This week in “Last Week in BizBall, “price integrity and the secondary market, plus tidbits, including a handful on the Cubs.
“PRICE INTEGRITY” AND THE SECONDARY MARKET
The current baseball biz story that I find most interesting is ticketing. While MLB has succeeded grandly in growing and diversifying their revenues via MLBAM (broadband and mobile), MLB Network, RSNs and real estate development, ticketing remains the lifeblood of franchises. Not so long ago MLB foresaw their entry into “secondary ticketing” as an untapped and lucrative source for additional revenue growth. In 07, MLBAM entered into a 5 year agreement with secondary ticketing industry leader StubHub. With that deal soon to expire, sports biz watchers are questioning if MLB will seek to extend it. Why might MLB get out of secondary ticketing? Many believe that the secondary market is killing both the “walk up” gate and making a mockery of ticket “price integrity”.
Pricing tickets in professional sports has long been controversial, particularly in MLB which has, by far, the largest ticket inventory of the “big 4”. Proponents of discounting tickets, or even giving away tickets, argue that it is better to have fans in the ballpark spending money at the concessions than have empty seats. The counter argument has always been that deeply discounted tickets destroys “price integrity”. In other words, when demand is low, discounting attracts fans, but when demand rebounds it is more difficult to bring the prices back up to their prior point. As well, the theory goes, discounting tickets alienates full and partial season ticket buyers (the most loyal and important customers) who resent having paid substantially more for their tickets. Early least season I brought attention to criticism in the Toronto sports media of Blue Jays President and CEO Paul Beeston over his refusal to engage in ticket discounting. Mr. Beeston’s critics pointed out that despite woeful early season attendance and widespread expectations that the club would finish well below .500 (those predictions were wrong), Blue Jays ticket prices were 12th priciest in MLB. Mr. Beeston responded to his critics by saying, “We’re trying to put some integrity back into our ticket pricing.” Beeston’s negative attitude towards ticket discounting might, in part, also have been in response to the Blue Jays “toonie Tuesday” (in Canada a two dollar coin is a “toonie”) promotion of the previous regime. That early season promotion, while popular, also resulted in excessive drunkenness and violence in the upper deck of the Rogers Centre.
LWIB, in light of the Nationals recent $1 and $2 ticket promotions, Darren Rovell argued that due to the secondary market, teams are fighting a losing battle over “price integrity”.
We're in the middle of May now and there are nine parks in Major League Baseball this year that are averaging crowds that fill less than half their ballpark. Most seem to be disinterested to do what it takes to fill the stands.
Instead, they're clinging to the age-old marketing tenet — don't ever devalue your product. Problem is, your product isn't being devalued. It's being revealed. The secondary market is showing that the team's price on tickets is off. If teams don't accept that on a given night against a bad opponent, their ticket is worth $1, then they are just denying the reality.
Tonight, the Cleveland Indians play the Kansas City Royals at Kauffman Stadium. The cheapest seat is $5. Yet on StubHub [EBAY 31.70 -0.78 (-2.4%) ], there are more than a hundred seats for less than $5. What's the difference? Well, the team is likely to sell more tickets if it specifically markets a lower price.
Perhaps the rapidly spreading implementation of dynamic pricing across MLB will decrease the amount of tickets being sold at below face value on the secondary market. Unlike the secondary market, clubs set the prices of “dynamically priced” tickets and, in fact, set artificial prices floors in some sections of their ballparks to protect the “price integrity” of tickets already sold to full and partial season-ticket holders. As well, across professional sports, clubs appear set to impose stricter controls over who they allow to resell “their” tickets. This initiative is made more feasible with the move to “paperless ticketing” which will allow ticketing vendors to impose restrictions on reselling. Ultimately, some speculate the future of ticketing will be decided in court over the question of who owns the ticket and what they are allowed to do with it.
SELECT READ MORE TO SEE THIS WEEK'S TIDBITS
- Ed Sherman wrote about the major decline in attendance at Wrigley Field this season. Ed understands that the weather has been brutal but doesn’t believe that it is the sole factor in the diminished numbers. Ed also notes that there are a glut of cheap Cubs tickets on the secondary market, which has “undercut” the club’s discount promotions. Ed also interviews Cubs owner Tom Ricketts for his perspective on Cubs ticket sales.
