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Another Kind of Moneyball

Does Cablevision’s waging such an expensive, messy fight against the Jets’ West Side stadium make good business sense?

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The battle between Mayor Bloomberg and Cablevision CEO James Dolan over the West Side stadium for the Jets has grown nasty, personal, and expensive. According to the latest figures, which run only through October 25, more than $11 million has been spent on ads by both sides, with Cablevision’s accounting for $8.5 million. And the ad war has just escalated since then. But beyond a couple of endlessly repeated cost estimates, numbers on the business impact of the proposal have been scarce. Exactly what are the stakes in this fight?

For the Jets, the stadium deal is a once-in-a-lifetime opportunity not just to acquire a shiny new home at a discount but to nearly double their revenues, triple their profits, and leap past the Giants as the area’s top football team. While it’s not clear yet what the exact configuration of the new stadium will be, there will be plenty of goodies. First, the team would probably be able to sell 200 or so luxury boxes for at least $300,000 each per season, a drastic improvement from Giants Stadium, which has only 119 boxes and which can’t sell its suites at a premium: Many have awful sight lines, and some are stuck in the same tower as the press box.

Second, the Jets would likely score a big naming-rights deal for the new stadium. Currently, as a subtenant at Giants Stadium—and the only major-sport pro team in America that plays in an arena named for another pro franchise—they are blocked from getting any such revenue.

Third, the Jets would be able to cash in on the NFL’s “club seat” craze. In recent years, teams from Washington to Tampa to Denver have used new stadiums or renovations to add thousands of club seats, which include amenities ranging from extra-wide berths to waiter service. Club seats yield dramatically more cash than regular seats; even better, under NFL rules, while teams have to share most gate receipts with the rest of the league, they can keep club-seat dollars for themselves. But in their current abode, the Jets have been almost completely shut out of this bounty: They took in less than $500,000 last year from Giants Stadium’s 142 club seats, according to Forbes. In contrast, the Patriots generated $26 million last year from their roughly 6,000 club seats.

Finally, playing in Manhattan instead of Jersey would allow the Jets to hike plain-vanilla ticket prices. New York is the country’s largest market, but the Jets have just the sixth-highest average ticket price in the NFL—$62.20 last year, according to data from ESPN the Magazine. That figure could roam quite a bit higher before bumping into the Patriots’ league-leading $75.33.

Add it all up, and the West Side would be worth about $120 million a year in extra revenue, according to insiders. Moreover, a sizable chunk of those new dollars would be pure profit for the Jets. The team has pledged to invest $800 million in the new stadium. Analysts expect about $150 million of that to come from the NFL’s G-3 program, which uses revenue-sharing dollars to help subsidize new stadiums. Assuming the Jets float bonds at a 5 percent interest rate to fund the remainder, the team would then have to pay about $55 million a year over the next 30 years to cover its share of the cost of the new stadium. So about half of the Jets’ new revenues would be gobbled up by the team’s new mortgage, but the other half would be spending money. “As the debt gets repaid, $60 million a year will drop to the bottom line, in perpetuity,” says one of the city’s top sports investment bankers. “Now you know why [owner] Woody Johnson wants this deal.”

To put these numbers in perspective, Forbes estimates the Jets had $152 million in revenue last year and an operating income of $26.5 million. Adding $60 million to the former and half that to the latter would catapult the Jets into the financial neighborhood of the Redskins and the Cowboys, the NFL’s richest teams. The Giants are concerned enough about falling behind that they have begun talking with the state of New Jersey about building a new stadium for themselves.

For Cablevision, the situation is more complicated. At first glance, setting up a brand-new, heavily subsidized sports and concert arena three blocks away from Madison Square Garden seems like a terrible prospect for the World’s Most Famous Arena. The new building would give performers a chance to capture stadium-size audiences and still have Manhattan cachet. Bruce Springsteen played ten nights at the Garden last year; Madonna was there for six, Prince three. If stars like these could bring in just as many fans by appearing in a night or two on the West Side, a few would probably say good-bye to the Garden. And even if the Westminster Dog Show did stick with the Garden, the mere presence of a new stadium would cut into MSG’s margins by reducing its leverage over events that come to New York. Assuming the new arena could be reconfigured to hold smaller shows, everything from political parties to Ringling Bros. might try to negotiate better rates from MSG by threatening to go a few blocks farther west. And it wouldn’t be terribly surprising if the new stadium offers deep discounts to attract business. “The city and the Jets will have just built this giant white elephant,” says one cable analyst, “and they’re going to have to keep it full.”

