Friday, July 10, 2009

Beware of Rosy Attendance Numbers

Posted By on Fri, Jul 10, 2009 at 4:08 PM

The NBA and the city of Memphis had better learn from the experiences of the car companies and the big banks: you can game the numbers for a while, but the truth will come out and get you in the end.

The Memphis Grizzlies reportedly drew 7,500 fans per game last year, not the inflated and phony "tickets sold and distributed" number that is standard practice in pro and college sports and, unfortunately, too often in the media.

When FedExForum was built, the financing projections were based on average home attendance of 14,900 per game. The "worst case" envisioned was 10,700 per game.

As my colleague Chris Herrington says on his blog Beyond the Arc, the actual attendance, as people who regularly attended games could see, was much less than that.

The revenue streams that pay the debt service on the bonds to build the arena are based on those optimistic attendance projections. The Memphis City Council and Shelby County Commission voted to build the arena based on those projections.

General Motors went bankrupt by ignoring reality and making too many cars that nobody bought and paying too many workers for too long for their health insurance and pensions. The car industry executives and overly optimistic investors pretended not to see the alarming decline in actual sales. The banks and homebuilders did the same thing, relying on junk financing and overly optimistic projections.

As they say in the investments business. past performance is no guarantee of future results.

At least FedExForum and downtown have had — so far, at least — the University of Memphis Tigers to bring in real crowds of 14,900, but the Tiger basketball revenue is distributed differently than NBA revenue.

This is a bad sign for FedExForum and the Grizzlies, but not a surprising one. Padding attendance numbers is the way it's done in sports. The University of Memphis says the football team draws over 24,000 fans a game on average, but actual attendance is about 10,000 less than that.

It's too bad the number had to come out in the national media. The Grizzlies and every other college and professional team that plays in a facility that gets public financing should regularly report actual attendance along with whatever other measurement they want to use. The media and the Public Building Authority should demand it.

What the PBA should do now is bring in the financing experts and Grizzlies owner Michael Heisley and ask what happens if attendance is 3000 less than the "worst case."

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