SBJ/March 19-25, 2012/In Depth

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  • Ticket challenge: Getting the price right

    A few years ago, the vice president of ticket sales for the St. Louis Cardinals, Joe Strohm, had all the same qualms about dynamic pricing as many in sports. He thought it was fine for airlines and hotel chains to move their prices up and down along with demand, but thought the tactic made little sense as a way to sell baseball tickets.

    Then, over a two-week span in September 2010, the Cardinals saw a pair of unpredictable turns take a bit from their coffers.

    On Labor Day weekend, the Cincinnati Reds came to town. Historically, that holiday is a tough sell for the Cardinals, and fans in St. Louis haven’t viewed the Reds as a rival. But in this case, the two teams were scuffling atop the division, with the Reds in first place and the Cardinals a close second. They also were coming off a series in Cincinnati that included a bench-clearing brawl that got both managers suspended.

    The St. Louis Cardinals are one of 17 MLB clubs that have incorporated dynamic pricing with some, if not all, of their seats.
    Photo by: Getty Images
    The Cardinals had priced the game on the low side of their variable pricing scale. Tickets sold briskly, and for far less than those that resold on StubHub. The club left money on the table.

    Two weeks later, the Cubs came in for a weekday series. Historically, the Cubs have been the Cardinals’ bitter rival. Historically, tickets for that series sold well, even at midweek. But in this case, the Cubs were on the back end of an awful season. Fans who usually made the trip south stayed home.

    The Cardinals had priced the game on the high side of their variable pricing scale. They were left with unsold seats and far less revenue than they predicted from the series.

    “That’s when it really hit home for me,” Strohm said. “No other business I know sets prices nine months out without the ability to change them. That’s how we did it. But it’s not how we should do it today.”

    That same realization appears to be sweeping sports, and especially baseball, with ballparks that are twice as large as NBA and NHL arenas and schedules that run twice as long.

    It was only three years ago that the San Francisco Giants became the first team in sports to try dynamic pricing. It wasn’t until last year that three other MLB teams, including the Cardinals, joined them. This season, 17 of 30 MLB clubs will make the switch with some, if not all, of their seats. The results of those who have gone before them were too compelling to ignore.

    In a study of MLB clients that fully implemented dynamic pricing last season, ticket pricing software company Qcue found that teams increased revenue by an average of $900,000 for the season by adjusting the price in each section of the ballpark one time for each game.


    Demand-based dynamic pricing also has caught on to varied degrees across the NBA, where seven clubs price all their single-game seats dynamically and transparently, allowing fans to see a grid of all their games and make choices based on price, and the NHL, where two teams are doing it. Many teams in both leagues now reserve the right to tinker with prices here and there.

    “What teams are realizing with dynamic pricing now is that there’s really not a downside,” said Barry Kahn, founder and CEO of Qcue, the Austin, Texas-based software company that pioneered dynamic pricing in sports and now works with 15 MLB clubs, as well as a smattering of teams in the NBA and NHL. “We always thought the most important thing to show people when we went in was the upside. But we found that people understood the upside. What was holding them back was the fear of what could go wrong.

    “Once teams saw that they could drive more revenue and it wasn’t going to cost them their season-ticket base or hurt the way they were perceived by the fans, dynamic pricing became a very easy thing to accept.”

    A full, dynamic pricing system typically costs teams $100,000 to $200,000 per year, said industry sources. Scaled down services that include data but not pricing advice can be had for less than $25,000 a year.

    The initial hesitation with dynamic pricing, Kahn said, was tied to the dangers of an unfettered market. Teams worried that season-ticket holders might revolt if they regularly saw tickets go for less than they paid, as they sometimes do on the secondary market. They feared that ticket prices for a game might drop all the way to $1, thinking of them like a plummeting stock.

    “There was a perception that what we were doing was keeping up with what the market price was,” Kahn said. “There is a difference between the market price … and what the best price is at a given point in time for a team. And it’s the latter that we’re giving you.”

