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Pete Toms Article Archive
Written by Pete Toms   
Monday, 20 December 2010 19:11

Last Week in Bizball by Pete Toms

This week in “Last Week in BizBall”, more changes to “ticketing”, the ongoing debate over player recruitment in the Dominican Republic, plus tidbits

WILL MLB ScoreBig?

MLB sells more tickets than any of the “big 4”. Despite the declining attendance of the last three seasons, ticketing is reportedly still the largest single source of revenue for MLB. In recent years, MLB, via Major League Baseball Advanced Media, has become much more directly involved in the vendor side of ticketing. In 05, MLBAM purchased Tickets.com. In 07, MLBAM entered into a formal partnership with “secondary ticketing” industry leader StubHub. This year, MLBAM formally partnered with ticketing software provider Qcue to offer “dynamic pricing” to all clubs.

Results from MLB’s foray into the secondary market have reportedly been mixed. While there are easy profits to be reaped from high demand games, the secondary market also provides a glut of cheap tickets for games of little appeal. There are ancillary benefits to MLB’s formal participation in secondary ticketing. The data derived from secondary ticketing is a goldmine of qualified sales leads for clubs. As well, a convenient method of reselling unwanted tickets helps alleviate a longstanding drawback to purchasing season tickets/partial plans. (Approximately 20% of tickets sold are unused) Dynamic pricing, where the price of a ticket is continually adjusted according to a broad number of factors including day of week, weather forecast, opponent, standings, recent team performance, starting pitcher(s), etc., has been utilized by only one club (Giants) to date in any significant way. The White Sox and Astros experimented with the practice on a small scale this season. However, dynamic pricing is expected to be adopted across MLB very rapidly. But clubs are not, nor are they likely to, practicing “dynamic pricing” in the truest sense. In order to preserve the “price integrity” of tickets, an artificial price floor is in effect.

LWIB saw the debut of the latest innovation in sports/entertainment ticketing. ScoreBig is selling unsold ticket inventory at discount (below face value) prices. Fans submit a bid to ScoreBig to sit in a particular section and that bid is either accepted or rejected. If rejected, you must wait a day to submit another bid. ScoreBig acquires unsold ticket inventory from teams, leagues, venues and brokers and splits the revenue from the sale with the ticket supplier. Teams have always had extremely large inventories of unsold tickets but have not attempted to move them via “discounting” in order to protect the price integrity of their tickets, particularly season tickets. Fans purchasing from ScoreBig will know the face value of the ticket but not the provenance. If the ScoreBig model works, clubs will be able to move unsold inventory at discounted prices without alienating their best customers (season ticket/partial plan purchasers) ScoreBig has reportedly raised $8.5 million from investors, including private-equity firm Bain Capital, and judging by those involved it’s a venture to be taken seriously. According to this May report, “Among the company’s investors and advisers are Gideon Yu (Facebook, Youtube), Shari Redstone (Viacom) and Michael Bronner (Digitas).”

SELECT READ MORE TO SEE THE REST OF THIS ARTICLE PLUS PLAYER RECRUITMENT IN THE DOMINICAN REPUBLIC AND TIDBITS

In September, John Lombardo reported on ScoreBig for the SportsBusiness Journal:

The company, backed by Bain Capital Ventures, is banking on its efforts to sell discounted tickets while protecting teams that for years have resisted directly discounting tickets so as to protect their brand and their season-ticket buyers.

The company buys its tickets from teams, leagues, brokers, promoters and anyone else with large unsold ticket inventories.

AND

Historically, teams have struggled with how to market unsold tickets at a discount without alienating season-ticket holders and devaluing their brand. Kanner said ScoreBig’s model is attractive to teams because teams are not directly selling the tickets at a discount.

AND

While ScoreBig will make available the face value of the ticket to the consumer, it will never disclose the source of the ticket or what the company paid for it, a policy that Kanner said is vital in preventing a team or league from cannibalizing its own brand. (Adam Kanner is ScoreBig CEO)

Last week, Ethan Smith reported in The Wall Street Journal:

In sports, the potential market is massive, said Finn Wentworth, a ScoreBig investor and former president of YankeeNets, the entity that for several years owned the New York-area baseball and basketball teams. "Depending on the league and the specific team, ticketing is potentially the biggest line item for revenue," Mr. Wentworth said. "And also the biggest unsold asset per team, per season."

Teams fear overtly offering discounts because they don't want to alienate die-hard fans who are willing to pay ever-rising prices for season tickets. Those fans could feel ill-used if they see seats similar to their own being advertised for less.

Another worry in the sports and entertainment industries is that ScoreBig will undermine the value of their product.

