Published May 31, 2010
Saturday, May 15, was a rather typical day of what so far has been a somewhat resurgent season for the San Francisco Giants. Star pitcher Tim Lincecum, the reigning two-time National League Cy Young Award winner, pitched eight brilliant innings in a 2-1 win over the Houston Astros at AT&T Park, pushing his record at the time to 5-0.
But the star power of Lincecum also created a noticeable spike in the club’s single-game ticket prices. Lincecum’s dominant presence helped turn a left-field view reserved seat that sold for $15 the night before into a $20 ticket on game day, a $42 lower box seat into a $50 ticket, a $105 field club ticket into a $130 one, and so on through the club’s 20 different seating categories.
Such fluid market dynamics have been the norm on the secondary ticket market for years, particularly over the last decade as that segment of the industry has experienced a historic and meteoric rise in prominence, stature and overall consumer acceptance. On the primary ticket market, many teams over the same time have embraced variable-pricing structures in which more games on popular months or days of the week and against better opponents carry higher ticket prices, though still on a preplanned, static basis.
But the Giants are among a fast-growing collection of teams engaging in dynamic pricing on their primary ticket markets, in which prices more freely move up and down each day based on a wide range of supply and demand factors.
Dynamic pricing, long a benchmark of the hotel, airline and other commodity industries, holds the potential to alter sports ticketing even more dramatically than the advent of officially sanctioned secondary ticketing, many executives and advocates say.
“This is coming on very, very quickly. Within five years, I think everybody’s going to be doing this,” said Russ Stanley, managing vice president of ticketing sales and services for the Giants.
The club, working with Texas-based startup Qcue Inc., made $500,000 in incremental revenue last season testing a small portion of AT&T Park on dynamic pricing. At least a low- to mid-seven-figure sum in additional money is anticipated this season, as the club has expanded the dynamic-pricing program to the entire ballpark for every game for single-game tickets.
“Everybody in the industry is looking at it closely and evaluating it. I’m getting at least a call a week about this [from other teams], probably two,” Stanley said.
Other teams either already active in dynamic pricing or confirmed to start next season include the Astros, Dallas Stars, Florida Panthers and Cleveland Cavaliers.
The rise of dynamic pricing, however, is not so cut and dried, and its accelerating emergence arrives with lots of uncertainty and mixed feelings.
Unlike hotel rooms, airline tickets and other similar products, consumers hold deep, often multigenerational emotional attachments to their sports teams. Those teams, which often play in facilities built at least in part with public funds, have for years also printed their price lists months in advance, creating a general expectation that those prices are set for the coming season. Each ticket price increase, as any team knows, also creates public relations issues and marketplace pushback.
And as sports fans and investors understand all too well, past performance is never a guarantee of future results. Even Lincecum lost his next start after that sparkling win over the Astros.
“I don’t begrudge anybody trying this, but not at the expense of traditional, blood-and-guts ticket selling,” said Chris Hutson, co-chief executive for Turnstyles Ticketing, a New Jersey-based ticketing services company that works with numerous pro teams and universities.
“I’ve seen every gimmick in this business,” Hutson said, “and we as an industry tend to rely on things like this too much instead of good old-fashioned elbow grease. There are so many variables in [dynamic pricing], and I’m not sure we’ve thought through them all. What happens, for example, if Lincecum doesn’t pitch in a particular game after somebody’s paid an accelerated price to see that game?”
Old problem, new solution
Dynamic pricing represents the latest attempt to answer one of the most fundamental set of questions in the sports industry: how best to fill an arena or stadium and generate the highest amount of revenue from those fans in the building.
Much of the dynamic pricing answer is not necessarily new.
Market-based pricing on the primary ticket market borrows heavily from several areas: the acceptance of secondary ticketing and its market-driven forces; a rapid embrace of computer-based analytics and research into ticketing and ticket sales; and consumers’ extensive use of the Internet to track prices in real-time for thousands of other products.
Dozens of teams, such as the Cavaliers and the Atlanta Braves, for the past several years have used various computer models that take inputs such as team opponent, day of the week, month of the year, win-loss record, weather and other factors to perform attendance modeling, representing something of an early step toward dynamic pricing.
But dynamic pricing differs from those other, related approaches on two primary points. Making the move requires a willingness to step over that emotionally charged chasm and agreeing to alter prices that historically have not changed within a given season, and then implementing the infrastructure to do so on a continuous basis.
To that end, much of what Qcue has done is reduce sports ticketing to something of a math problem. The company’s software feeds extensively on a complex algorithm that, similar to an airline or hotel model, takes in all the various pricing factors, including going rates on the secondary market, and spits back out recommended prices.
The team retains the option to agree to those recommendations, or alter them based on additional human factors the program may not have considered.
