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Pete Toms Article Archive
Written by Pete Toms   
Monday, 22 February 2010 06:50

Last Week in Bizball by Pete Toms

This week in ‚ÄúLast Week in BizBall‚ÄĚ, the Cubs pre-sale of tickets at 20% over face value brings attention to the shifting sands of ‚Äúticketing‚ÄĚ, an update on the future of the Portland Beavers franchise, difficult times ahead for MiLB owners?, and tidbits.

‚ÄúTICKETING‚ÄĚ UPDATE

LWIB saw much reporting and controversy surrounding the Chicago Cubs pre-sale of tickets at 20% over face value. In August 07, MLB and ticket resale leader StubHub announced they had entered into a 5 year revenue sharing partnership. At the time, many sports business pundits believed that the formal entry of the ‚Äúbig 4‚Äú into the ‚Äúsecondary ticketing‚ÄĚ market would bring vast amounts of new revenue to professional sports. More recently, some question if ‚Äúsecondary ticketing‚ÄĚ has been the boom to professional sports that many foresaw and if the ‚Äúbig 4‚ÄĚ should be in the ‚Äúsecondary market‚ÄĚ at all. The last few years have also seen the introduction of sophisticated ‚Äúticketing‚ÄĚ systems. This new technology is revolutionizing ‚Äúticketing‚ÄĚ, allowing clubs to introducing the ‚Äúvariable pricing‚ÄĚ model long used by the airline industry. MLB revenues have never been more diversified and ticket sales no longer account for a majority of industry revenues. However, MLB remains at its core a ‚Äúbutts in the seats‚ÄĚ business, as ticket sales continue to be the single biggest source of revenue in the industry. How franchises adapt to the rapidly changing world of ‚Äúticketing‚ÄĚ bears watching.

LWIB the Cubs staged their first MasterCard First Chance Presale. From February 15-18 tickets were available via the Cubs at 20% over their face value. (15% if purchased via MasterCard) ¬†Pre-sales of tickets amongst MLB clubs is not new or unique. Many clubs, to varying degrees, offer pre-sales to existing customers (e.g. full and partial season ticket holders) Ken Belson pointed out in the New York Times that, ‚Äú‚Ķthe Cubs‚Äô presale stands out because there are no preconditions to participate ‚ÄĒ just a willingness to pay more.‚ÄĚ Mr. Belson also described the conditions that allowed the Cubs to implement such a pre-sale.

In Boston and Chicago in particular, where the Red Sox and the Cubs are intensely popular, the ballparks are famously small and the high proportion of season-ticket holders has reduced the number of individual-game tickets available, fans feel the pressure to immediately get online and buy seats before it is too late.

AND

…..the waiting list to get a season ticket at Wrigley Field has 110,000 people on it.

Media reaction to the Cubs pre-sale was mixed. Tim Joyce was offended by the Cubs new practice and expressed his disdain at RealClearSports:

Yes, the Cubs are now in the business of officially scalping their own tickets. Their cynical and contemptible new policy gives their fans a chance to purchase advance sale tickets for regular season games this week for a limited time, but with a 20% Scalping Tax added on. And the owners of the most storied Chicago franchise haven't neglected their corporate duties - if one pays with a MasterCard, it's only a 15% fee.

Don Walker wrote for the Milwaukee Journal Sentinel, ‚ÄúDepending on your point of view, what the Chicago Cubs are doing today is either a naked money grab or marketing genius.‚ÄĚ Mark Brown wrote for the Chicago Sun-Times, ‚ÄúThis is the conundrum in which the Cubs always find themselves: Their tickets are worth more than they can get away with charging for them from a public relations standpoint, a fact proved out by the prices those tickets fetch on the secondary market.‚ÄĚ

The Cubs pre-sale also illustrates the entanglements amongst franchises and ticket resellers/brokers in contemporary professional sports. While MLB, via their official ‚Äúsecondary ticketing‚ÄĚ partnership with StubHub is active in this marketplace, the Cubs staged the pre-sale in part to insulate themselves from the secondary market. Along with the pre-sale the Cubs have increased the number of ‚Äúplatinum‚ÄĚ games on the Wrigley schedule, again in part due to the secondary market. Petrina Crockford reported for TicketNews.com:

The team increased the number of platinum games for the 2010 season, from 14 to 26.

