Sales, Marketing, & Entrepreneurship

Play Ball!

August 2011 Pricing

Preventing the Resale of Sporting Event Tickets

 

The 2011 Crosstown Classic in Chicago, IL between the Cubs and White Sox proved to be entertaining and intense, as expected when two legendary rivalries collide.  As a baseball enthusiast and newcomer to the Windy City, I wanted to witness my first ballgame in style, with hotdog and cold beer in hand.  Searching for reasonable ticket prices in a favorable location within U.S. Cellular Field commenced at the onset of June (~20 days before the game).  The most obvious and direct resource available presented itself on the home team’s website schedule.  Not surprised at being redirected to Ticketmaster, I continued the search for ideal seats.

In 2010, Ticketmaster merged with Live Nation to become the present company, Live Nation Entertainment Inc.  Ticketmaster serves as a ticket sales and distribution center providing consumers a variety of entertainment venues, including sports, music, arts, and theater.  Ticketmaster participates in contracts with event promoters to be the sole provider of ticket sales in the primary market.  Approximately ninety percent of all tickets sales conducted in the NHL and NBA are delivered by Ticketmaster.  Until the acquisition of Tickets.com by the MLB, Ticketmaster was heavily relied on.  Apparently the White Sox are still in an active contract with Ticketmaster for sales and distribution of tickets, as of June 2011.

A bleacher seat, 18 rows back from the wall in left-center field was priced at $39.50 (USD).  According to Ticketmaster, they do not realize any revenue from the ticket sale itself, only from service and delivery fees.  On top of the asking price, a service fee of $5.60 and e-delivery charge of $2.70 were added to make the net price $47.80.  I was hesitant to complete the transaction without relevant price research in the secondary ticket market.

The search was sidelined for almost two weeks due to pressing work obligations and other financial constraints.  StubHub, a familiar provider of sporting event tickets in the C to C market, was the next tool employed. I found a comparable bleacher seat using the interactive map feature priced at $59.00.  The escalated price did not come as a complete surprise due to the shortening of time between the purchase date and the umpire sounding out “Play Ball.”

StubHub, TicketNetwork, and eBay are marketplaces that allow customers to buy and sell unwanted tickets.  For example, a season ticket holder uses StubHub as form of consignment to sell a Dallas Mavericks basketball ticket to a consumer that is available and willing to attend the game.    The sellers of tickets in the secondary market are capitalizing on possessing elastic demand characteristics.  Some sellers may be purchasing in bulk (Season Ticket Holder) and receiving a lower per ticket price or buying in advance to show higher price sensitivity.  Sellers posting available seats pay a two-part tariff to StubHub, a listing fee and a percentage of the net price.  The resale of tickets from elastic consumers to inelastic demanders at a premium price deteriorates segmentation hedges constructed by event executives.  The inability to enforce market segmentation eliminates the possibility of receiving multi-stream revenue in the primary market (aka Ticketmaster customers).

After observing the StubHub price, I immediately returned to Ticketmaster to view the original bleacher options.  As expected, no similar seats were available due to being sold out.  Accepting the premium ticket price for a bleacher seat in the secondary market revealed my higher willingness to pay.  As I enjoyed the game, I could not help but think what my neighboring fans paid for their ticket and where they purchased it.  We all were viewing the game from the same relative location and had an almost equal probability of catching a homerun ball.  It would be interesting to record the variance of ticket prices paid by consumers at entertaining events in unique areas.  Although the game was captivating, I began thinking about the distribution of profit realized by the firm, or in this case the ball club.

In recent news, the L.A. Dodgers[1] filed for bankruptcy protection to avoid defaulting on player’s salaries, existing debt, and retaining rights to TV contracts.  Another news article[2] on the financial health of NBA teams reports only half the teams were in the black during the previous season.  With despair looming in the sporting events world due to poor revenue gains, firms have incentive to reexamine trite business practices in search of more efficient, profit bearing strategies.  With a slight stretch, one could make the business parallel between the entertainment sector and airline industry.

In the early 1980’s, airline companies prohibited the resale of flight tickets among customers, explaining their actions as anti-terrorism tactics.  Even though their maneuver may have seemed preventative and considerate of patrons, their true incentive was positive profits through effective price segmentation hedges.  The ability for price elastic demanders of flights to purchase discounted tickets in advance and resale to less price sensitive consumers at a premium, eliminated dual market profits experienced in the airline industry.  The “Positive ID” ticketing process instigated the onset of price segmentation procedures familiar with airlines today.

Firms such as Fair Air in 2001 tried to continue providing consumers with a resale flight market by negotiating with certain airline companies to allow transferring the passenger’s name on the ticket.  This concept did not stick and survive in the market due to legal restrictions and the crowding out by large airlines not willing to cooperate.  To protect profit margins and continue to impose rigid price segmentation hedges, airlines eliminated the resale market of tickets under the veil of transport security.  Whether this was a strategic move or a stroke of luck, airlines prospered significantly.

The relevant question at hand addresses the harm of the resale entertainment market on ticket sales in the primary market.  Would the purging of firms, such as StubHub and Ticket Liquidator, through antitrust actions or marketing maneuvers augment revenue of underperforming sports teams and entertainment venues?  If sports clubs conducted price segmentation internally and exhibited these price structures to the gamut of consumers, larger profits would be realized.  Capturing consumers at several pricing points along the demand curve depending on their own price elasticity, ultimately leads to gaining more revenue.  A quantitative study including a price sensitivity analysis in market segments would suggest a more definitive answer to the formerly stated question.

References



About the author

Curry W. Hilton is a senior pricing analyst at Wiglaf Pricing and economics lecturer at Elon University. His primary research interest focuses on price segmentation, negotiations, and firm strategy.

Curry W. Hilton
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