The Qcue pricing engine is designed to integrate directly into a club’s ticketing system, as the company has done with the Stars and Giants in partnership with Tickets.com. Qcue earns money on a two-pronged approach in which an upfront software fee is supplemented by a revenue-sharing component on ticket sales above a certain level deriving from the dynamic-pricing model.
“What we’ve done is create a software platform that performs very high-end demand and sales forecasting,” said Barry Kahn, Qcue chief executive. “Obviously, we’re huge believers in dynamic pricing, but with or without that, that information is still very valuable. That’s the foundation, and from there, we’re proving value and revenue upside.”
Digonex Technologies Inc., perhaps Qcue’s most direct competitor, has taken a similar approach. Seeking to leverage an existing background in dynamic pricing for e-commerce, including digital music, Digonex last fall launched a sports and entertainment ticketing division. Early this year, it began working with the Cavaliers, with another deal pending with an undisclosed NBA team.
“Consumer acceptance of dynamic pricing has definitely changed,” said Rex Fisher, Digonex vice president of business development. “We all have greater access to information, and we’ve simply been conditioned that many products are priced subject to change.”
The Cavaliers also generated an undisclosed six-figure sum in incremental revenue this past season through dynamic pricing. But for team officials, there is an even bigger prize.
“Even more than the additional revenue, dynamic pricing has helped us engage the fan and be relevant by offering them the right product at the right price at the right time. That helps with building fan engagement and loyalty,” said Mike Tomon, Cavaliers vice president of sales. “It simply makes all the sense in the world to have a true value-based offering that derived from fan behavior. This is coming to a head in sports, and with good reason.”
Protecting season-ticket holders
The top concern surrounding dynamic pricing, not surprisingly, is the potential impact on season-ticket holders, still the lifeblood of all sports ticketing. While prices do move up in high-demand situations — generating predictable complaints of teams being exploitative — it’s the downward price movements for lower-demand games that actually create the bigger business threat.
If prices drift down to points at or near what season-ticket holders paid, what then are the advantages of paying for an entire package of games? Fans have already begun for several years to cherry-pick desired games on the secondary market.
“Price integrity without a doubt has been the No. 1 discussion point or concern on this topic,” said Derek Palmer, Tickets.com chief commercial officer.
The general response from teams on that bigger question is to show additional, unable-to-duplicate value to season-ticket holders through amenities such as access to players and coaches. With regard specifically to dynamic pricing, the early adopters have generally avoided going below their season-ticket pricing.
The insertion of artificial price floors means that teams such as the Giants, Stars and Cavaliers are not practicing dynamic pricing in the truest and fullest sense. But preserving that core base of the most-loyal ticket buyers remains critical, even as dynamic pricing advances and more data and analytics become available.
“I simply wouldn’t be doing this if it meant putting our season-ticket holders at risk,” Stanley said. The Giants’ season-ticket base of 21,000 full-season equivalents, though down in recent years, remains among the largest in baseball. “At least half of what we’ll sell all year will be through season tickets, so we absolutely have to protect that.”
Even with safeguards such as that in place, plenty of skeptics remain for dynamic pricing, in large part because for many teams, low-demand games easily outnumber high-demand ones.
“For a majority of teams, you have to be very careful, and this probably isn’t a space you want to play in. And if you’re still dictating [price] floors, it’s not really dynamic pricing,” said Lou DePaoli, Pittsburgh Pirates executive vice president and chief marketing officer. DePaoli has approached the issue from several angles during prior stops with the NBA, Florida Marlins and Atlanta Spirit ownership group. “But in baseball particularly, there are more weekdays than weekends, and more bad teams than good teams. So without a really super premium on your best series, you probably aren’t going to be able to make up the [lost] revenue.”
The push going forward for dynamic pricing will largely be on two fronts: a consumer education and awareness process to enlighten the public on what dynamic pricing is and how it works, and continued improvement in ticket analytics.
On the first point, many teams have conducted extensive surveys with fans, and each of the teams active in dynamic pricing offers some type of detailed explanation as to how its system works. The general sales credo has been to “lock in and save,” in which fans waiting until the last minute run the risk of paying more for their ticket.
On the latter point, ticketing analytics continue to improve as computing power, algorithms and teams’ understanding of how best to use that research grow and develop. That maturation will manifest itself in part through more precise dynamic pricing.
“Everybody’s experimenting to understand the science and figure out the algorithms, as nobody wants to damage their pricing models with haphazard processes,” said Sam Gerace, chief executive for Veritix, a sister company to the Cavaliers and the team’s ticketing provider.
“The challenge has been getting real information as there’s no official ‘trading desk’ for tickets,” Gerace said. “But I think we’re getting smarter and ultimately getting to a situation where the traditional concept of ‘face value’ begins to fade out.”