The Cubs also attribute the increase in ticket prices to the secondary market. Cubs president Crane Kenney told the Chicago Tribune that 25 percent of platinum tickets ended up on StubHub, which is also the official reseller of MLB.

Brian Borawski reacted to the Cubs pre-sale at The Hardball Times, ‚ÄúThis is also an obvious attempt by the Cubs to chew into the resale ticket market. I know the ticket resale business was huge a couple of years ago and while I‚Äôm sure it‚Äôs regional, I know they‚Äôre still around. Teams have made attempts to get in on the game with varying results and this is just one more stab.‚ÄĚ

The Cubs reasoned that their pre-sale would be popular with fans indifferent over whether they paid a premium on the ‚Äúsecondary market‚ÄĚ or directly to the team to ensure their attendance at games they had a strong interest in. While no numbers were released, Cubs CMO Wally Hayward was quoted after the first two days of the pre-sale, "From what we saw yesterday and today, we received tremendous support from the fans, We've had a lot of positive response to this."

Not surprisingly, the pre-sale also brought attention to the long time controversy surrounding whether or not the Cubs have been scalping their own tickets for many years. From the aforementioned Mark Brown column:

At least this 20 percent premium fee for the pre-sale is right out in the open, unlike Wrigley Field Premium Ticket Services, the ticket broker surreptitiously created by former Cubs owners Tribune Co. to enable the team to scalp its own tickets. Because the ticket broker service was owned by Tribune, the team was successfully able to argue that it was separate from the team and therefore legal.

It might interest you to know that this "separate" company was part of the sale of the team to the Ricketts family and that the Cubs will continue to sell tickets to Wrigley Field Premium Ticket Services for resale to the public.

SELECT READ MORE TO SEE MORE ON TICKETING, AN UPDATE ON THE POSSIBLE RELOCATION OF THE TRIPLE-A PORTLAND BEAVERS. WHETHER MINOR LEAGUE BASEBALL COULD HAVE A TOUGH YEAR, AND OTHER TIDBITS

While the Cubs strive to see fewer of their tickets sold via the ‚Äúsecondary market‚ÄĚ, last season saw reports that the Yankees were doing the opposite. There was speculation that in order to move ticket inventory that had been over priced using a pre recession model, the Yankees turned to the ‚Äúsecondary market‚ÄĚ. Last season Alfred Branch Jr. reported for TicketNews.com:

Less than a week after the team slashed prices for many of its premium tickets, hundreds of premium New York Yankees tickets are turning up on StubHub, and speculation is rising that the team or intermediaries may have posted them.

While there is no direct proof that the team is involved ‚Äď as a policy, StubHub does not disclose seller information ‚Äď large quantities of premium seats are not turning up on other broker Web sites or exchanges, only on StubHub, which gives the impression that the tickets are not coming from multiple sources.

Many of the Suite seats tickets began turning up on StubHub after the team cut prices for them last week, and began offered extra tickets to previous purchasers and season ticket holders.

Is the ‚Äúsecondary market‚ÄĚ the friend or foe of MLB clubs? The answer is likely neither but certainly the hype around ‚Äúsecondary ticketing‚ÄĚ has abated. At the end of 07, CNNMoney.com reporter Chris Isidore named StubHub his Sports Business of the Year, ‚Äú‚Ķ.nothing has been more significant, or will have as long-lasting effect, as the rise of the market for ticket reselling.‚ÄĚ Mr. Isidore was far from the only sports business pundit at that time predicting newfound riches for professional sports from ‚Äúsecondary ticketing‚ÄĚ. Less than two years later, some sports business reporters are arguing that ‚Äúsecondary ticketing‚ÄĚ has been a disappointment to the industry. While there is obvious profit in reselling tickets to high demand games, ‚Äúsecondary ticketing‚ÄĚ has also resulted in a glut of ridiculously cheap tickets. In July of last year, Tom Van Riper reported for Forbes:

The resale market for sports tickets has gone the way of the real estate boom--a bonanza driven by ever-increasing prices that came crashing down when the bubble proved unsustainable.

AND

But these days, online prices are dropping along with demand, with many games going for far below face value. At the same time, management's double-dipping into the ticket till turns off some fans who believe teams were already squeezing every last dollar out them. Never mind that StubHub prices move with demand, whether or not the team gets a cut of the sale, perception often trumps reality. And the revenue that clubs are realizing from the practice isn't living up to expectations, some say.