MLB, with the largest unsold ticket inventories of the “big 4” could theoretically profit the most from ScoreBig. Or, could partnering with ScoreBig greatly diminish the value of primary tickets, particularly season tickets, long the lifeblood of MLB? Already, the easy availability of online secondary tickets has detracted from the long held benefit of purchasing season tickets, that is, ensuring you always have a good seat. The last word to Darren Rovell of CNBC:

The question is whether teams believe they will make money by going to a variable pricing model themselves and one day cut out ScoreBig.com. If 35 to 50 percent of sports and concert tickets go unsold, as ScoreBig CEO Adam Kanner told me, what happens if one day sports teams get the prices right?

I also believe that this is yet another reason why it doesn’t make sense to get a season ticket. Teams, for the most part, seem to overprice their tickets and who really cares about sitting in the same seat every time? The couple times you need to be at a game, you can overpay. The rest of the time, you’re probably buying for face value or under.

PLAYER RECRUITMENT IN THE DOMINICAN REPUBLIC

As signing bonuses awarded to prospects from the Dominican Republic have escalated (both in terms of individual record amounts, average amount and in the aggregate), MLB has become much more involved in efforts to stem widespread age and identity fraud often perpetrated by, or with the assistance of, the local trainers/agents (aka, buscones). Some clubs have also been victimized in signing bonus “kickback schemes”. Recently, LWIB brought attention to the federal indictment of three former White Sox employees, including former director of player personnel David Wilder, on charges of “bonus skimming” in the amount of approximately $400,000. LWIB, Brian Baxter reported at Law.com on the particulars of the internal White Sox investigation, conducted with the cooperation of MLB. (HT The Sports Law Blog)

Given that most of those being interviewed were low-level minor league players — some of whom had been in the U.S. for only a short time — Zenner said that being questioned in a major league ballpark by many of the team's top brass left the young Dominican players terrified.

"A lot of these kids were scared stiff and had no idea why there were being called in," Zenner said. "It took a little while to assure them that there weren't being fired and had not done anything wrong, but that we needed them to be truthful with us. Like low-level folks in any organization, they were worried about the potential ramifications of implicating someone higher up in that organization."

Stroh added that many of the players had no idea that something was even wrong until they started talking with their colleagues elsewhere in the White Sox organization.

"They were just going about their business of playing baseball," he said. "It took awhile for some of them to realize that they weren't the only ones that didn't have all their money. Many of these guys were largely uneducated because they had spent most of their lives training to play baseball because that's the best chance to make money and provide for their families." (Sheldon Zenner and Bryan Stroh practice law at Katten Muchin Rosenman, which assisted the White Sox in the investigation)

The buscone culture has been widely and roundly characterized as corrupt and exploitative. (excessive commissions, kickbacks, steroids) A new twist in the coverage recently emerged courtesy of two Michael S. Schmidt’s reports in The New York Times. The first described wealthy Americans investing in Dominican baseball academies with hopes of earning commissions of up to 50% on contracts signed by the prospects with MLB franchises. It was difficult to interpret the report as anything less than a plantation metaphor. The second described loans made to Dominican boys and their families by baseball super-agent Scott Boras. In this instance it was difficult to interpret the report as anything less than Dominican baseball playing boys as indentured slaves. The reaction to both reports amongst the baseball punditry, and there was plenty, was very much along those lines. LWIB, Jeffrey Standen, professor of law at Willamette University presented a contrary argument at his blog.

Lending money to a young athlete is not exploitation. It's empowerment. Why do these commentators, whom I assume would profess to love sports, want to keep money out of sports? Sports aren't free. What exactly is wrong with wealthy Americans issuing "micro-loans" to fund the hopes and dreams of young, impoverished Dominicans?

AND

5. Ironically, if U.S.-born baseball players could borrow against their "sports capital" as do players from outside the country, then we might see a change in baseball's dearth of African-American players. The very restrictions that Major League Baseball imposes on U.S.-born players effectively diminish the supply of minority players. American players cannot become professionals until they are age-eligible and are drafted or signed after the draft. As a result, American-born ballplayers must delay their professional careers, and may only negotiate with one team when they begin it. These rules lower the compensation for novice professionals, and thus raise the cost of entering the occupation. With no outside funding permitted to amateurs, young baseball players must rely on their families or their own wherewithal to undertake the considerable expense of training. Is it any wonder that U.S. minorities are disappearing from the major leagues?

6. The more money we can lure into investments in young athletes the better and more numerous those athletes will be. The fact that Dominican players are receiving direct funding from American interests will only further promote the Dominican player and further disadvantage the American one. Expect to see even fewer American-born players from impoverished backgrounds make it to the major leagues.

TIDBITS

  • There is only one tidbit this week. John Ourand, the media reporter for The Sports Business Journal, made this prediciton for 2011.

Fox will roll out more regular-season prime-time baseball games.

Following the ratings success of two prime-time Saturday games in 2010, look for Fox to migrate even more games from afternoon to evening next season. I also wouldn’t be surprised to see Fox sign former ESPN announcer Jon Miller to handle play-by-play for some national games or even experiment with Miller, having him call games without an analyst.

LAST WEEK IN BIZ OF BASEBALL RETURNS JANUARY 10


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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