Press Box Article

 
Bloomberg.com
Aaron Kuriloff and Curtis Eichelberger
 

Link to Article on Bloomberg.com

August 22, 2008

For Kyle Burks, getting seats to Houston Texans football games required starting a new kind of financial market.

The former Deloitte & Touche LLC accountant wanted a safe, fraud-free way to buy a personal seat license in the secondary market. So Burks started an online trading platform for these rights, which are sold by the Texans and at least 19 other U.S. professional sports teams including the New York Giants and Jets. The licenses, known as PSLs, give the holder the right to buy tickets for the same seat every year.

Burks's revenue from his commission on sales -- 5 percent each charged to the seller and buyer -- has grown from $100,000 in 2006 to as much as $20 million in 2008. As the concept of charging people for the right to buy tickets takes hold, the 25- year-old is targeting teams as his next customers, competing with EBay Inc. and providing a forum for entrepreneurs who trade seat licenses like stocks.

``I took the knowledge of how markets work in the finance world and applied it to the seat license world to create the NYSE Exchange of seat licenses,'' he said. ``Right now, it's a low-overhead business; really just a cash machine.''

Ensuring Sellouts

Burks says his new market doesn't just change the way customers buy sports tickets, it changes the way sports teams make money. Since fans have to buy tickets to keep the seat licenses they purchased, they are more likely to continue coming to games during poor seasons. That helps ensure sellouts and enables teams to pare down marketing efforts.

``The team now has a 60,000-person sales staff,'' said Burks, who founded seasonticketrights.com, a Web site where PSL holders auction their licenses to the highest bidders. ``That's why some teams even during bad years still sell out: because people don't want to walk away from their seat license.''

Max Muhleman, who helped invent seat licenses for the Carolina Panthers in 1993, said they were designed as a funding mechanism for stadiums to help teams pay for construction. The idea has spread to cities including New York, Toronto and London, and events including Wimbledon.

``What we missed is that there would be such a consistent after-market for them,'' he said. ``Some people recover part of their money, and some people recover more than their money.''

Muhleman also said the seat licenses were never intended to be securities, and don't get rated or analyzed the same way.

``It's not a security -- it's a trust that the team passes to a fan,'' he said. ``The great American entrepreneurial spirit has arisen and some have been sold for profit.''

Raiders Plan

They don't always appreciate. The Oakland Raiders sold licenses costing between $250 and $4,000 in 1995 before abandoning the plan in 2006.

Teresa and Pat Smart are among the seat-license traders to profit. Pat owns a roofing company based in Glenolden, Pennsylvania, and Teresa sells antiques near their home in Earleville, Maryland. They started buying and selling seat licenses three years ago, after paying what Teresa describes as ``an outrageous price'' for scalped tickets to the Ravens.

Today, they own about 30 licenses, for the Baltimore Ravens and the Philadelphia Eagles that cost them about $200,000 to purchase.

``It's like buying real estate,'' Teresa said. ``You own property. And just like in real estate, a lot of it is about location, location, location.''

SEC Rules

The Securities and Exchange Commission doesn't allow teams to advertise seat licenses as an investment, Giants owner John Mara said on a conference call. The Super Bowl champions have announced plans to sell seat licenses for $1,000 to $20,000 for the stadium in New Jersey they will share with the Jets when it opens in 2010. The Jets haven't disclosed the prices for their seat licenses.

Mara said the Giants sale would raise about $371 million toward the cost of the $1.6 billion stadium.

Burks said they could get more.

``The Giants are trying to sell 80,000 PSLs -- that is a huge supply,'' he said. ``So in order to sell out, they have to set that price low enough. In the secondary market, the Giants will maybe transfer 3,000 seats a year, and the supply is significantly lower, so the prices will be much higher.''

The Chicago Bears and Pittsburgh Steelers have the most valuable seat licenses in the NFL, Burks said. A Bears seat license at midfield sold for $6,000 initially, and now brings about $35,000.

Cowboys PSLs

The Dallas Cowboys may surpass that number. Owner Jerry Jones said he's charging $150,000 for some licenses for his new $1.1 billion stadium that is set to open next season.

When fans, or people like the Smarts, decide to sell a seat license, Burks's Web site matches them with buyers. Burks has found demand for his services from NFL teams themselves. The Ravens, Bears, Texans and St. Louis Rams have made seasonticketrights.com their exclusive reseller of seat licenses. Burks gets all their business and the teams share his percentage.

``I'm trying to sign exclusive partnerships with all the teams that have seat licenses, and I'm trying to show all the other teams how they can incorporate them,'' he said. ``In my mind, some day every team will have some form of seat license.''

 

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