In May of last year, Eric Fisher reported for the SportsBusiness Journal that the ticket resale market has changed dramatically from its origins when it catered to a high-end clientele. Last season saw an overabundance of MLB tickets on the ‚Äúsecondary market‚ÄĚ resulting from a flood of individual resellers into the marketplace, spurred in part by the recession.

‚ÄúThere is so much inventory out on the markets right now, particularly for baseball,‚ÄĚ said Mike Janes, co-founder and chief executive of FanSnap, a Bay Area-based startup that acts as a metasearch engine for secondary tickets. More than 15 million tickets are accessible through the site, and the majority of those tickets are for sporting events. ‚ÄúI joke now that you‚Äôre going to pay more for your beer or your parking to go to a game than your actual ticket. Heck, you could pay more for your large mocha latte. But we‚Äôre living in a very, very different world now.

‚ÄúThere was a general thought for a long time in this business that ticket resale was a supplier-driven business, but the supply-demand equation has totally swung the other way now,‚ÄĚ Janes said.

‚ÄúSecondary ticketing‚ÄĚ is not the only major change of recent years in ‚Äúticketing‚Äú. Clubs are adopting ‚Äúvariable pricing‚ÄĚ (aka ‚Äúdynamic pricing‚ÄĚ) models. In the ‚Äúvariable pricing‚ÄĚ model, ticket prices for the same seat are continually adjusted according to a broad range of factors including (but not limited to) day of the week, weather forecast, opponent, starting pitcher(s), standings, in stadium promotions, etc. Many have pointed out that this strategy is not new, the airline industry has practiced it for many years. However, the introduction of sophisticated ticketing software developed by companies like Qcue and Stratbridge has recently allowed MLB franchises to implement the same approach.

Darren Rovell of CNBC was likely the first sports business pundit to predict the use of ‚Äúvariable pricing‚ÄĚ by professional sports franchises. In December 08, Mr. Rovell reported on the Giants decision to use Qcue‚Äôs software to manage some of their ticket inventory for the 09 season.

The SF Giants are going to do very well with this program and I think, in the end, will find out that they're going to make more money through airline pricing than static pricing. At this point, many clubs wrongly see this as a risk and that's why it's going to take some time. But in two years, I'm thinking a third of the baseball teams will be doing this with thousands of their seats.

In October, Don Muret reported for the SportsBusiness Journal that the Giants were very satisfied with the results of their limited use of Qcue‚Äôs ‚Äúdynamic pricing‚ÄĚ software during the 09 season.

The San Francisco Giants’ dynamic pricing program at AT&T Park proved to be such a success in 2009, the club says, that it is exploring the possibility of expanding the system to the entire ballpark for 2010.

The Giants say they generated $500,000 in incremental ticket revenue after signing a one-year contract with software company Qcue that enables the club to change single-game prices at any time.

The team sold 25,000 single-game tickets for seats in the outfield bleachers and upper deck, in the stadium’s least desirable locations. The Giants wouldn’t reveal a total revenue figure for the seats or how it compared with previous seasons.

Darren Rovell‚Äôs aforementioned prediction appears prescient in light of the SportsBusiness Journal‚Äôs recent prediction to, ‚ÄúLook for more teams to start testing dynamic pricing to sell tickets in least demand.‚ÄĚ

The recent changes in ‚Äúprimary ticketing‚ÄĚ (premium games, variable pricing) have met with some media backlash. Earlier this month, Joe Eskenazi of SF Weekly described the Giants ‚Äúdynamic pricing‚ÄĚ as ‚Äúdownright evil‚ÄĚ.

….it just seems downright wrong that you should be made to pay more for a baseball game because it's a "great day for baseball." It seems exploitative that you should be made to cough up extra dollars when Tim Lincecum is on the mound: will we be given a deep discount when Zito is pitching or Pablo Sandoval takes a day off? Further following the airline model, will we be charged extra for using the restroom? Do clean seats cost more? Do I have to pay extra to stay out of the all-felon, all-drunk, all-jerks talking loudly about work on their iPhone section?

Mr. Eskenazi‚Äôs disdain for ‚Äúdynamic pricing‚ÄĚ comes on the heels of the complaints last month from Kevin Cowherd of The Baltimore Sun regarding the Orioles announcement to charge more for 19 ‚Äúpremium games‚ÄĚ (Opening Day plus all Yankees and Red Sox visits) as well as tacking on an additional charge to tickets purchased on game day. Mr. Cowherd reported that, according to the Orioles, 10 other teams charged a premium for game day tickets last season. Sports economist Dennis Coates responded to Mr. Cowherd‚Äôs column and wonders if the MLB franchises charging a premium on game day purchasers are ill advised.

