Of Seven Irons and Spaceports (by Bill White)

Tin Cup is a 1996 movie about a washed up driving range golf pro (Kevin Costner) who attempts to qualify for the US Open. Costner just needs to play nine more holes to qualify when he gets into an argument with his caddy (Cheech Marin) and ends up snapping all of his clubs in half - - except for a seven iron. Being a Hollywood movie, Costner proceeds to shoot par on the back nine using nothing but his seven iron. Later, a somewhat drunk Costner encounters a long time rival (Don Johnson) in a bar and crows about shooting par on the back nine using only a seven iron.

Costner challenges Johnson as to whether "he has ever done that.""No," Johnson admits "and actually it had never occurred to me to even try."

About a week ago we rented Tin Cup at Blockbuster and while watching the movie the foregoing scene reminded me of an extended discussion over at Space Cynics as to whether ticket revenue from suborbital passengers will be sufficient to offset the capital costs of building $225 million spaceports. The Cynic author is of course skeptical.

I honestly do not know whether anyone can fund a suborbital spaceport solely from ticket revenue collected from paying passengers. My gut says "No!" but I could well be wrong. Whatever. But the larger issue the Space Cynics essay raises is similar to the challenge of playing golf using only a seven iron. Maybe you can win with just a seven iron and maybe not, but the question still stands, why even try?

Just as Nevada Bob's offers a wide variety of clubs, spaceports such as the ones to be built in New Mexico, Singapore and Dubai should be able to harness a large number of diverse revenue sources in addition to revenue from paying passengers. To be fair, Space Cynics does mention some of these alternate revenue sources yet only in passing and instead proposes suborbital point-to-point as the one true killer application.

Whatever. Playing golf with only a five iron is hardly superior to playing golf only with a seven iron.

If selling tickets to passengers was the only significant revenue stream available to support a spaceport, then I would agree that using taxpayer money to build  such things is indeed quite dubious. To quote from the Cynic:

So when I see governments and private consortiums working hand in glove to commit hundreds of millions of dollars, all over the world, to build commercial "spaceports" in support of space tourism, I get a bit confused. At the current ticket prices being discussed, it is clear to me that "early adopter" space tourists fall in the high-end of the risk spectrum, and have only the fiscal resources for a once-in-a-lifetime shot at it. There will be no repeat business. The supply of customers at that level are far from infinite, and a quick look at the numbers indicates there may not be high enough a flight rate to justify the construction of a single spaceport at this fragile stage of the game, let alone four - two in the US, and one each in Dubai and Singapore. As near as I can estimate, the initial combined price tags for these facilities will be US$ 705 million, the funding being provided by a combination of governments and a "consortium of investors". Thus far, the actual cash commitments are in the low tens of $ millions, mostly from governments - the "consortium" dollars have been few, to date, although much more is promised by year's end.

To repeat myself, I agree with this:  

"The supply of customers at that level are far from infinite, and a quick look at the numbers indicates there may not be high enough a flight rate to justify the construction of a single spaceport at this fragile stage of the game, let alone four"

IF passenger ticket revenue were the only club in the bag, that is.

However, I submit that New Mexico, Oklahoma, Singapore and Dubai are looking far beyond paying passengers and are looking for spectators to fill these spaceports just as spectators fill sports stadiums and auto racing venues. The Rocket Racing LeagueTM for example is "an aerospace sports and entertainment organization that combines the competition of racing with the excitement of rocketry." In this business model, revenue streams will include spectator admission fees together with $8 beers & $5 hot dogs and the hoped for sale of television rights for broadcasting the races.

As I type this, I am looking at a 50 cent toy car which probably cost 5 cents to manufacture. However, at Wrigley Field my wife paid $10 dollars to buy that car for my son because it has a Cubs logo and he wanted it. And that is capitalism, pure and simple and such things simply are part of life in this 21st century. Spaceports will sell similar trickets and will make far more money doing so than it might appear at first glance. Recall that Star Wars merchandise generated more revenue for George Lucas than box office receipts. (Link - $5.7 billion gross in box office receipts & $9 billion gross for toys and merchandize. Let that sink in.)

Go to Chicago's Navy Pier or any NASCAR race track or even watch the new Disney movie Cars and the market Peter Diamandis is aiming at will smack you in the face. For that market, the paying passenger riding in the back seat of a sub-orbital jalopy is but a tiny portion of the overall business model. Disagree? Take a look at this image linked from the X Prize Cup website. The audience is where the money is.

Space Cynics does recognize this, yet appears to dismiss the concept:

So lets push ahead to Year 15, where there are 15,712 projected passengers generating $786 million in gross revenue at a ticket price of $50k. That still only generates $31.6 million in ticket tax revenue per spaceport, and a flight rate of 18 every ten days at each port. Being forced to wait 15 years for even those numbers, it hardly seems to justify a $225 million investment in a spaceport for its own sake. This is why the current spaceport plans being offered have more of a theme park quality to them, offering a "complete space experience", including parabolic flights, training facilities, full-scale pay-to-play simulators, hotels, etc. (Perhaps they'll add casinos!) The revenues from these sideline operations could actually provide some sort of payback to investors.

Yes! Exactly!

Visualize a spaceport with 12 suborbital jalopies schedule to race from the tarmac to 100 kilometers, being space. Wave the starting flag and the first one to space wins the purse. The entire race is shown on jumbo television screens deployed all around the spaceport with cameras mounted on numerous chase planes and high altitude balloons. Could folks watch at home? Sure. But no one can really see the Indianapolis 500 from the infield and yet thousands still attend that event in person, regardless. Because it is an event.

Yet the Cynic moves on to propose this:

What could be a revenue machine, however, in 15-20 year's time, is directed point-to-point suborbital travel, be it package delivery or high-end business travelers. But presumably another zero is going to have to be dropped from the price to make such passenger travel popular enough to demand high flight rates in and out of busy spaceports. Private investor consortia in such facilities are going to have to wait a long time for their returns, unless the theme park model becomes sufficiently successful to drive profits on its own, in which case they stick the host governments with the tab for the annual operations shortfall. But those governments may pony up, just to enjoy the "prestige value" of having a spaceport.

Perhaps, but why either / or ?

Suborbital passengers (by themselves) may or may not provide sufficient revenue to fund a revolution in space travel. Point to point (by itself) may or may not provide sufficient revenue to fund a revolution in space travel (color me skeptical on point-to-point as a killer app in the age of e-mails, rapid prototype machines and virtual reality teleconference capability but I would be pleased to be wrong). Tourists watching drag races to space or the Rocket Racing LeagueTM  (by themselves) may or may not provide sufficient revenue.

But remember, we DO NOT HAVE TO CHOOSE only one killer application. Cobble all these together into a business plan that looks for diverse revenue streams.

Use all the clubs in the bag, not just the seven iron.

Comments

[Brian]

Hi.

1. Your about me page is rather ... sparse. Care to fill it in or remain anonymous?

2. Do you have an RSS feed for your blog?

[Bill White]

Bear with me Brian. I'm on a learning curve here. ;-)

More to come.