SBJ/20090126/From The Field Of

Integrating primary, secondary markets can benefit team, fans

With the recent news that the San Francisco Giants were taking the first steps toward a more comprehensive demand-based pricing strategy, it appears that the sports industry is slowly learning what airlines and movie theaters already knew: that people are willing to pay higher prices for certain events. 

Indeed, a close look at prices in the secondary market shows two important things. First, teams are not setting their ticket prices effectively. There is a difference between what teams are charging and what fans are willing to pay. For example, based on data provided by StubHub, the average NFL ticket price on its Web site throughout the 2007-08 season was approximately $147 leaguewide. Compare this with the average price in the primary market, which is approximately $67, according to Team Marketing Report. (That’s right, ticket brokers are making more money per ticket sold than NFL teams that put on the event and pay the athletes’ salaries. Explain the logic behind that.) 

Conversely, when a stadium or arena is half full, the team is clearly missing out on valuable ancillary revenue from parking, concessions, and merchandise sales by overpricing its tickets. In this circumstance, secondary prices are likely below the actual face value of the ticket.

What is forcing teams to be so inflexible with their ticket prices? In most industries (including ticket resale), prices fluctuate based on demand. Why not tickets in the primary market?

Second, prices in the secondary market show that demand varies from one game to the next. In fact, it doesn’t take more than common sense to know that if you are the San Francisco Giants, your patrons are likely going to be willing to pay more money for a Saturday game against the hated Dodgers than they would for a Wednesday night game against the Pirates, who were 28 games under .500 last season. Realizing this, many teams in Major League Baseball have adopted some form of variable pricing structure (other leagues have been slower to adopt this strategy). However, these “premium games” are determined well before the season starts and are based on a variety of factors (day of the week, month of the year, opponent, etc.), none of which necessarily reflects the actual consumer demand at the time of purchase.

So what strategy should teams and leagues be considering? Fully integrating the primary and secondary ticket markets has the maximum benefit for sports properties and fans alike. Imagine a Web site such as Amazon.com where fans can see all available tickets, both primary and secondary. This would give fans complete knowledge of what tickets are available and at what cost while giving the sports property knowledge of the actual market price of each ticket and the ability to adjust its prices accordingly.

This model should lead to more tickets sold for low-demand games (resulting in an increase in ancillary revenue) and an increase in ticket revenue for high-demand games. Bad weather? Injured star player? Lower prices. Tickets nearly sold out? Home team on a hot streak? Higher prices.

A fully integrated ticket platform can ease
transactions in the hours and
minutes before a game.

Integrating the primary and secondary market has other benefits, as well. Many sports properties have sponsorship deals with secondary ticketing companies. These deals are similar to those with other corporate partners in which the sports property receives a sponsorship fee and its partner receives signs, banner advertisements on Web sites, and the right to be called “an official sponsor,” among other benefits. The benefits of these deals with secondary ticket companies have been well-documented (season-ticket renewals increase, teams experience a reduction of no-shows, and the increased revenue resulting from the sponsorship fee or individual transaction fees) and would continue under the fully integrated model. 

However, an integrated ticket market has several benefits that go above and beyond the current sponsorship model. For example, an integrated ticketing platform can facilitate ticket transactions in the hours and even minutes before an event, something that most secondary ticketing companies cannot do effectively. One could even imagine a computer kiosk near the ticket office where fans could log on and check ticket availability in the hours before the game and print them instantly (again, similar to what the airline and movie industries already provide). By facilitating these transactions, sports properties can help to reduce some of the negative aspects of the street scalper segment of the secondary ticket market, such as ticket fraud. 

This model would also reduce the anonymity of ticket buyers and sellers. With the current model, the identity of sellers is hidden because they are not required to enter their exact seat location (only section and row) while the identity of the buyer is known only to the secondary ticketing company. Learning the identities of these consumers would help sports properties enforce policies related to fan behavior while building a valuable database of previous consumers.

All of these benefits should improve overall fan experience. Detractors who say that this model alienates the low- and middle-income fan need to consider that a completely open market might actually lower ticket prices for many events, similar to the impact the Internet has had on prices in other industries, such as term life insurance as reported in “Freakonomics.”

The reality is that there are only a handful of events in all of sports that command the exceptionally high prices that are reported widely by the media (Super Bowl, Final Four, BCS championship, etc.). Moderate fluctuations in ticket prices might price out some fans; however, the great majority will likely not be deterred by a $20 change in price for a high-demand game. Plus, major events like the Super Bowl have already priced out most fans, with tickets starting at $700.

In the end, while this model will appear like a revenue maximization model designed for the benefit of multimillion-dollar sports properties, it has tremendous advantages for fans as well.

Joris Drayer (jdrayer@memphis.edu) is assistant professor of sport and leisure management at the University of Memphis.

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