CHICAGO (Reuters) - Sports fans, take solace. The U.S. economy may be collapsing but the prices of hot dogs, beer and other ballpark concessions are not likely to rise as fast as in the past, if at all.
This is not welcome news, however, for an industry where profits are measured in pennies and where companies are curtailing spending in luxury suites. With declining attendance and softer spending by fans, some executives fear a depression.
“I certainly don’t want to use the D-word here, but these are the types of times we may be facing,” said Jerry Jacobs Jr, executive vice president of hospitality and food-services firm Delaware North Companies.
How concessionaires’ clients -- the sports teams -- hold up in the recession will be critical this year. Sports leagues have long thought themselves recession-proof, but are now seeing a pullback in consumer and corporate spending.
The U.S. sports concession market -- with its $7 beers and $4 hot dogs -- generates about $5 billion to $10 billion in annual revenue, according to industry executives.
“We’re not selling our hot dogs for April yet ... (but) it doesn’t take a rocket scientist to understand there could be some effect here,” said Marc Bruno, president of Aramark’s sports food service business unit, the biggest player in the sector serving about 80 stadiums and arenas across all sports.
Aramark sales grew in the mid-single digits last year in its sports and entertainment sector. Other large players include Centerplate Inc CVP.A, Delaware North, and Compass Group PLC's CPG.L Levy Restaurants. Private equity investors include Goldman Sachs GS.N and Thomas H. Lee Partners.
The National Football League and National Basketball Association, and numerous sports and NASCAR race teams, have cut jobs, while Major League Baseball froze its 2009 budgets. Smaller sports also have been hurt.
EMPTY SEATS = FEWER HOT DOGS?
Leagues also are seeing more empty seats, leading many baseball teams for instance to lower their ticket prices or keep them unchanged. Sports officials are quick to emphasize they have weathered tough times before and concessionaires said per-capita spending by fans has yet to suffer significantly.
The big difference from the Great Depression in the 1930s, however, is a greater reliance on corporate dollars at a time when such clients as General Motors Corp GM.N and FedEx Corp FDX.N are slashing marketing budgets, analysts said.
“The people have to be in the building for the concessionaire to make any money,” said Chris Bigelow, president of Bigelow Companies, a sports industry food-service consultant in Kansas City, Missouri. “I don’t think anything is recession-proof.”
Fans tend to spend once they are at a game and fall sports sold season tickets before the stock markets collapsed, so many analysts and sports executives expect the full impact of the recession will not be felt until this year’s baseball season.
Major League Baseball’s 30 teams are opening spring training camps in Florida and Arizona this weekend, and regular-season games will begin in April.
Concessionaires and the sports teams, which control pricing of food items, are sensitive to the pressures.
"The one thing we can't keep doing is passing our costs along to the consumer," said Ken Young, president of Ovations Food Services. Ovations is a unit of sports and entertainment firm Comcast-Spectacor CMCSA.O.
In addition to lower attendance, concessionaires are dealing with corporate cutbacks that threaten revenue generated in the premium seating areas.
“People are not getting tenderloin, they’re not getting shrimp and they’re saying the dessert cart (can) go by,” said Rick Abramsom, president of Delaware North’s Sportservice unit. DNC has seen suite orders fall 20 to 30 percent in hockey arenas it serves this season.
Concessionaires already watch costs closely as profit margins are thin, analysts and executives said. Teams typically take between 35 and 50 percent of gross sales.
With the recession, concessionaires are looking for more ways to cut costs, including substituting less-costly skirt steak for filet mignon or cutting portion sizes.
At the same time, they are working to keep consumers spending with such offers as $1 menu items, combination meals and all-you-can-eat plans or prepaid food packages.
Despite concerns about the economy, the sector has attracted private equity investors. Goldman Sachs, Thomas H. Lee Partners and several other firms took Aramark private in 2007 in a $6.3 billion deal, while American Capital Ltd ACAS.O owns concessionaire SMG-Savor.
Goldman even doubled down, teaming with the New York Yankees baseball and Dallas Cowboys football teams last fall to form Legends Hospitality Management to handle concessions at the teams’ new stadiums scheduled to open this year.
Profit margins before commission payments by concessionaires range as high as 47 to 50 percent on an earnings before interest, taxes, depreciation and amortization basis, said a private equity executive invested in the sector.
“It’s a great cash flow business and you have a captive audience,” said the executive, who asked not to be identified.
As the sports world has prospered, teams have asked for bigger cuts of the revenue, but industry executives said the recession will likely force lower bids on new deals.
In the end, however, a good winning streak on the field trumps a weak economy, Delaware North’s Jacobs said. “Nothing loosens wallets better than a winning team.”
Reporting by Ben Klayman, editing by Matthew Lewis
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