Download Ticket Pricing article

Ticket Pricing
The main “product” a sport franchise has to sell is seats—or more exactly, the
tickets that put people in those seats. How much should tickets cost? Deciding
how to price tickets might seem simple: stadium owners and promoters should
charge as much as they can, right? But it’s not as easy as that.
Ticket pricing: a challenge in the best of times
Tickets for the Rolling Stones’ 50th anniversary shows in 2012
went for as much as $2,450. In the case of the Rolling Stones,
some consumers didn’t want to pay such high prices, so seats
went unsold. Ticket agencies and individuals made matters
worse by purchasing blocks of tickets—reducing the supply—and
attempting to capitalize on the higher demand by reselling them at
considerably more than their already high face value. We’ll return
to the role of ticket resellers in a moment, but first let’s discuss the
basics of ticket pricing in a simpler situation involving just stadium
owners, promoters, and consumers.
Pricing seats has always been tricky because the number of seats
is fixed, and there is no marginal cost to selling additional seats.
But, it’s also tricky because it is notoriously difficult to accurately
gauge the ebbs and flows of supply and demand. Supply is the
number of tickets available; demand is the number of people who
want to purchase them.
After completing this
lesson, you’ll be able to:
• understand ticket pricing
for both sporting events
and concerts.
• consider basic
relationships between
price and demand.
• see why different seats
command different
prices.
• discuss the concept
of yield management
pricing.
• discuss the pros and
cons of dynamic pricing.
The ticket booth is the traditional meeting point between supply and
demand, stadium owner and consumer. (Morguefile/digitallatina)
Ticket Pricing
Page 1
But how can stadium owners know in advance all the variables—
such as competing events, the quality of the teams involved (if
a sporting event), the overall economy, and weather concerns—
that will help determine how to price tickets so they all sell at the
maximum possible price?
Different prices for different tickets
Despite the challenges, stadium operators and promoters try their
best to sell all the seats in the stadium for every event. That seems
obvious, but it also brings up a dilemma. A 50,000-seat stadium
could sell out every event if each ticket cost $1, but if every event
also cost the stadium $500,000 to stage, it would go bankrupt. No
event can sell enough merchandise to cover losses like that!
When you visit the ticket
booth at a stadium or visit
a team’s ticket website,
you’ll see how stadiums
attempt to hedge against
the variables that factor
into ticket pricing. Savvy
owners and promoters use
yield management pricing,
a fancy way of saying that
better seats cost more
money. A seat on the
50-yard line at the Super
Bowl will be a lot more
expensive than a seat in the
“nosebleed” section of a
regular-season game.
Empty seats are a problem that stadium owners want to avoid.
There’s some interesting math
(Morguefile/jimb)
at play here too. The number
of tickets sold at each pricing tier is designed to yield the most total
revenue, which is defined as the number of tickets sold multiplied
by the average price per ticket. In an ideal scenario, given perfect
knowledge of supply and demand, stadium owners can use yield
management pricing to derive the maximum revenue for each event.
Yield management pricing is used whenever the quantity of a
product is fixed and there is little or no marginal cost to providing
additional units. Examples include the price of sports tickets, airline
seats, hotel rooms, and concert tickets.
Nothing is ideal when it comes to ticket pricing, however. According
to statistics collected by ticketing software firm Qcue, half of event
tickets are never sold, while 10 percent are sold for twice their face
value. What’s the cause of this ticketing disparity?
Ticket Pricing
Page 2
Why the system of ticket sales is broken—and
how to fix it
Ticket pricing has not been immune to the effects of the Internet.
Thanks to the proliferation of mobile devices, such as phones and
tablets, it’s now easier than ever for consumers to research events
and ticket prices.
The Internet has revolutionized ticket pricing, but not always to the
benefit of consumers. One downside for consumers is that online
ticket purchasing makes it easier for Internet-savvy ticket brokers
and individuals to purchase bulk tickets, which artificially constricts
supply and drives up prices. A spokesman for the Rolling Stones
told a British newspaper that he lamented the role of middlemen in
pricing some consumers out of the concerts. “It’s a real shame that
fans have been prevented from buying tickets at the original price
and that secondary marketing agencies are attempting to profit. The
band does not participate in anything of this nature.” Ticket brokers
defend their practices as a way to ensure that consumers have
the ability to attend virtually any event they choose—for a modest
service charge—even if the event is officially sold out. These brokers
are not to be confused with ticket agencies like Ticketmaster, which
are companies stadium owners use to manage their ticket sales.
The upside for consumers is dynamic pricing—ticket prices that
aren’t fixed but change based on the ebbs and flows of supply and
demand. To understand dynamic pricing, think of an airfare site
like Priceline.com: the consumer makes an offer, and the seller
can either accept the offer or make a counteroffer, all hopefully
culminating in a ticket sale. The concept is the same for sports or
entertainment events. The dynamic pricing model enables stadium
owners to get closer to their goal of selling out every event and
ensuring the maximum possible profit. More and more professional
and amateur sports teams are warming to the idea of dynamic
pricing because it reduces the financial risk from unsold tickets.
Summary
Ticket pricing has always been as much an art as a science. Stadium
owners face a dilemma: if they lowball ticket prices, they hurt their
profit margins. If they price tickets too high, they risk the prospect
of empty seats. A few strategies can hedge against the complexity
of accurately gauging supply and demand, most notably yield
management pricing. With the advent of the Internet, consumers
and stadium owners face both risks (bulk purchasing by ticket
brokers that drives up prices) and rewards (dynamic pricing).
Ticket Pricing
Page 3
KEY TERMS
Price
The amount of money charged
for one unit. Ticket prices
should reflect what customers
are willing to pay.
Revenue
The money collected in sales.
Revenue is equal to (number
of unit sales) × (price of
each unit). A sports franchise
has a number of revenue
sources, including ticket sales,
concessions, licensing, and
sponsorships.
Demand
The amount of goods or
services that customers
want to buy. Ticket prices for
a sporting event should be
determined by the demand
that exists for that event.
Yield management pricing
Setting different prices for
goods or services in an effort to
maximize revenue when limited
capacity is a factor.
Dynamic pricing
A system of fluid, not fixed,
ticket prices that increase or
decrease due to small and/or
short-term changes in supply
and demand. Dynamic pricing
is facilitated by the Internet and
mobile technology.
Marginal cost
The cost of producing one
additional good or making one
more of a commodity (like a
seat at a stadium) available.
Ticket brokers
Individuals or companies who
purchase tickets in bulk to
artificially constrict demand and
drive up prices.
Ticket agencies
Companies that stadium owners
use to manage their ticket
sales.
KEY MATH CONCEPTS
1. Maximizing revenue at an event usually means selling different tickets at different prices. To
calculate the total revenue for an event, add up the revenue for each section. Calculate the
revenue for each section as the ticket price times the number of tickets sold. To calculate the
average ticket price for an event, divide the total revenue by the total number of tickets sold.
Example A: An event sells 1,000 tickets for Section A at $40, 2,000 tickets for Section B at
$30, and 3,000 tickets for Section C at $20. What is the total revenue for the event?
Answer:
1,000 tickets x $40/ticket + 2,000 tickets x $30/ticket + 3,000 tickets x $20/ticket = $160,000.
Example B: For the above event, what is the average ticket price for the event?
Answer: Total revenue = $160,000 Total tickets = 1,000 + 2,000 + 3,000 = 6,000
Average ticket price = Total revenue / total tickets = 160,000 / 6,000 = $26.67
Note: This is below $30 because more tickets were sold at $20 than at $40.
Ticket Pricing
Page 4