San Francisco Giants

Pricing and Revenue in Sports: San Francisco Giants Context It wasn’t too long ago that the baseball world considered the San Francisco Giants a dynasty. Winning three World Series championships in five years will award any team that consideration. During that time, the Giants never benefitted from regular season dominance and rarely did they receive national media attention. Instead, they made due with timely hitting and ace pitching; squeezing out close wins when they needed it most. This led fans to lovingly coin the phrase “Giants baseball, Its Torture.” a small example of how that era of Giants baseball was able to capture the hearts of the San Francisco Bay Area. With their lovable band of overachievers, they played with passion and grit, and the fans obsession grew with each championship. The San Francisco Bay Area sports market is loyal and proud and has enjoyed considerable success in the last decade. At times, the market appears divided between San Francisco, the Peninsula and the Greater South Bay, and Oakland and the Greater East Bay. This fragmentation is especially pronounced for fans of baseball or football, two sports in which both areas have designated teams. San Francisco teams have enjoyed the innate prestige and marketing capabilities of representing a bigger name city and have benefitted from newer stadiums with superior locations. The Giants’ interleague rivals across the Bay Bridge, in the Oakland A’s, operated in a smaller, niche market segment that rarely takes from the Giants’ share. In football, both areas have a long tradition of rabid fan bases for the San Francisco 49ers and the Oakland Raiders. Football’s dominance over the entire sports landscape lends the 49ers and the Raiders an advantage in the crowded market. During the Giants playoff success, the 49ers made a Super Bowl appearance of their own, furthering their dominance in the market of sports landscape. However, most recently, the two areas have united around one sport and one team in the Golden State Warriors. Just as the Giants’ dynasty was reaching its end in 2014-2015, the Golden State Warriors were beginning theirs. Since then, the Warriors have made the NBA Finals five years running, winning three championships. In this time, they have taken over the sports landscape’s attention and have emerged as the dominant force in the market. Winning multiple championships over a short span of time certainly helped to further the presence of the Giants in the crowded San Francisco Bay Area sports market, but that presence is beginning to fade. Although the Giants’ line up still features some of those beloved players from the championship years, the team has not produced nearly the same amount of success. On April 8th, 2019 the Giants announced that a crowd of 28,625 was in attendance for cold, Monday night game against the San Diego Padres. This marked the first time the Giants had drawn under 30,000 people since May 2010, two days before they had called up top prospect, Buster Posey (Witrado, 2019). Signs of a decline in attendance have been seen in the past couple of seasons. The team’s consecutive sellout streak ended at 530 games back in July 2017, which had set a National League record. More recently, the team announced it had gone from approximately 30,000 season ticket holders to around 26,000 for the 2019 season. This could be in part due to the declining on-field performance as the team lost 89 games in 2018 and 98 games in 2017. To further illustrate this recent decline in attendance, it was found that the Giants are currently operating with the lowest year over year home attendance difference in Major League Baseball (Figure 1). Figure 1 (Lindholm, 2019) Fortunately, there is some hope for the Giants, as they remain among the top 10 teams in average attendance with 32,527 (Figure 2). Albeit, the average is drastically lower from the ballpark’s peak attendance numbers in 2011, when it average 41,819 fans per game (Reuter, 2019). Overall, reaching venue capacity is a fairly new issue for the Giants that has come as a result of consecutive losing seasons and failure to improve the roster. Figure 2 (Lindholm, 2019) Revenue Sources The Giants’ revenue was reported to have reached $462 million in 2018, rising from its previous year by more than $15 million (Figure 3). In April 2019, Forbes found the Giants to be the fifth most valuable team in Major League Baseball, valued at $3 billion (Forbes, 2019). Reaching such profitability and valuation takes a robust mix of revenue streams that the team must deploy appropriately. Components of the Giants’ revenue mix including gate receipts, broadcast rights, revenue sharing, suites and stadium naming rights were examined to determine the effectiveness of their deployment. Figure 3 (Gough, 2019) Gate Receipts: Gate receipts account for the total dollar amount