    It is a revolution riding the tails of rapid evolution in the ticketing business. Dynamic pricing is the most radical aspect of it. But there have been other sizable shifts.

    “The world has changed drastically in the last two years,” said Bill Sutton, a sports marketing professor who consults on ticketing matters with teams across sports. “And it’s still evolving.”

    Extending the variable model

    The vast majority of teams in MLB, the NBA and NHL price tickets variably at the start of the season, charging more for the games that are expected to sell best, based on variables such as opponent, day of week and month of year. A topic of raging debate as recently as five years ago, when many executives still argued that telling fans that some games were worth more than others put their own brand at risk, variable pricing now is the norm.

    The Charlotte Bobcats adjusted prices after the Los Angeles Clippers traded for Chris Paul and made the team’s visit more marketable.
    Photo by:NBAE / Getty Images
    In the last year, many teams have extended the variable model to also apply to season tickets. It doesn’t change what season-ticket holders pay, but they now see lower prices attached to some games. That allows teams to charge less for some games than their season-ticket holders pay on average for the season.

    All of this flexibility has driven teams to take a closer look not only at the way they can change prices, but also the way they set them from the start.

    “For a long time, our industry had executives sitting around a table saying, ‘All right, should we go up 3 percent or 5 percent next year?’ And that was it,” said Chad Estis, president of Legends Sales and Marketing, a joint venture that includes the Dallas Cowboys and New York Yankees. “Up until three or maybe four years ago, the answer really wasn’t based on much that was tangible.

    “We’re talking about a pile of revenue. This shouldn’t be done on a whim or gut feeling anymore.”

    The Atlanta Braves lost a chunk of season-ticket holders a decade ago after an 11 percent price jump that was based not on evidence that fans were willing to pay more, but because the club had increased payroll and wanted to increase revenue to cover the cost. It was the third consecutive year the Braves raised prices by upward of 5 percent. As a result, the club’s season-ticket base fell from a high of about 26,000 to 21,000.

    “It was the tail wagging the dog,” said Derek Schiller, executive vice president of sales and marketing for the Braves,
    who joined the club from the Atlanta Thrashers in 2003. “There was little understanding of what the repercussions were going to be. The only analysis was on the additional revenue. They didn’t do elasticity studies or any other kind of analysis on pricing in the marketplace.

    “There was not a whole lot of data taken into account.”

    Fast forward to this season, when the Braves opted to test dynamic pricing on about 8,000 seats in the outfield that
    typically are the last to sell, and the picture is dramatically different.

    “I think the hurdle in the past was that there wasn’t a lot of data or technology helping teams understand what the price ought to be,” Schiller said. “So even if you thought you should do more, you didn’t have the tools. We have analysis that’s driven by true data now. It’s not a guess. So when we have the opportunity to take a look at dynamic pricing in a section of our ballpark where we’d like to see more advanced buying, it helps make those decisions more secure.

    “I still have some reservations about dynamic pricing. But I can look at it now, in these seats at least, as an acceptable risk.”

    For many teams, dynamic pricing has come as a logical progression from the variable pricing that has become commonplace. Analytical tools provided by vendors like Qcue, Digonex and Stratbridge, and ticketing providers such as Ticketmaster, Tickets.com, Paciolan and Veritix allow teams to more reliably predict the market for games at the start of the season and react efficiently to shifts in demand.

    Chris Granger, executive vice president of the NBA’s team marketing and business operations division, said that all 30 NBA teams this season are using variable pricing and most are employing some type of dynamic pricing strategies for regular-season games.

    “They’re both efficient in different ways,” said Pete Guelli, executive vice president and chief sales and marketing officer for the Charlotte Bobcats, who, despite the worst record in the league, have managed to keep attendance from falling. “It’s not about pricing around opponents but also around dates. The initial step is variable and it is critical because it defines what the revenue streams will be for the year, but dynamic pricing makes sure that you don’t miss any opportunities. We have seen dramatic spikes in individual games sales, and a lot has to do with dynamic pricing.”

