17 December 2008

Oracle Arena lags behind HP Pavilion

Robert Gammon, who co-wrote the "Fremont Athletics" cover story in the East Bay Express two years ago, just finished a scathing analysis of Oracle Arena. It's been well known for some time that HP Pavilion gets more events, but on the surface it would appear that the two venues are otherwise on par. Gammon dug into an audit showing the ways Oracle Arena underperformed: non-aggressive management by SMG, less promoter-friendly labor terms, and ticket surcharges.
According to the audit, which was requested by the Golden State Warriors and completed last month, Oracle Arena has averaged just 99 events a year over the past three years, including 43 basketball games annually. By contrast, HP Pavilion drew 169 events last year alone, including San Jose Sharks hockey games. According to Pollstar, a concert industry publication, HP Pavilion ranked sixth in the world in 2007 among indoor arenas with 666,587 concert tickets sold. Oracle Arena ranked thirtieth, selling just about half as many tickets — 343,584 — even though it's slightly larger.
70 less events per year? That's astounding. It's not location, as concert promoters don't care where a venue is as long as it's large enough, equipped enough, cheap enough, and populated (market-wise) enough. Worse, those lost events are a drag on the Warriors, whose lease includes $7.4 million in premium seat revenue every year. Compare that to the Sharks/SVS+E, who are projected to pay $4.4 million to San Jose in 2008-09, and that figure is offset in part by the vastly higher number of events staged at the Pavilion. Gammon notes that the W's may be looking to throw SMG out and manage the arena themselves, thereby adopting the Sharks' business model.

The irony here is that Oracle Arena has a more fiscally responsible deal for the public than its Coliseum sibling. It requires more pledged money from its main tenant and a user fee (ticket tax/surcharge). Frustratingly, the annual debt was not being serviced properly thanks to the W's not paying their share initially and the lack of a naming rights sponsor until a couple of years ago. The Coliseum Authority chose to chip away at the debt by letting SMG manage the Arena (and the stadium as well), yet they waited several years until Oracle came along in search of what they felt would be the most lucrative naming rights deal.

Contrast that with HP Pavilion, which was roundly criticized at its inception for a sweetheart deal given to the Sharks and arena management by the City of San Jose. Original Sharks owner (and now minority partner) George Gund put $37 million of his family's money into the design of the then-San Jose Arena to add premium features and to prevent it from turning into a white elephant such as Miami Arena. The Sharks got the lion's share of revenues from the arena and took care of all of the costs. The arena management firm later became SVS+E, which was spurred on to be very aggressive in seeking out concerts and other events. The cost of doing business there became significantly reduced, and the City was not saddled with massive annual subsidies as a result. There's an ongoing joke here that even though the San Jose Arena initiative passed 53% to 47%, you can't find anyone that doesn't support the arena now.

The lesson here appears to be that in order to have a successful public-private partnership, it's best to have a clear vision laid out from the beginning that incentivizes the private half to achieve, even overachieve. In San Jose that's exactly what occurred, and both public and private halves are all the better for it. In Oakland it's been a mess that's taken a decade to become somewhat palatable, yet Oracle Arena is still struggling compared its more efficient rival to the south.


LeAndre said...

glad you brought this up ML, because now I get to ask this question thats been swimming in my head for some time now...if Oakland would have just built a brand spanking new arena downtown instead of renovating in 96, would the HP Pavilion outsell Oakland? and better yet, would the A's even be moving? considering if there was a new arena DT, the Oracle would get demolished leaving space for another stadium...

I know this is all woulda, coulda...but i find all this fascinating, all of the mistakes and missteps Oakland has been making, SJ just seems to be rebounding from it...and as an Oaklander myself, i also find it insanely frustrating...Oakland saw the potential of the HP Pavilion in 93, and instead of just establishing a brand new arena, they once again took the quick fix route, and basically recycled the same old arena they've had since 1968...

But to be fair ML, the HP does have two teams who play in the same arena, VS Oracles one, and the Oracle has contractual agreements with the Raiders/A's were the Oracle isn't allowed to host certain events, the HP obviously doesn't have to worry about that

Marine Layer said...

There's a lot of conjecture in what you're saying LeAndre. I honestly don't know if it would've helped. There's nothing technically wrong with Oracle Arena. Neither arena is measurably superior to the other. In Oakland there still would've been a less competitive labor situation, and somehow I imagine the costs would've been much higher if an arena was build downtown. The W's could've ended up in the same situation regardless. And I doubt that Oakland and the Coliseum Authority could've gone to the well a third time for yet another stadium.

It sounds good but in practice is simply too expensive. BTW, the 2nd team in HP only plays 8 games a year. Not significant.

Jeffrey said...

So, Ken Rosenthal says free agents don't want to come to Oakland because of substandard work conditions. Hmmmm....

Anonymous said...

Multiple reasons:

1. San Jose's seating is much better. With the two levels of suites that Oakland has, that upper deck is much higher and further away from the floor.

2. People from many communities are afraid of going to Oakland. Look at all the new stuff that's gone up in the last few years in Emeryville, a city which may as well be part of North Oakland, when you drive around the older residential parts. But the suburbanites will apparently go to that, because it's not Oakland.

3. Although this affects the Oakland failures and not the SJ successes, part of it is that the concert industry is not what it was in the 70's or 80's. In those years there were many acts that could headline arenas and stadiums. Now, since acts have figured out that you can make more money charging higher ticket prices in smaller venues, and there is just less new music out there, the number of arena headliners has dropped significantly, while the number of stadium headliners has been reduced to just a handful. Plus, in those days it was the Oakland Arena or the Cow Palace. Now you have the HP Pavilion, Shoreline, and an expanded Concord Pavilion, all fighting for acts.

4. The union rates and ticket taxes do hurt. If you're an act that can make an extra hundred grand somewhere else, wouldn't you? Seems like a reduction in the ticket tax, at least in relation to non-Warriors events, could do wonders in attracting more events.

The contractual prohibition with the A's and Raiders is pure crap though. First I went to a Raiders game during an afternoon and then a concert at the Arena that night a couple years ago, so unless that's changed, it's probably only that events can't be scheduled at the same time rather than on the same day. Moreover, you have 16 days during which you can't schedule stuff but you have 70 less events? What about the other 349 days out of the year?

Anonymous said...

Oracle is still THE place to see Disney on Ice, Hannah Montana concerts, or the circus, lol.

Whatever happened to the Cow Palace? When I was a little kid (~20 yrs ago), I remember there used to be a ton of events there. Didn't HP Pavilion just replace the Cow Palace on the tour stop for event promoters?