SBJ/May 23-29, 2011/Opinion

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  • In current dispute, ‘voice’ of retired NFL players must be heard

    On April 4, the NFL wrote to all retired players that it understood the challenges that they and their families faced because of the inadequate pensions and other flaws in disability plans for retired players. The league and its owners acknowledged that there would have to be significant improvements in the treatment of and benefits for retired players in order to make the necessary “measurable impact on the people who made football great.”

    In closing the letter, the league and its owners confessed that the “voice” of the retirees “needs to be heard.” Commissioner Roger Goodell and the league have taken a good first step in recognizing the deficiencies that exist in regard to the benefits available to retired players, and the need for retired players to have a meaningful seat and voice at the table during any further negotiations between the league and current players.

    What follows is my attempt to represent that voice. While we eagerly await the improvement in pension and benefits that the NFL has promised, we realize that nothing will happen without a resolution of the ongoing dispute.

    In his op-ed column in the April 26 Wall Street Journal, Goodell states, “For many years, the collectively bargained system — which has given the [NFLPA] enhanced free agency and capped the amount that owners spend on salaries — has worked enormously well for the NFL, for NFL players, and for NFL fans.” While it is unclear if he is referring to retired players, let me set the record straight: The collectively bargained system has not worked “enormously well” for retired NFL players. The fact that the system is not working “enormously well” for retired players is glaringly reflected in the 2007 congressional hearings on why the NFL’s retirement system is not working; by the Department of Labor putting the league’s retirement plan on “endangered status” in 2010; and in the Congressional Research Service’s 2008 report on NFL players’ disabilities and benefits. The past system simply has not worked “enormously well” in providing the level of care and support that many retired NFL players need.

    Goodell points out that the NFL has grown to be by far the most popular spectator sport in the United States. Amid all its striking success, and what Forbes magazine estimates to be an average annual team profit of $33.4 million, the NFL owners proposed an 18 percent reduction in the share of league revenue to players. After a year of revelations about the dangers of concussions, brain injuries and shortened life spans experienced by retired NFL players, current players wondered why they were being asked to make a substantial sacrifice in their compensation. The demand was all the more perplexing in light of the league’s denial and neglect of redressing these real injuries.

    Goodell’s op-ed piece talks about the need to restrain the free market, unionize players, engage in extensive revenue sharing among the clubs and engender competitive balance across all teams. These are half-truths that are more misleading than enlightening and do not even begin to address many meaningful issues.

    First, why are players’ medical insurance benefits cut off five years after retirement, even when it has been demonstrated that most retired players face a lifetime of health problems? Why are retired players’ pension benefits so glaringly inadequate and so materially underfunded that the Department of Labor placed them on the endangered list?

    Second, although Goodell insists that all of the NFL’s successful institutions and practices would disappear without a collective-bargaining agreement, there is reason to believe otherwise. For starters, most large businesses that are not unionized still offer their workers retirement benefits. Additionally, the NFL amateur draft has existed since the 1930s, decades before collective bargaining came to professional sports. Finally, if particular labor market restraints are important, then the league need not depend on a labor exemption gained through arm’s length collective bargaining to maintain them; it should freely seek to defend such restraints in court, consistent with antitrust principles to which every other business in this country is accountable.

    Third, a report commissioned by the NFL notes that players “are elite athletes of the highest order.” There are an estimated 21,000 such retired NFL athletes; large men with broken bodies, herniated disks, arterial disease, and higher rates of arthritis, dementia and all types of chronic pain than comparable men in the general population. Men who underwent brain surgeries, experienced grand mal seizures, and concussions resulting from the vicious collisions they took for the good of the game. When he died, Johnny Unitas’ “golden arm was nothing more than a lead weight.” The NFL denied his disability claim.

    Curt Marsh said it best: “When I came to my first NFL camp, it was like I was a tall, cold can of beer. They popped the top, and all that energy and desire and ability poured out. I gave of myself with the same passion that I had in high school and college. When I was empty, when I had no more to give, they just crumpled me up and threw me on the garbage heap. Then they grabbed another new can and popped him open, and he flowed out until he was empty.”
    Finally, let me be clear that although my response is directed at Goodell’s comments, retired players are also dependent upon the good will of current players. It is just as much in the interests of the retired players as it is the fans to create a resolution so that we have football played in 2011 — remember, we are now fans too.

    All in favor?

    Carl Eller
    Minneapolis

    Eller played defensive end for the Minnesota Vikings and Seattle Seahawks and was elected to the Pro Football Hall of Fame in 2004. He is president of the Retired Players Association.

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  • Impact on secondary market a challenge for dynamic pricing

    There have been two major shifts in ticketing strategy in the past decade. First was the growth of the secondary market. Then, more recently, came the emergence of demand-based pricing. Variable ticket pricing got its start more than a decade ago and continues with Qcue’s partnership with the San Francisco Giants and the recent announcement that Ticketmaster will develop its own dynamic pricing technology.

