Here is a puzzle: What explains the fact that some businesses sell multi-year uses and others do not - and why do some offer mixed strategies? I am offered multiyear subscriptions to magazines but not to theaters. Perhaps the transaction costs of renewal are substantial, and we find more multiyear arrangements for less expensive goods. In most cases, I'd think the seller would at least offer multiyear deals because buyers might overestimate their own future demand, based on their current preferences. If I love attending the games of my local football team, then the team might try to lock me in by selling multiyears season's tickets or, the right to buy these tickets in the form of a "personal seat license," or PSL, which gives the holder the "right" to buy or rent those seats season after season. Typically that PSL can be sold after a modest holding period and, unsurprisingly, the value of the PSL has often risen, much as taxi medallions can rise in value. The arrangement is puzzling because the PSL/season-ticket-holder is often in the business of reselling some of the tickets, and we would think that the team or stadium is better situated at locating buyers for single games. It is as if an airline sold me seat 12D for every monday morning flight to Dallas, and I needed to resell that seat when I had no use for it. Neither the airline seat nor the stadium seat is much of a "security," as we normally understand that legal term, because the value does not (or at least not much) rise or fall with an uncertain future. It is more like a magazine subscription than it is like a share of Ford. Note that the PSL represents a mixed strategy; the buyer does not pay in advance for five years of games, but rather pays part of the fee upfront and then pays the issuer a substantial amount per game or per season later on. I suppose the PSL might simply be a means of avoiding sticker shock, though that is a weak explanation.
PSLs are normally explained as a means of raising money upfront --and indeed in Europe they are called debentures. If the a footbal team needs $1 Billion for a new stadium, one means of financing is to sells PSLs at the start and, effectively, promise lower ticket prices later on; PSL holders are normally protected with the promise that ticket prices will only rise by 4% or some other cost-of-living kind of increase each year. But this explanation misses the point that seats could be sold in five year blocks, like magazine subscriptions. In any event, lenders would be willing to take future seat receipts as security. It returns us to the puzzle of multiyear sales, and adds the puzzle of why PSLs or medallions in some industries but not in others.
My tax-wise colleague Julie Roin suggests that the seller may plan to allocate the cost of the stadium in a way that assigns some substantial fraction of the cost to the "seats," and then the PSL receipts would mark the begining of the return of this investment, but not yield any taxable income. If so, the PSL approach is clever - though I note that at least one blog reports the NY Giants's owner as saying that half the revenue from PSL sales would go to taxes.
One problem with multiyear sales is that when the scheme is started, current management has revenue that it might be tempted to spend, rather than to save for future years when it must still produce the product (theater production, sporting event, taxicab rides). There are journals that sell life subscriptions, and my understanding is that the revenue is put aside and income is attributed to each year's budget. And of course most durable goods can be bought or rented, and when they are purchased outright, management must be counted on to set resources aside to make good on warranties and other costs associated with future years. Thus, one can rent a car by the day or week, lease it by the month or year, or "buy" it in order to have the right to its ten year or more lifetime. Toyota specializes in the last two markets, and it leaves short-term rentals to others. Similarly, the stadium owner might leave short-term rentals to intermediaries, including the purchaser of a PSL. Except that it does not.
It cannot escape attention, at least on this blog, that universities sell something like PSLs. An admitted student comes close to having the right to buy x four or three years of education, and the school, by convention, limits tuition increases to something close to the cost of living. PSLs can, however, be resold, for the Giants seem happy to have any fans in those seats.