    The San Diego Padres will use dynamic pricing for all seats this season, a big departure from last year, when the team priced all of its home games the same.
    Fred Whitfield, president and COO of the Bobcats, pointed to the team’s recent game against the Los Angeles Clippers as an example of the benefits of flexibility. The Feb. 11 game between the Bobcats typically would have been a tough sell against the historically bad Clippers. But the game grew in marquee value after the Clippers landed Chris Paul in a trade at the start of the season. The Bobcats responded by upping the ticket price for his visit.

    “It gave us a huge opportunity to drive more revenue for a game that we didn’t anticipate being in demand,” Whitfield said.

    Kahn said many clients who used his company’s tools to help them place games in the correct price category soon came to realize that no matter how much the data improved, they still were going to miss opportunities on some games and overshoot the mark on others.

    “For me, the light bulb went off when I realized how little flexibility we really had,” said Jarrod Dillon, vice president of ticket sales and services for the San Diego Padres. “Even if we’re variably priced to the T, if the next Stephen Strasburg comes along or the next Barry Bonds home run chase happens, we have no way to react to that.”

    The Padres will implement dynamic pricing for all seats this year. That’s a radical departure for a team that last year priced all 81 home games the same.

    Going up!
    Tracking the rise in average ticket prices for entertainment options
     
     
    Price of admission
    Average price
    per ticket 2011-12
    Change since
    2006-07
    Broadway show $88.00 +15%
    Disney World (adult) $85.00 +35%
    NFL $77.36 +24%
    NHL $57.10 +26%
    NBA $48.48 +3%
    MLB $26.91 +25%
    Movie $7.94 +15%
    Note: Gap in NHL data reflects season lost due to labor dispute
    Sources: Team Marketing Report; The Broadway League; National Association of Theatre Owners; AllEars.net (charts and scans of historical Disney ticket)
    “Once you accept that not all games are created equal, the next step a club will move to typically is variable [pricing],” said John Abbamondi, vice president of strategy and business analysis for the Padres. “I’m going to look at the schedule and make some judgement calls as to which games are more or less desirable. The problem is, you’re going to be wrong on those. You don’t know how certain other teams are going to do. All dynamic does is give you an infrastructure that allows you to correct your mistakes.”

    Abbamondi is an example of a shift toward analytics that has swept front offices across sports. A graduate of MIT and Stanford business school, Abbamondi was an assistant general manager with the St. Louis Cardinals when the Padres hired him a year ago to work on both business and baseball.

    A matter of timing

    Thus far, much of the attraction to dynamic pricing has been the ability to drive more revenue from high-demand games and goose sales for tickets that aren’t moving. But, increasingly, teams are considering the potential to change not only how many tickets they sell, but when they sell them.

    The message the Padres crafted around their shift to dynamic pricing focuses on the fact that they set on-sale prices below what they expected fans would pay, making it likely that those who buy first will get the best deals. It’s too early to tell if it’s working, Dillon said, but he and Abbamondi are optimistic about its chances. If it doesn’t work, they can adjust again.

    That’s been one of the lessons passed along by the teams that already have implemented dynamic pricing, and stressed by Qcue.

    In its MLB analysis last season, Qcue found that teams that moved prices up did so at an average of $3.27 per seat. Price drops came at an average of $13.63 per seat. Both mirror Qcue’s advice to teams to move up conservatively to test the market, but to drop prices precipitously in order to catch the consumer’s eye. The average price move was a $1.55 increase.

    Last season, the Cardinals saw attendance drop by 200,000, a dip they attribute to the soft local economy and the lack of a close pennant race. Yet ticket revenue increased by 2 percent.

    “You are going to be surprised by some of the recommendations, both on how high the price should be on some games and how low they should be on others,” Strohm said. “It counters how we’ve priced tickets for years now. You’re going to end up pricing tickets in some locations much higher than you’ve ever priced tickets. But you’re also going to reach a lower price point than you ever offered. You’ve got to trust the data that you’re seeing versus going with past practices.
     
    “Changing your habits is not easy. But you’ve got to trust the data.”

    Staff writer John Lombardo contributed to this report.