On the other hand, the hard numbers show only a minor threat—when compared with the breadth of Cablevision’s business. Cablevision declines to discuss any aspect of this story, but its SEC filings show that MSG had $772 million in revenue in 2003. That year, the Cablevision-owned Knicks took in $160 million, and their sister franchise, the Rangers, $113 million, according to estimates by Forbes. Further, the MSG Network had $203 million in revenue, and Fox Sports New York, the other regional network Cablevision runs, generated $133 million, according to estimates by Kagan Research.

It’s safe to say that none of these four properties is materially threatened by the new stadium; moving the Jets to the West Side won’t have any significant effect on whether or how they compete with the Knicks or Rangers or those clubs’ TV programming. That leaves $163 million in revenue from MSG’s other operations—the Garden arena and theater, Radio City Music Hall, and the Hartford Civic Center. It is this pile of money that the new stadium could whittle away.

Now the Garden and Radio City stage about 425 events a year. (In 2004, the number was about 370, because of the Republican National Convention and the lack of Rangers games.) Take away the Knicks and Rangers, and that leaves about 345 events in a typical year.

Football stadiums are different. They typically make huge amounts of money from a small number of dates, and often sit dark for much of the year. Even though it’s got a roof—and would thus be usable in February, unlike Giants Stadium—the Jets predict the new West Side stadium will host just seventeen events a year, including at least ten football games and a handful of U2-scale concert acts, plus 35 expositions. And there is reason to believe these numbers are optimistic, as the team would like to maximize estimates of the new economic activity the stadium would generate. The Independent Budget Office, for instance, thinks the new stadium will bring in only twenty expos a year. It is also the IBO’s opinion that about 70 percent of the stadium’s expositions would probably come from outside the city, which means the new arena is slated to cannibalize fewer than a dozen expos and about half a dozen big concerts from other venues.

So suppose the new stadium swipes fifteen shows from the Garden annually. Even if each of those events knocks out three nights at the Garden or Radio City, and even if they slightly depress MSG’s overall leasing rates, the combined impact would probably be no more than 20 percent of the Garden’s non-sports revenue.

Twenty percent of that $163 million is about $35 million a year. Considering that Cablevision’s overall revenues will be just under $5 billion, how much of the CEO’s time should the stadium issue consume? These are just estimates, and nobody can say with certainty that a future stadium will have only a negligible impact on Cablevision. But the Wall Street analysts who spend their time valuing the worth of Cablevision’s business just don’t see the West Side plan as a threat to the company’s core concerns. Richard Greenfield of Fulcrum Global Partners says that for Cablevision shareholders, the Garden’s troubles are “very much a rounding error.”

So if it’s not a wad of cash, what, then, is sticking in Jim Dolan’s craw about the West Side stadium? For one thing, he’s annoyed that the Jets, who abandoned the city in 1983, are set to receive a bigger subsidy than he gets. He also dislikes being the target of the attacks Mayor Bloomberg delivers with such glee.

There’s another possibility: Cablevision itself might be eyeing the Hudson Yards. The company does not acknowledge this, but buying the rail yards for its own sports arena would make sense. “We know they want to move the Garden—they’re not happy with its footprint,” says one investment banker. “We know the land above Penn Station is worth a fortune in terms of office development. And think about it: A building with as many dates as the Garden would be tremendously profitable on the West Side, and actually would be a catalyst for economic development, unlike a football stadium.”

But a Garden-size arena on the West Side isn’t something the Bloomberg administration has ever given much thought to—the mayor and Deputy Mayor Dan Doctoroff have fixated on a large stadium in their quest to bring the 2012 Olympics to the city. Meanwhile, Dolan and Cablevision seem to be looking at the stadium battle as a sporting event—in the sense that what matters is not so much money as winning. As the Knicks struggle to play .500 ball despite a gigantic payroll and the hapless Rangers sit idle because of the hockey lockout, it may well be that Dolan is simply tired of losing.


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