…Early purchasers of airline tickets get lower prices than last minute purchasers. The airline bears risks of flying with empty seats, and the higher last minute prices capture the opportunity costs of selling the seats earlier, for example. Of course, virtually no one has to suddenly and unexpectedly rush to a ball game, so holding seats open for these last minute purchasers cannot justify the higher prices for game day purchases.

It isn't clear to me how it is a reward to advance ticket buyers to know that day of game ticket buyers paid a higher ticket price. It is even less clear to me that a "reward" to the buyers least likely to alter their purchasing behavior is a profit-maximizing business move. In other words, it seems to me the Orioles have their pricing with respect to day of game tickets versus advance tickets exactly backwards.

Variable pricing is here to stay if it fulfills its promise of allowing clubs to sell more of their least desirable ticket inventory. As for the philosophical debate over whether it is positive for baseball fans, not all are in agreement with Mr.‚Äės Eskenazi and Cowherd that the fans are being ‚Äúplayed‚ÄĚ by the franchises. Aside from the premiums being charged by some clubs on ‚Äúgame day‚ÄĚ purchases, some argue that ‚Äúvariable pricing‚ÄĚ of MLB tickets is a positive development. Stanford economist Roger Noll remarked to the Biz of Baseball in an interview published November of last year, ‚ÄúEconomists have always wondered why pro sports teams do not engage in more price variability than they do. It makes sense economically to have the sticker price be the price that is appropriate for the weekend, and to offer discounts for week days, especially if the opposition is weak.‚ÄĚ

J.C. Bradbury reacted to Mr. Eskenazi‚Äôs criticisms of ‚Äúdynamic pricing‚ÄĚ at his Sabernomics blog. Mr. Bradbury argues that the introduction of ‚Äúdynamic pricing‚ÄĚ to MLB is a positive for baseball fans.

‚Ķ.The blessing of charging different prices for a product is that it allows more units to be sold at a lower price. In a world were a seller chooses only one price for a product, it must be the one where it maximizes the gains from selling a few units at a high price and selling many units at a low price. Where that price occurs it‚Äôs going to result in some people paying prices less than they value the product and some having to pay more than they value the product. The former group will continue to purchase the product, but the latter group is priced out of the market‚ÄĒthis is very bad.

AND

But with price discrimination, those marginal fans have the opportunity to go to games when other fans value them less…Fluctuating prices don’t just mean higher prices, they result in lower prices as well. The team now has the freedom to charge lower prices without losing revenue from all the fans willing to pay higher prices when games are in high demand.

If dynamic pricing goes away, so do the cheap seats. If you have to choose one price to maximize profits, it’s going to be one that prevents a lot of fans from going to the games, and that is a bigger tragedy in my mind.

Selling tickets at Wrigley Field and Fenway Park is a much different proposition than selling tickets at Progressive Field and Rogers Centre. For some clubs the concern that the ‚Äúsecondary market‚ÄĚ cannibalizes their ‚Äúprimary market‚ÄĚ market is a legitimate concern. For other clubs, the challenge is pricing tickets on their ‚Äúprimary market‚ÄĚ closer to what the ‚Äúsecondary market‚ÄĚ commands. With ‚Äúvariable pricing‚ÄĚ in MLB in its infancy, it is too early to know if selling baseball tickets is analogous to selling seats on an airplane. ‚ÄúTicketing‚ÄĚ will be an interesting and important area to both fans and franchises in the present and near future.

PORTLAND BEAVERS UPDATE

Last month, Last Week in BizBall reported on the real possibility that the Portland Beavers franchise will relocate subsequent to this season. LWIB, Josh Leventhal reported for Baseball America:

Triple-A Portland is exploring the possibility of temporarily relocating to Tucson, Ariz., for the start of the 2011 season if it cannot complete construction on a new local ballpark in time for Opening Day, a pair of newspapers recently reported.

The Arizona Star reported that Portland owner Merritt Paulson has been exploring the Tucson market, which hosts a pair of ballparks suitable for Triple-A baseball. Meanwhile, Portland general manager Chris Metz confirmed to the Oregonian that the team has been looking at other markets, but he would not elaborate as to where.