    Sports execs: Ticket prices feeling the heat

    Results from the Turnkey Sports Poll in February show that sports executives think, when reviewing major segments of the industry, that ticket prices will face the most challenges to continue their current growth rate. Still, with the exception of NASCAR, the executives believe ticket prices will keep rising in the next three years across the major sports leagues.

    Which area of the sports business will face the most challenges to continue growing at its current rate?
    Ticket prices 47%
    Player salaries 16%
    Media rights fees 14%
    Sponsorship fees 11%
    Facility construction/renovation fees 11%
    Not sure / No response 1%



    Which league faces the most scrutiny from its fans and the media for its ticket prices?
    NBA 41%
    NFL 28%
    MLB 14%
    NHL 7%
    NASCAR 5%
    MLS 0%
    None of these 2%
    Not sure / No response 3%
    In three years, the average ticket price for each of the following leagues will be ...
      Less
    expensive
    Priced the same More
    expensive
    Not sure
    MLB 13% 39% 48% 0%
    MLS 12% 37% 47% 4%
    NASCAR 30% 39% 26% 5%
    NBA 26% 28% 46% 0%
    NFL 5% 13% 83% 0%
    NHL 18% 39% 41% 1%

    Which league is most advanced with regard to implementing and monetizing innovative ticketing processes (ticket price optimization, online ticket plan management, paperless ticketing, loaded tickets, etc.)?
    MLB 41%
    NBA 28%
    NFL 10%
    NHL 4%
    MLS 2%
    NASCAR 0%
    Not sure / No response 15%

    Source: Turnkey Sports & Entertainment in conjunction with SportsBusiness Journal. The Turnkey Sports Poll covers more than 1,100 sports industry executives spanning professional and college sports. Turnkey Intelligence specializes in research, measurement and lead generation for brands and properties. Visit www.turnkeyse.com.

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  • Consumers sound off on ticketing

    Exclusive research from Turnkey Sports & Entertainment revealed some striking results about how consumers and sports fans view tickets. The online survey covered 1,056 consumers overall, with some of the questions answered only by those who identified themselves as sports fans.

    Among the findings:

    ■ The perceived value of live sporting events among U.S. consumers trails that of theme parks, concerts and Broadway shows.

    ■ In general, sports fans prefer to watch at home. In fact, even if tickets were offered to them for free, nearly a quarter of fans said they still would prefer to watch on television.

    ■ Ticket prices remain the most important factor for whether sports fans decide to attend an event.

    Which type of live entertainment provides the best value for the cost of tickets?
     
    Respondents: 1,056 U.S. consumers

    Which major sports league provides the best value for the
    cost of tickets?
    MLB 19%
    NFL 13%
    NASCAR 10%
    NBA 9%
    NHL 5%
    MLS 3%
    Not sure 40%
    Respondents: 1,056 U.S. consumers

    In which league are tickets most overpriced?
    NFL 34%
    NBA 10%
    NASCAR 7%
    MLB 6%
    MLS 2%
    NHL 2%
    Not sure 39%
    Respondents: 1,056 U.S. consumers

    Assume a sporting event of interest to you is taking place in the coming days. Generally speaking, would you prefer to ...?
    Attend this sporting event in person 41%
    Watch this sporting event on TV 59%
    Respondents: 800 sports fans

    Now, assume that you were given free tickets for this sporting event, would you prefer to ...?
    Attend this sporting event in person 77%
    Watch this sporting event on TV 23%
    Respondents: 800 sports fans

    What is the single biggest deterrent preventing you from attending sporting events in person?
    Ticket prices 45%
    Additional costs on top of ticket price (parking, concessions, etc.) 19%
    Prefer to watch live sporting events at home 12%
    Time commitment (it takes too long to attend live sporting events) 8%
    Quality of seating 6%
    Better options for my entertainment dollars 6%
    Fan behavior 5%
    Respondents: 833 sports fans