    While ticket resale has largely been established as an industry norm, dynamic pricing elicits polarizing opinions about regular price changes for sports tickets. Indeed, while some see this as a logical strategy to increase organizational revenue, others question the strategy’s fairness, particularly as prices for certain high-demand games may soon be unaffordable for some fans.

    Although dynamic pricing appears to be a novel idea, its roots are decades old. Revenue management is a demand-based pricing scheme that has been successfully implemented in airline and hotel pricing. The fact that this strategy has gained acceptance over the years in those industries has led us to consider the future of dynamic pricing in sports.

    There are several key considerations when determining whether dynamic pricing is a viable strategy for sports properties. The first is consumers’ perception of the fairness of this strategy. People make conclusions about the value and quality of a product based on the relationship between what a product is worth in their mind and what it actually costs. Further, research indicates that previous transactions serve as a reference for the perceived fairness of future transactions. Thus, changing prices continuously becomes a risky decision. However, the research on revenue-management strategies for hotels and airlines indicates that perceptions of fairness increase with education, information and price transparency. This suggests that as consumers become more familiar with this pricing structure, negative responses are likely to decrease.

    GETTY IMAGES
    Secondary ticket prices did not suffer from the Giants’ use of dynamic pricing at AT&T Park in 2010.
    While there are risks involved with the implementation of dynamic pricing, this strategy brings tremendous revenue potential. In our research of secondary market prices in the NFL, we were able to identify major pricing inefficiencies in the primary market, which resulted in millions of dollars in lost revenue for each organization. This consumer surplus is being captured by sellers in the secondary market. By having the flexibility to charge additional money for high-demand events, teams can expect a significant boost to ticket revenue (for the Giants, this figure was 7 percent, according to Barry Kahn, CEO of Qcue).

    Further, by having the ability to reduce prices for low-demand events, teams have an additional opportunity to maximize attendance and earn additional revenue from sales of concessions, merchandise and parking. Dynamic pricing also offers an opportunity for teams to market to a new segment of bargain hunters who may want to actively shop for the best deal.

    An additional consideration that has, to date, been overlooked is the impact of dynamic pricing on the secondary market. Virtually all professional sports leagues and teams now have established partnerships with secondary market platforms such as StubHub and RazorGator. However, dynamic pricing could directly reduce the profit margins of secondary market sellers. How dynamic pricing influences secondary market sales and, subsequently, the value of secondary market sponsorship deals remains to be seen.

    In our preliminary analysis of Giants’ tickets in 2010, there appeared to be a strong secondary market despite the presence of a dynamic pricing strategy for all seats in the stadium. For our sample of 1,316 ticket price observations collected for 12 games throughout the season, median secondary market ticket prices were 42 percent higher than comparable tickets on the Giants’ website. This suggests that despite dynamic pricing’s more aggressive approach, ticket prices for the Giants were not completely free to change within any range of prices.

    For example, any unsold ticket in the moments before the game would theoretically be given away in order to gain at least some ancillary revenue. Of course, the Giants did not adopt this approach. Conversely, the Giants did not price tickets as high as possible for high-demand games. In our analysis, this was evidenced by considerably higher secondary market prices for notably high-demand games. The price restrictions in either direction were probably due to the Giants’ efforts to maintain perceptions of fairness and quality while providing an opportunity for additional ancillary revenue. So while dynamic pricing is a more aggressive approach to pricing, the overarching philosophy for sports managers is likely to retain a focus on attendance maximization and not shift entirely to a revenue-maximizing approach. This unchanging philosophy is likely to result in price restrictions within the dynamic pricing structure.

    Finally, dynamic pricing also faces the challenge of identifying the appropriate factors to consider when changing prices and how much each factor should influence ticket prices. The demand for professional sports is contingent on a variety of factors, many of which can be very difficult to quantify. For example, while team and player performance may be easy to measure, the impact of player popularity or potential record-breaking accomplishments are factors that may have significant impact on consumer demand but have no historical comparison on which to base price changes.

    The evolution of pricing is apparent in our comparison of the factors that affected the Giants’ prices and secondary market prices. Our research identified a number of factors that affected primary and secondary market prices differently, which suggests that sellers in each market evaluate fluctuations in demand differently. These factors included measures of team performance, weather, and the number of days before the game.

    In the end, it appears that dynamic pricing is a trend with significant staying power. As the industry leader, Ticketmaster’s decision to embrace it may standardize this practice in much the same way its embrace of ticket resale helped legitimize that industry.

    As pricing models improve and consumers become more comfortable with the new structure, dynamic pricing seems likely to soon become the industry norm. n

    Joris Drayer (jdrayer@temple.edu) is assistant professor of sport and recreation management at Temple University, and Stephen Shapiro (sshapiro@odu.edu) is assistant professor of sport management at Old Dominion University.

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