from tickets scanned at the entrance of the stadium throughout a particular season. This measure makes an important distinction from the revenue generated from total number of tickets sold by only summing those ticket prices used for entry into the ballpark. From 2009 to 2014 the Giants’ gate receipts totals more than doubled as their popularity grew with their on-field success. As the popularity and demand for Giants’ tickets grew after their three championships, the average price per ticket increased as well, which can be observed in the gate receipts from 2014 – 2017 (Gough, 2019). Gate receipt totals continued to rise until this past year, when the team’s average attendance began to fall (Figure 4). Figure 4 (Gough, 2019) Gate receipts are a crucial component for any team’s ability to generate revenue and can lead to more spending in the ballpark. This economic activity taking place in the ballpark is a particularly significant measure for the Giants, who have shown to generate the most revenue per fan in Major League Baseball at $183 (Figure 5). Revenue per fan is calculated by summing all revenue generated from the ballpark including tickets, merchandise, parking, food, and media over the amount of fans attending the game (Murphy, 2019). There is a positive relationship between gate receipts and revenue per fan as more tickets are scanned at the gate, the more opportunity for spending in the ballpark to occur. The Giants success in turning gate receipts into further revenue generation helps to validate the importance of returning their gate receipt numbers to positive growth. Figure 5 (Ozanian, 2019) Broadcast Rights: Broadcast rights deals often times account for the biggest portion of a team’s total revenue. In baseball, teams tend to negotiate rights with regional sports networks (RSN) for the rights to broadcast their games. In 2008, the Giants signed at 25-year deal with Comcast Sports Net in which the Giants receive a portion of the RSN’s total revenue for each year of the deal. It is estimated that the deal includes a $70 million annual rights fee and a 30% stake in the RSN (Shea, 2014). The Giants also own stake in the teams’s radio partner, KNBR, and another cable network, NBC Sports Bay Area. These ownership shares are important when it comes to revenue sharing, as the earnings are likely shielded from being distributed across the league. Meaning the revenue generated for the Giants by having stake in their RSN is revenue they can count on each year to contribute to their revenue mix, assuming the RSN remains profitable. Revenue Sharing: Revenue sharing refers to the reallocation of revenue generated from the economically successful teams to less profitable teams in effort to balance the league’s competition. Revenue is distributed among organizations from various baseball related revenue sources such as local and national TV deals, ballpark revenue, and the recent sell of the league’s media partner (BAMTech) to Disney. Of the Giants’ $3 billion valuation about 20% ($597 million) is attributable to revenue shared among all Major League teams (Figure 6). Compare this to a smaller market team in the Cincinnati Reds, valued at $1.1 billion, where over 46% of their valuation comes from revenue sharing (Forbes, 2019). Although the revenue growth rate for the Giants has been diminishing over the last three seasons, the organization continues to contribute a large portion of its earnings to league’s revenue sharing pot (Figure 7). Figure 6 (Forbes, 2019) Figure 7 (Ozanian, 2019) Suites: Revenue generated from suites is kept in its entirety for the team and avoids being pooled into the league’s revenue sharing. Therefore, it can be very advantageous for a team to sell its suite packages for the season. The Giants benefit from playing in a rich, corporate environment where luxury-sporting experiences are often in high demand. Oracle Park currently has 68 luxury suites that range from $4,000 - $12,000 on the secondary market (Suitehop, 2019). In order to attract new businesses and fans to the ballpark, the Giants are looking into restructuring the way suites are purchased and used. After taking advice from previous suite owners, it was found that standard suite packages were difficult to fill for a full season, leaving suites empty or worse, unsold. The team is now in the process of introducing the “Cloud Club” where companies can invest between $20,000 - $50,000 for a number of credits that grants owners access to a shared all- inclusive, entertainment space (Leuty, 2019). The Cloud Club makes it so companies are no longer locked into a single suite, struggling to find attendees for all 81 home games. Instead, they can pick and choose when to use credits and attend games with clients, ultimately creating a better environment to satisfy all levels of fans.

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