- The Cubs plans to renovate Wrigley Field are often, and understandably, compared with what John Henry’s group has done with Fenway Park. Mr. Henry has been very successful in increasing revenues at Fenway without compromising it’s allure. The Cubs visit to Fenway this past weekend led Ed Sherman to write that Tom Ricketts has no choice but to make similar changes to Wrigley Field.
…the Red Sox reportedly generate an estimated $35 million to $40 million per year from their signage. That's big money.
Meanwhile, the Cubs, who took extreme grief over putting up the Toyota sign in the bleachers, produce a fraction of that amount because of limited in-stadium advertising.
You can bet Cubs owner Tom Ricketts will be taking notice of all those signs and the big moneymaking video board in center field. He'll also note that they really haven't diminished the charm and ambiance of the fabled ballpark.
I think it is just a matter of time before Mr. Ricketts gets aggressive in adding more signage to Wrigley Field. He really has no choice. It's too much money to be leaving on the table.
- Earlier this month (scroll down to the tidbits) I brought attention to John Maffei’s report that the Padres and Fox were set announce a 14 yr/$20 billion deal. I added, “To put this in perspective, the AAV of $70 million is almost a QUINTUPLING of the reported $15 million the Padres currently receive from Cox.” LWIB, John reported that the deal is more likely to be in the range of $25 - 30 million, over 20 years. John reports that, at least initially, the Padres games will likely be broadcast on FSN-Prime Ticket until if/when Fox launches a San Diego based RSN. (HT Fang’s Bites)
- LWIB, ESPN told us that, according to Nielsen, ratings for Sunday Night Baseball are up 15% over last season. They added that, “Overall, ESPN’s 22 MLB telecasts this season are up seven percent among viewers…” Ratings for Saturday baseball on FOX have been a mixed bag. The Sports Media Watch blog reported that, “The first of three straight primetime MLB telecasts on FOX this season was down from last year, but still hit a season-high in viewership.” And, “Overall, four of the seven MLB telecasts on FOX this season have had increases in viewership compared to last year.”
- How did the Yankees end up paying Posada and Jeter a combined near $30 million this season? (Not that baseball fans have any sympathy, me included) Brian Goff has an interesting take on this subject at The Sports Economist blog.
- I didn’t know this until LWIB, but last season, Chicago-based AT&T U-verse customers were able to view Cubs home games on WGN using Chicago Cubs Multiview. AT&T describes Chicago Cubs Multiview as an interactive TV app that lets U-verse customers view up to four different camera angles of the Chicago Cubs home games at one time, choosing from the main WGN America game broadcast and six alternate camera angles. Carolyn Braff of the Sports Video Group blog reported that this season, AT&T and WGN are making their Cubs IPTV app available nationwide. Carolyn adds, “The Chicago Cubs Multiview app is the latest in a trend of television applications that give fans more access to their sports teams and more control over how they consume sports content. Other sports apps available through AT&T U-verse TV include Sports Multiview, which allows fans to choose from all of their sports channels to watch up to four at once; Fantasy Football, which allows fans to track the progress of their Yahoo! Sports fantasy football team on their TV screens; and College Basketball, which allowed fans to view brackets, their personalized bracket, and game summaries on their TV screens during the NCAA Men’s Basketball Tournament.”
- As the recession has squeezed the budgets of governments of all levels, public investments to construct, finance and, perhaps most importantly, maintain, publicly owned stadia are under increased scrutiny. LWIB the New York Times published a piece by Ken Belson detailing the failure of publicly owned arenas in smaller cities to deliver on their promise of generating development, taxes, jobs etc. At the “major league” level, LWIB, Todd Portune, a Hamilton County commissioner, received a lot of local media attention over his proposal to levy a new ticket tax on the Bengals and Reds. Sharon Coolidge estimated that, ..the tax could add $14 to the price of a Bengals ticket and 44 cents to the price of a Reds ticket. The City of Cincinnati already imposes a 3% admissions tax, and a half-cent sales tax to pay for the two stadiums has been collected since 96. Nonetheless, Hamilton County is facing shortfalls of 10’s of millions annually (numbers vary according to reports) in operating and maintaining the two stadiums. In fairness to the Reds, the operation of Paul Brown Stadium is responsible for the vast majority of the shortfalls in revenue. The Browns and Reds negotiated their stadium deals during the heyday of the public stadia building boom. Today, in harsher, tougher times, politicians like Todd Portune understand the political gain in playing to voters who resent subsidizing multi-billion dollar sports leagues.
Pete Toms is senior writer 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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