Two months into the Tigers reign at FedExForum, many of the financial facts and figures remain to be seen, but Athletics Director R. C. Johnson says initial ticket sales are as expected.
"From a ticket standpoint, we're right where we thought we'd be," Johnson said.
At such an early stage in the 20-year agreement, that's about the only question that has been answered.
When the men's basketball team vacated The Pyramid, they left a number of potential revenue streams along with it.
According to the Pyramid finance and use agreement, The University of Memphis received 95 percent of the revenue for 23 of the venue's 26 suites at all Tigers home games and a small portion of suite revenue for non-university events. Bill Lofton, associate athletic director of finance, said the agreement equaled 53 percent of all suite revenue at The Pyramid.
In addition, The University also would have received all parking revenue and a majority of advertising revenue, along with 10 percent of all concessions at The Pyramid.
The agreement also stated that the City of Memphis and Shelby County "agree to provide all risk property/casualty insurance or its equivalent for facilities and improvements and to pay all taxes incident thereto."The University avoided fees for television and radio broadcast facilities at The Pyramid as well.
At FedExForum, the list of fees is longer and the list of perks is much shorter. The U of M is responsible for numerous fees, including all insurance costs and rental fees for use of FedExForum broadcast facilities.
The move also means a jump in the Tigers' seat rental payment to the city and county. The cost jumped from 50 cents per seat at The Pyramid to $1.15 at the Forum.
The University also pays a $10,000 per game license fee to Hoops L.D -- the owner of the Memphis Grizzlies NBA franchise.
In addition, Hoops L.D. retains all concessions revenue and various perecentages of parking and merchandise revenue to all Tigers home games.
While the agreement may seem stacked against The University's decision to move, there is one number that is decidedly in their favor. "We felt the best we had ever done at The Pyramid (minus ticket sales) was $525,000. The Grizzlies offered us $800,000 to move there."
According to the FedExForum use agreement, Hoops agrees to make an $800,000 annual payment to The U of M, which Johnson believes offsets the limited number of income sources and any additional fees.
"I don't know if we could have ever reached $800,000 (in non-ticket revenue at The Pyramid)," Johnson said. "What's happening now with us and the Grizzlies (in town), we're still selling tickets but people don't come to the games as much. There are so many games that they pick and choose, whereas before we were kind of the only game in town. Having said that, we felt like there would be a loss of attendance that would hurt concessions, parking (and other streams of revenue)."
According to Lofton, who was close to the FedExForum use agreement negotiations, the annual payment accomplished something else: a steady flow of income from year to year.
"We saw early on (in negotiations) that the best strategy for us was a guaranteed income."
The FedExForum contract also accomplished another University goal: reducing game day costs.
"The last few years in The Pyramid ... it was costing us anywhere from $27,000-$30,000 a game," Lofton said. "So our expenses at The Pyramid were much greater."
Lofton said the $10,000 fee paid to Hoops L.P. is the only cost associated directly with each game.
However, the contract isn't as stable as it might initially appear. The 'guaranteed' annual payment is contingent upon two stipulations. For the Tigers to receive the full amount, they must average 10,000 paid attendance each season. If that number drops below 10,000, the guaranteed payment begins to drop as well -- all the way to zero if Memphis averages below 6,000 paid attendance in any season.
In addition to the attendance clause, beginning in 2014 Memphis basketball must pull in at least $235,000 in annual profit for Hoops L.D. or the annual payment can be reduced to compensate for the lost revenue.
For the length of the contract, the $800,000 payment will not be increased for any reason.
While the profit clause is 10 years away, the attendance clause is already in effect and poses a more immediate threat.
With Memphis winning 20 games every year and consistently pulling in top-ten recruiting classes, it seems likely the Tigers will continue to draw well above that number. But Johnson can envision a scenario where attendance could fall off.
"It could drop. We've got to be honest. People like winners," Johnson said. "If we don't win, that's a factor."
Even during this successful run, The Tigers are selling fewer tickets at FedExForum than last year's team did at The Pyramid.
"We won't sell as many," he said. "I think last year we sold around 14,000 (per game). This year, we'll be a little over 12,000.
"We have (fewer) tickets to sell, but we've raised the prices, so when it's all said and done, (ticket revenue) will be a wash."
At the Forum, these ticket sales become even more important, since almost all of The U of M's game-day income must be generated through sales and advertising.
The Tigers receive considerable advertising revenue in the staging area -- including the playing surface and all other equipment associated with the game. Memphis also receives revenue from the digital advertising board on the lower level.
Aside from the suite agreement and about 80 club box tickets provided to FedEx, The U of M will retain all ticket sale revenue to Tigers basketball games at the Forum.
Hoops L.D. also cashes in on Tigers games with suite revenue. The Grizzlies retain the right to sell tickets to 60 of the Forum's 63 suites. The Tigers receive revenue from two of those suites.
The decision to leave The Pyramid wasn't simply contractual.The University had to weigh other factors as well, including the team's financial success under the Pyramid use agreement.
In their final seasons at The Pyramid, Memphis basketball thrived. According to an Institutional Self-Study report submitted to the NCAA, the men's basketball program generated $6,620,533 in revenue for the 2003 fiscal year. The number represented almost 63 percent of all revenue generated in all sports.
In addition, men's basketball turned a profit of $2.82 million, while the department as a whole endured a deficit of about $1.68 million.Still, Lofton said the Tigers past financial performance may not mirror future results.
"If you look at the history of facilities in Memphis ... we were concerned about The Pyramid staying as nice and fresh a building as it is," he said.
The one that is getting the most use is the one that will get the most improvements."
Lofton and Johnson each mentioned a potential loss of suite revenue if the Tigers stayed. The Grizzlies have a "right of first refusal" clause with the city and county, meaning that concerts and other special events that used to be held in The Pyramid -- and generate revenue for The University -- would likely be hosted by the FedExForum.
"We knew the total sales value of the suites was going to go down," Lofton said. "Even though we had 53 percent, it was going to be 53 percent of a smaller number."
From a purely basketball standpoint, the FedExForum represents an upgrade. Head coach John Calipari consistently boasts of the national exposure FedExForum generates and he calls it "one of the best facilities in college basketball."
Aside from the chance to play in a glittering 18,400-seat arena, the team has its own playing floor and locker room. According to Basketball Sports Information Director Lamar Chance, the Tigers locker room should be completed sometime in January.
The building will also attract more television revenue and vie for post-season tournament bids -- including Conference USA and NCAA tournament games -- that will generate more revenue for Hoops and The University.
The Tigers scheduled as many nationally televised dates as the Grizzlies, despite fewer total games. FedExForum will also host this season's Conference USA tournament, which will generate $2.00 per paid ticket for U of M athletics. Hoops will retain the remainder of the post-season tournament's profits.
The state-of-the-art facility could also help recruiting.
"I thought it really gave John a boost to be able to take recruits and show them FedExForum," Johnson said.
Athletics department officials admit, it's too early to tell whether they made the correct decision.
"None of us has a crystal ball," Lofton said.
"It was going to be a gamble either way."
Some even admit The Pyramid could have made The U of M more money.
"Potentially, if every star had lined up and we'd sold out for every game, we could have made more (at The Pyramid)."
The question of financial feasibility will be answered as the years wear on.
"I think right now, everything is slanted a little because it's so brand new," Johnson said. "A lot of people are going just because it's brand new.
"I think the test will come after the novelty has worn off."
