New Earthquakes

Stadium A Goal Worth Shooting For?

NEW EARTHQUAKES

STADIUM

A Goal Worth Shooting For?

Submitted to: David Alioto Executive VP Earthquakes Soccer September 2010

ABOUT RETHINK 2

Rethink Management Group is a boutique, football-centric, sports and culture consultancy based in San Francisco, California. Our clients include professional football clubs, leagues, national federations and investment groups from across the Americas and the United Kingdom.

We believe strongly in the importance of building lasting sustainable relationships. Our approach is highly collaborative, designed to build organizational capabilities, increase coherence and improve performance, from visioning through to project execution.

Our executive team is well connected within the football industry and can draw upon a global network of contacts and partners to deliver bespoke solutions that provide real and lasting value.

STATEMENT OF LIMITATIONS

The information contained herein is based on estimates, assumptions, and other data provided to the author by the San Jose Earthquakes, MLS or gleaned from other third party Web sites. None of the information provided to us was audited or verified, however, it is assumed for the purposes of this report to be correct.

Additionally the data we received was limited, therefore, Rethink makes no assurance as to the achievability of any projections contained herein. Nor will Rethink be held responsible for updating this presentation for events and circumstances occurring after the presentation’s published date.

First Presented September 2010

© 2010 by Rethink Management Group LLC.

All rights reserved. No part of this document may be reproduced or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without prior written permission of Rethink Management Group LLC.

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INTRODUCTION

Founded in 1993, MLS has grown to 16 teams and recently kicked-off its 16th season.  Vancouver and Portland are set to join the League in 2011, and Montreal will begin play in 2012.    After a challenging beginning, MLS has since been able to establish a strong foothold in the region’s professional sport space. 

One of MLS’s strategic imperatives has been the development of 20,000-30,000 SSS.  This follows a trend pioneered by other North America major sports leagues who began developing single purpose stadia back in the 90s.

The San Jose Earthquakes is one of MLS’s original founding teams.  In September 2009, the club’ announced plans to build a new $60 million scalable SSS.  The proposed facility, provisionally called New Earthquakes Stadium, will have 18,000 permanent seats and be built on 14-acres of land near San Jose International Airport. 

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STADIUM LOCATION

The envisioned stadium will be located 2.5 miles from San Jose’s central business district. The identified site is close to both Interstate 880 and U.S. Route 101 and there is a planned expansion of the BART network to the area, that will further help to ferry people to and from events.  

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PROJECT PURPOSE

It is posited that playing in a SSS helps teams realize important benefits and branding opportunities they might otherwise forgo playing at a university or community owned facility, including: control over scheduling; opportunities to generate ancillary revenue from sponsorship, premium seating and non-soccer events; as well as to capitalize on mix-use development near and around the stadium.

Before committing the significant resources needed to begin construction the Earthquakes engaged Rethink Management Group to determine whether the purported benefits of developing a SSS have translated through to the bottom-line performance of MLS teams and resulted in an uptick in franchise values in the season(s) following the stadium project’s completion.

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MLS TEAMS PRESENTLY PLAYING IN SSS

TEAM STADIUM CAPACITY YEAR

OPENED COST

(MILLIONS) % PUBLIC FUNDING

Chicago Fire Toyota 19,100 2006 70 78

Chivas USA * Home Depot 27,000 2003 150 0

Colorado Rapids Dick’s 18,000 2007 131 50

Columbus Crew Columbus Crew 22,555 1999 28.5 0

FC Dallas Pizza Hut 21,193 2005 80 69

LA Galaxy Home Depot 27,000 2003 150 0

NY Red Bulls Red Bull 25,000 2010 200 50

Philadelphia Union PPl 18,500 2010 110 27

Real Salt Lake Rio Tinto 20,212 2008 110 40

Toronto FC BMO 20,552 2007 72 75

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INTRA-URBAN STADIA TRENDS IN SPORT

A total of 56 new stadiums and arenas opened in the US and Canada between 1995-2009. During the latter half of the 20th century the dominant trend was to develop stadia outside the city center. One of the appealing features of the suburbs was the availability of cheap land for parking. However, major league stadia are used generally for only one relatively infrequent, often seasonal purpose. Furthermore, the sea of surface parking surrounding suburban stadia can impede the organic growth of other amenities, which can lead to localized blight.

More recently, there has been a resurgence in stadiums being built in downtown locations. In addition to being more accessible, locating stadia in urban spaces allows teams to take full advantage of the vibrancy of their city environment. Additionally, corporate suites sales have become vital to a team’s bottom-line. The proximity and convenience of a central downtown location is considered more attractive to a team’s corporate clients and more likely to serve their business interests.

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INTRA-URBAN STADIA TRENDS IN MLS

SUBURBAN Greater than 5 miles

URBAN 1-5 miles

CITY CENTER Less than 1 mile

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INTRA-URBAN STADIA TRENDS MLS

TEAM MILES FROM CITY CENTER

2010 AVG. ATTENDANCE *

ATTENDANCE RANKING

Seattle 1 36,140 1

Real Salt Lake 2 16,276 6

Houston Dynamo 3 16,003 7

SJ Earthquakes 3 9,515 16

Toronto FC 3 20,588 4

DC United 3 14,949 9

Columbus Crew 4 14,028 12

Colorado Rapids 7 15,589 8

NY Red Bulls 12 16,276 5

Chicago Fire 15 14,778 10

Philadelphia Union 15 22,619 2

KC Wizards 16 10,005 15

Chivas USA 16 14,450 11

LA Galaxy 16 20,687 3

NE Revolution 26 11,796 13

FC Dallas 30 11,231 14

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WHEN IS THE HONEYMOON OVER? Evidence from the academic literature indicates a new stadium helps professional sports teams increase their average attendance, especially over the short-term. The dynamic effect of a new stadium on ticket demand and attendance, however, differs in size and duration across the major leagues.  

The “novelty effect” of a new stadium appears to be strongest and most long-lived in MLB, somewhat smaller and less enduring in the NBA and NHL, and relatively weak and ephemeral in the NFL.  

Additionally, the relative boom in North American sporting venue construction appears to have diluted a new stadium’s draw and the decline is felt most severely at multi-purpose stadia located in dull, inert neighborhoods that people tend to avoid, or rarely visit when games are not being played.

OTHER MAJOR LEAGUES - ATTENDANCE 11