number of the empty luxury seats. He is concerned that ESP sales have dropped off because the pool of potential donors has already been exhausted.

“If you’re going to drop $80,000 for a seat, you want the best seat around, and you’re going to do this as soon as possible,” Gehman said. “It’s not all these people sitting on the fence.”

Roger Noll, a Stanford University professor emeritus who studies the economics of sports, said the ESP prices are “extremely optimistic.”

“The prices were higher than was charged at some much bigger football schools, such as Texas and Michigan, and even high compared to pro teams,” Noll said.

At the University of Michigan Ann Arbor, the most expensive press box seats cost $4,400 annually, and the University of Texas at Austin asks for an annual donation of $5,000 for seats in its Centennial Suite — both far cries from the University Club’s $15,421.

Adding to the uncertainty of the ESP is that participants who have signed on to the ESP may terminate contributions on an annual basis without penalty, according to the donor agreement. UC Berkeley computer science professor Brian Barsky — a longtime critic of the plan — has been vocal about the risk that such an arrangement could pose to the feasibility of the funding model.

“Careful examination of the recently released ESP figures as of June 30, 2012, reveals that donors reneged on millions of dollars of pledges during the fourth quarter of fiscal year 2011-12,” Barsky said. “This demonstrates why it is irresponsible to consider nonbinding pledges to the ESP that span a long 30-year period as if the donors and their heirs were legally obligated to pay them.”

A revised game plan

Still, campus Vice Chancellor for Administration and Finance John Wilton said he remains convinced of the viability of the funding model because it was made to be adaptable to unforeseen circumstances, such as stagnating ESP sales.

“We can’t wake up next year and find out we can’t make the debt payments,” Wilton said. “So it does mean that you can plan for it, and you can take action to avoid it.”

In an effort to steer the ESP back on track, this fall, Cal Athletics transferred the responsibility of seat sales to a newly established professional sales team that aims to increase marketing efforts to corporations. Unlike regular patrons, businesses that participate in the ESP would have to purchase a minimum of six University Club seats at $5,000 per seat per year and would have to commit for at least two years.

The ESP has also recently implemented a “perk” pricing feature that allows current program participants to purchase seats in the ESP section for the price of regular-season tickets.

Campus officials also hoped that as football season began, the experience of being in the new stadium would provide a much needed boost to seat sales. Recovering from a rocky takeoff in the season’s first three games, Cal’s recent triumphs against UCLA and Washington State University also gave fans and administrators a reason to be optimistic.

“There’s no doubt that success of the team has an impact,” said Sandy Barbour, director of athletics. “It’s one of the challenges we have in athletics in terms of our dependence on our revenues is that it can be pretty volatile.”

Barbour said she remains confident that fans who choose to participate in the ESP will commit in the long run without a binding obligation and regardless of how well the team performs on the field. She’s counting on Cal’s most dedicated fans.

“We’re talking about 3,000 of our most loyal, passionate and generous fans,” Barbour said. “They tend to maybe display disappointment at lack of performance in a pretty vocal way, but they don’t walk away.”

Both critics and supporters of the ESP await the completion of an independent evaluation of the financial model by a group of professors from the Haas School of Business. Their analysis will consider the new marketing strategy and other sources of revenue and will be available to the public in “some months,” according to Mogulof.

In the coming weeks, Cal Athletics will release an updated ESP financial report that will include data collected since the start of the season. Until then, the campus community can hope that a good performance on the field against Stanford University on Saturday will result in similar successes in seat sales.

Senior staff writer Jonathan Kuperberg contributed to this report.

Justin Abraham covers academics and administration. Contact him at [email protected].

Clarification(s):
A previous version of this article should have included that the campus secured funding for 71 additional seats after the time period included in the September report. Sixty additional seats are also currently in the process of being finalized.