The PBA coliseum

I read with interest the plan of the Philippine Basketball Association (PBA) to construct its own coliseum. The coliseum is meant to be the permanent home of the league and will feature, we are told, a practice gym, fitness center and merchandising area where teams can market their products.

The plan is interesting because of the inherent complexities of running a coliseum especially in a setting which is not as economically active as major cities in the United States which have basically only one major public assembly facility for sports.

While I am certain that the talented corporate planning offices of PBA member-companies are doing their own studies and/or assisting the PBA’s own in-house planning group in evaluating the various aspects of the projects, a few basic issues have to be highlighted. Although unsolicited, this is my way of helping the PBA think this through.

One very fundamental analysis I am sure that the PBA did (which would be very strange if it were not done) is to compare the total annual rent the PBA pays the Araneta Coliseum and other playing venues and the interest that the PBA will pay on borrowed money to finance the construction of the venue. If the PBA’s cost of money is high, it will probably not make sense to construct the venue. If, on the other hand, the PBA has access to low cost funds, it will be to its best interest to construct the venue. This can only happen if the member teams either lend the PBA low cost money or donate the wherewithal outright to lower the cost of funds.

Newspaper accounts say that the PBA pays P200,000 per play date as rent. If the PBA has 90 out of 120 play dates at the Araneta Coliseum, its annual rental bill is P18 million. If the construction cost of the PBA coliseum is P1 billion (I heard a higher figure of P2 billion) and interest cost is 10 percent per annum, the amounts to compare are the P100 million annual interest cost versus the P18 million annual rent. While the more favorable course of action is rather obvious, the rudimentary analysis assumes the rent and play dates are correct or close to it.

The P1 billion construction cost is a rough estimate that did not consider the seating capacity of the venue and whether it can run other events aside from basketball. That practice gym, which is presumably a separate venue from the main coliseum, could be a costly exercise and raise the bill to more than P1 billion. It must be noted that it cost more than P200 million to renovate the Big Dome in 1998 — and that’s not even starting from scratch, which is what the PBA will do, but upgrading an existing facility which is now enhanced by one of the country’s most modern shopping malls. Expect the Aranetas to further upgrade both the mall and the coliseum in the light of stiff competition being offered in the North Triangle by SM and the Ayalas.

Hosting other events is a crucial factor in the financial viability of a public assembly facility. Other big events like concerts of internationally acclaimed artists take place during the PBA playing season. If the PBA coliseum hosts such events in place of its own games, the very purpose for which the coliseum was erected would be defeated.

Another complicating factor is that the PBA has made a commitment to bring basketball to the grassroots by going to the provinces. I understand that provincial games help strengthen PBA’s financials. If a great number of games are then held in the provinces (sometimes local officials aggressively "request" the PBA to bring the games to the provinces), the purpose for which the PBA constructed its own coliseum would be compromised.

A thorough profitability study of the elimination games has to be done. I am not too sure if the Araneta Coliseum makes money from most of such elimination games, of which there are around 80. What would happen to the PBA if its coliseum is to host all or most of these elimination games? Can the PBA sustain the expenses of running a coliseum which will be "dark" three or four days a week? To protect its bottom line the PBA would have to reduce expenses which could eventually lead to compromises on customer service.

These are some samples of the issues that have to be addressed in studying the matter. Others include the core competence of the PBA which is to run a basketball league. Having one’s own coliseum means having to do a lot of marketing both for the league and for the venue itself. Competence in property development and management will also be required.

The Araneta Coliseum can be considered an anchor tenant of the Araneta Center. What or who would be the proposed PBA’s anchor tenant? The coliseum itself?

The book, "The Business of Sports," co-authored by George Foster (Stanford Business School), Stephen A. Greyser (Harvard Business School) and Bill Walsh (Stanford and NFL Hall of Fame) states that "stadium decision making is affected by who owns the stadium, who manages it and the type of events being run in the coliseum."

The coliseum will be owned by the PBA which has 10 teams. How will this joint ownership affect decision making?

Aside from the gate receipts (which I assure you will never be the main source of revenue of an event), in-coliseum advertising and payments made by the carrying network to the PBA, how does the proposed coliseum propose to enhance revenues? Would there be innovative ticketing strategies and, say, corporate boxes?

The capacity of the proposed coliseum is another interesting sidelight. Stadium capacity has profound effects on revenues and fan experience and the TV viewers.

Given the power of TV, the coliseum becomes, in effect, a studio. Studios enhance the quality of a show. If the coliseum is not TV friendly or not built to accommodate high quality TV coverage, half the battle is lost: sponsors will not be attracted to a show that does not project well on TV because of the shortcomings of the studio, in this case, the coliseum. With no sponsors, no show will survive. The simple rule is you can’t go big time in sports without TV because sponsors want mass audiences. Therefore, as the book "The Business of Sports," further states "fan experience of TV viewers is also a crucial point and ultimately has an impact on revenues."

I don’t want to douse cold water on this project. With all due respect, may I suggest that the PBA continue to study very carefully this noble but complicated enterprise.