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.