    Which incentive would most entice you to purchase a ticket to a live sporting event?
    25% ticket discount 62%
    Pregame, halftime or postgame concert 5%
    T-shirt giveaway 5%
    Merchandise discount/credit 4%
    10% concessions discount 3%
    None of these 21%
    Respondents: 840 sports fans

    How many live sporting events did you attend in 2011?
    None 53%
    One 12%
    Two 11%
    Three 6%
    4-5 events 7%
    6-10 events 7%
    11+ events 4%
    Respondents: 1,056 U.S. consumers

    Would you say five years ago you annually attended …?
    Fewer live sporting events 23%
    The same number of live sporting events 56%
    More live sporting events 21%
    Respondents: 1,056 U.S. consumers

    Note: Turnkey Sports & Entertainment, through its Turnkey Intelligence Operation, conducted the survey Feb. 12-14 using the Greenfield Online Omnibus panel. Respondents were at least 18 years old.
    Source: Turnkey Sports & Entertainment, Greenfield Online

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  • What's on their radar

    “Enhancing the value proposition of the live spectator experience at Reliant Stadium in the age of big screen/HDTV and amazing TV production quality. To address this, we have developed a ‘playbook’ to focus our efforts on what matters most to our patrons. We play ‘offense’ by executing with excellence the key items that truly differentiate the live spectator experience from home viewing (tailgating, stadium atmosphere, hospitality, etc). We play ‘defense’ by minimizing or eliminating the ‘hassle factors’ which could become an advantage for the at-home viewing experience (traffic/parking, price/value, fan behavior, etc.). And our ‘special teams’ effort includes the processes we use to facilitate excellence and the web of partnerships that impact the overall fan experience.”
    — Jamey Rootes, President, Houston Texans



    “Arena/stadium modernization. We run and manage a 7-year-old facility that up until last year was the newest building in the NBA. In some ways it has already become outdated. Keeping up with the latest customer amenities and technology advances are critical. Hosting the [Democratic National Convention] this upcoming summer has us evaluating potential upgrades in many areas of our building. We are trying to do our evaluations with an eye toward the future so that we are not right back in this position after making updates.”
    — Fred Whitfield, President & COO, Bobcats Sports & Entertainment



    “1. The Big East Tournament has been a staple on The Garden calendar for 30 years, so the conference realignment and how that changes the tournament is something we are watching closely. 2. The possible expansion of the Winter Classic to additional weekends is definitely on our radar. 3. We are constantly looking for the right opportunity to expand our tennis platform at MSG and beyond; the talk about a potential World Cup of tennis could be the right next move in the sport for us. 4. And of course we are watching NBA China and learning how the Jeremy Lin-sanity presents opportunity for growth for the Knicks brand and business abroad.”
    — Scott O’Neil, President, MSG Sports



    “The increased focus on the high-end customer experience on site at sports venues. The celebrity chef restaurants, custom seating and special viewing areas all create a wow factor that makes for a memorable fan experience regardless of the outcome on the field or court. My concern, however, is whether we are losing sight of the importance of enhancing the experience for all attendees. We need to be more cognizant of the younger demographics that today may be ‘300 and 400 level’ customers. Greater intimacy with this customer is key to success in the long term.”
    — Bill Webster, VP, brand management, Sun Life Financial



    “1) The emerging role of social media and how fans consume and share their passions for their favorite schools, teams and players. It is having a profound effect on how advertisers, like Capital One, have to approach sports marketing. Social media is unlocking a very effective channel to create engagement prior to an event, but more importantly, engagement beyond the event. 2) Clutter in sports marketing, game venues, etc. As a sponsor/marketer, we pay to not only showcase our brand but to have it stand out as well. But if stadiums, venues, networks and leagues don’t protect us from too much clutter and direct competitors’ advertising near our brand, we will be forced to find non-sports avenues to connect with consumers.”
    — Marc Mentry, Senior VP, brand marketing, Capital One



    “It’s always interesting to watch how media companies use sports rights to leap-frog other players. Fox did it with the NFL; DirecTV did it with Sunday Ticket. Which of the new media platforms will be the first one to dig deep and pay for top-tier live sports rights, and what impact will it have on cable and satellite?”
    — Brian Bedol, Co-founder & CEO, Bedrocket Media Ventures





