Dynamic Pricing Is The Key To Sporting Industry’s Woes
Darren Rovell is on assignment and unable to post today - but Sports Bizlives on. Today's special Sports Biz Guest Blogis from Marty Teller, manager of corporate partnerships for the Trenton Thunder who focuses on brand activation using sports as a platform
Dynamic Pricing Is The Key To Sporting Industry’s Woes by Marty Teller
While often overlooked and underappreciated in the world of big sports sponsorships and premium entertainment, tickets remain the lifeblood for any viable professional sports franchise.
Without fans in the stands, sponsorships become worthless and apathy sets in for teams and its fans.
Nevertheless, we see swaths of open seats on TV in cities like Baltimore (Orioles), Detroit (Lions), and Philadelphia (Sixers).
The obvious answer as to why these teams, and many others, suffer the indignity of playing in front of half empty stadiums would be team performance. But that doesn’t totally explain the disinterest in places like Tampa Bay for the Rays, only the best team in baseball right now or the Jacksonville Jaguars, the only professional sports team in that city. On the other hand, we see some teams who have consistent sellouts, game after game, year after year.
The problem these teams face is that they are missing out on additional revenue from the secondary ticket market. A couple of franchises have mitigated the lost revenue via sponsorship deals with ticket brokers like StubHub, but there’s no way they’ve recouped everything (otherwise brokers like StubHub wouldn’t sign the deal).
So, you may be asking, what do these two very different ticketing problems have in common? They both involve opportunity cost and pricing.
On one end of the spectrum we have teams who seemingly can’t give tickets away. On the other end, we have teams whose demand exceeds its supply. I would argue that fans purchase tickets for sporting events based on this rudimentary equation: (Team Affinity X Performance) / Opportunity Cost (other options) = Price Willing to Pay.
Of course there are other economical and demographic factors at work, but for a moment let’s focus on the equation.
In a perfect world for a fan, wouldn’t the price of a ticket go down as affinity and performance did? And in a perfect world for a team, wouldn’t the price of a ticket go up as interest in the team grew and their play improved? Besides winning, isn’t growing revenue the primary goal of any sports team (and any business, for that matter)? As you will commonly hear from any ticket manager, empty seats can’t buy beer, merchandise, or food. At the same time, flooding the market with tickets is not the solution as any minor league executive will tell you.
The solution to this complex problem of filling the stands and realizing lost revenue on the secondary market is also the future of sports ticketing: Dynamic Pricing. Teams like the San Francisco Giants are already testing (and finding success with) this, while companies like QCue are mastering the technology. In a nutshell, this technology allows teams to identify weaknesses or strengths in the schedule based on opponent, performance, weather, day of the week, and other such influences and adjust prices accordingly to spur the greatest amount of ticket sales.
As you’ll remember from our equation above, opportunity cost is the divider and companies like QCue successfully account for these variables.
With the season-ticket holder base for most teams eroding based on monetary cost and opportunity cost (who can really go to 41 NBA games a year?!), the dynamic pricing model provides teams with a way to ensure a sellout, or close to it, when their performance isn’t up to par or the affinity has taken a hit from an off-the-court incident.
For the rare teams whose affinity and performance quotient is high, it allows them to raise ticket prices accordingly to better match supply and demand. In this dynamic pricing model, season tickets become a hedge fund of sorts, protecting buyers from the volatile new ticket marketplace.
The idea for teams would be to actually sell less season tickets but increase show-up rates and overall tickets sold, eventually growing the bottom line as items like parking, concessions, and merchandise all increase and teams capture most, if not all, of the lost revenue on the secondary market.
A secondary benefit will be a restructuring of most staffs from a sales-oriented group to a service-oriented group, ensuring that the people at the game are having a great time, and thus increasing affinity and ultimately prices.
Marty Teller is manager of corporate partnerships for the Trenton Thunder who focuses on brand activation using sports as a platform. He previously worked for the Baltimore Ravens and is a graduate of the University of Tampa. He can be reached at firstname.lastname@example.org.