Houston suburb Sugar Land has also been rumoured as a possible future home to the Portland franchise. LWIB, BallparkDigest.com reported that negotiations are moving ahead on the construction of a new ballpark in Sugar Land. But the possibility of the Portland franchise relocating to Sugar Land is suspect because, ‚Äú‚Ķthe front office of the Houston Astros has been adamant in its opposition to any affiliated team entering the market.‚ÄĚ

DIFFICULT TIMES AHEAD FOR MiLB OWNERS?

MiLB attendance declined approximately 3% last year. By comparison, MLB attendance declined approximately 6.5% last year. Both were very satisfied with the results given the economic recession. Nonetheless this off season has brought reports that some minor league owners are experiencing difficulties not seen in the recent past. LWIB, Will Lingo the Editor in Chief of Baseball America reported on the January annual shareholders meeting of Rochester Community Baseball (aka the owners of the Triple A Rochester Red Wings).

‚Ķthis year the Red Wings lost money for the first time since moving into Frontier Field in 1997. According to the Democrat and Chronicle, the Wings lost $24,349 last season‚ÄĒdriven primarily by investment losses ‚ÄĒand while that's a small loss, it shows the tight times minor league teams are facing, even the successful ones.

Shareholders, while approving the issues put before them like officers and bylaws, had the most questions about Rochester's ownership of the Batavia franchise in the New York-Penn League. The Red Wings saved the franchise from ruin by taking it over before the 2008 season and assuming its debts, and the Muckdogs operation has lost a total of $396,920 since Rochester took it over.

The Red Wings hope to recoup their investment by eventually selling the franchise, but some were skeptical that they'll find a buyer in these economic times.

Mr. Lingo’s report was reminiscent of a year end prediction made by BallparkDigest.com.

It will continue to be a buyers' market in the minors. It is a good time to have money, as there are some deals to be made if you're looking to buy a baseball team. Former MiLB President Mike Moore repeatedly warned owners about the escalating valuation of ballclubs, and it looks like he was right: Many teams were overvaluated the last five years, and unfortunately a lot of folks bought into the market at its high point. We continue to hear about affiliated teams on the market for some pretty decent and fair prices. Valuations are even more depressed in the indy ranks. We don't expect this trend to wane in the coming year.

TIDBITS

  • Mike Ozanian of Forbes is very critical of the pending sale of the Rangers from Hicks Sports Group to a consortium led by Chuck Greenberg. ¬†‚ÄúThis deal stinks. It is rotten to the core. And it sets a bad precedent‚Ķ..It will be a sick joke if 75% of MLB's owners sign on to this deal, as is required for league approval.
  • MLB continues to grow its RBI (Reviving Baseball in Inner Cities) program. This weekend saw MLB‚Äôs Urban Youth Academy in Compton host a tournament for 2 HBCU‚Äôs and 2 Division I schools. (details here) ¬†A second Urban Youth Academy is set to open in Houston to be followed by a third in Hialeah, Florida. LWIB, Don Walker reported for the Milwaukee Journal Sentinel that MLB executive vice president of baseball operations Jimmie Lee Solomon recently visited Milwaukee and discussed with local business people the possibility of an Urban Youth Academy in that community. In the 09 amateur draft, 21 athletes who either played or trained at the Major League Baseball Urban Youth Academy were selected.
  • Diane M. Grassi is very critical of MLB and the MLBPA for not taking measures to improve the working conditions of Costa Ricans who manufacture (by hand) 2.2 million baseballs annually. ‚ÄúAs America‚Äôs National Pastime has continued to rake in record high revenues over the past several years ‚Äď in the billions of dollars each season ‚Äď MLB continues to remain deaf to its critics concerning the manufacture of its Official Baseball, apparel and other accessories, with regard to unfair labor practices in the Third World.‚ÄĚ
  • Sarah Talalay blogged about the Marlins‚Äô FanFest for the South Florida Sun Sentinel. Ms. Talalay quotes Marlins President David Samson on the prospects of the Marlins hosting an All Star Game in their currently under construction new stadium. ‚ÄúIt has not been confirmed, but if you thought to yourself we would host the All-Star Game in 2015, you would probably not be misleading yourself,‚ÄĚ


Pete Toms is an author for the Business of Sports Network, most notably, The Biz of Baseball. He looks forward to your comments and can be contacted through The Biz of Baseball.

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