    “How venues are updating their business practices so they can keep up with the world, particularly concerning technology. Specifically, how older stadiums are addressing the fan experience, as it’s clear that new facilities have the opportunity to provide the infrastructure necessary to be current, however older facilities may have challenges with the current infrastructure and/or financial ability to be prepared for the next generation of sports fans. … In addition, how the venue landscape in Southern California may be affected by the Dodgers ownership change and if/when the NFL moves to Los Angeles will have an effect on other venues throughout greater Los Angeles.”
    — Darryl Dunn, CEO, general manager, Rose Bowl Operating Co.



    “The in-game fan experience, focusing on the use of technology, food and the full day entertainment for fans.”
    — Jed York, CEO, San Francisco 49ers







    “Sports and entertainment fans are demanding, louder than ever, a rich mobile experience at live entertainment venues. ... However, mobile connections in high-density environments like stadiums have typically been spotty and weak, leaving devices less than effective, and fans frustrated. Live events must go mobile so fans can go social — or some fans may not go at all.”
    — David Holland, Senior VP, sports and entertainment, solutions group, Cisco




    “The dramatic escalation of regional cable rights fees are substantially increasing team values, especially in major markets, and also creates greater challenges to the efforts to achieve competitive balance.”
    — Alan Rothenberg, Chairman, Premier Partnerships






    “The trends that we are most focused on speak to revenue generation, customer experience, content and technology. As the last new building to open in New York, it is our intent to raise the bar and to differentiate ourselves. While we have aligned with Cisco to provide a seamless approach to sponsor activation and visualization, we can do more. While we intend to redefine the customer experience through our partnership with Disney Institute, we can do more. As we get ready to launch our content play with Barclays Center TV, we can do more. And lastly, as we bring a high density Wi-Fi solution coupled with the distributed antenna system, optimizing our arena connectivity, we can do more. And we will.”
    — Brett Yormark, CEO, Barclays Center



    “I’m anxious to see how teams will use technology to enhance the game-day experience. TV has made the experience at home so good in recent years, and teams must continue to improve the game-day experience or fans will stop coming to games. I will also follow with interest the changes that teams make in their premium products to ensure that they remain popular with fans.”
    — Mark Murphy, President & CEO, Green Bay Packers




    “How will new technologies, both hardware and software applications and the experiences they render, be integrated into the fan experience in and out of the live venue so they are exponentially additive rather than just being disruptive? Fan engagement must not merely be a technological novelty, but it must provide lasting value, shaping and deepening the audience experience that’s happening on the field, floor or ice. We must be careful not to kill the golden goose. All technology is a cold comfort unless it renders deep and resonant value to the core elements of our sports entertainment value proposition.”
    — Peter Guber, Co-owner, Golden State Warriors; Chairman & CEO, Mandalay Entertainment Group



    “Truly engaging digital sports experiences. As an industry, we’ve done a great job presenting live sporting events 10 different ways on TV and now we’re working to get this content onto 10 different platforms … but that’s not the end game. Sports by its very nature is engaging, drives community and plays off passions. The content we create and the digital experiences we wrap around it should do the same. The growing trend will be to develop content from the ground up that is begging to drive engagement, sharing and interaction. Additionally, the online experiences, the mobile/tablet applications, connected TV apps and everything we do needs to encourage this interaction — make it easy to share, watch together, taunt/brag … exploiting all the passion of sports.”
    — John Burris, President, Silver Chalice



    “Social media is one of the most exciting trends we are watching. This, as well as new digital and mobile technologies, have the potential to significantly impact sports fans’ experiences and increase their connection to teams, leagues and organizations.”
    — Jeff Diskin, Senior VP, global customer marketing, Hilton Worldwide





    “The trends I am watching the most are the role of big data in helping teams connect directly with their fans in new and different ways.”
    — Nathan Hubbard, CEO, Ticketmaster





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