I recently had the pleasure to attend the first-ever SportsBusiness Journal ticketing conference in Hoboken, N.J., where it's evident that the hot-button issue throughout the ticketing industry is dynamic pricing.
Dynamic pricing is defined as “The practice of pricing items at a level determined by a particular customer's perceived ability to pay.” Airlines and utilities have been taking advantage of dynamic pricing for years. Based on recent research, dynamic pricing is currently employed by 15 NBA teams, nine NHL teams and five MLB teams (NFL data is unavailable due to lockout). Dynamic pricing leads to a 15-25 percent increase in ticketing revenues based on the teams that have released such data, such as the San Francisco Giants. Many are quick to wait for more results before jumping into the fray.
The first dominoes to fall that began dynamic pricing were the transparency and legitimacy of the secondary market. StubHub and other ticket brokerages now serve as partners with leagues and teams through sponsorship deals. To date, dynamic pricing has been used mainly on individual game tickets and some group tickets. My thoughts focus on the debate of whether or not to use dynamic when pricing your individual ticket inventory. I think that dynamic pricing works in the NFL, where 23 of 32 teams sell 90 percent or more of their tickets. It also works in the NBA and NHL, where in both leagues 26 of 30 teams sell 80 percent or more of their ticketing inventory. Teams in the ticket-sales cellar that should not be using dynamic pricing, in my mind, include: The NFL's Tampa Bay Buccaneers and Oakland Raiders; NBA's Minnesota Timberwolves, Detroit Pistons and Indiana Pacers; and the NHL's Columbus Blue Jackets and Phoenix Coyotes.
The larger issues for baseball -- and sports teams in general -- are: Why should I buy season tickets when I can buy the games I want online? Why am I paying $75 dollars for a seat I can regularly buy at $20-30 less online? The loss of season-ticket holders has forced teams to begin the use of dynamic pricing. Teams, like the concert industry, are challenged to make the same amount of revenue of their ticketing inventory by selling fewer tickets. Startup companies QCue, Stratbridge, and Digonex are the three major companies operating in team sports to dynamically price ticketing inventories. Additionally, Ticketmaster recently partnered with MarketShare for a dynamic pricing tool of their own. In the words of Chad Estis of Legends Hospitality: “We've been doing dynamic pricing forever, technology is just changing how it's done.”
Dynamic pricing works for the majority of teams, as you can maximize ticket revenue on games in high demand or use a profit-maximization pricing strategy. Dynamic pricing also allows a team to increase seats sold on poor nights by dropping price to increase quantity sold. It remains to be seen if it will work in MLB. Only nine teams currently have sold more than 80 percent of their tickets, and that’s where the problems start. The largest revenue drivers for MLB teams are season tickets, and undercutting your best customers is highly problematic. The debate is a tough one, as some owners and front offices want the revenue and others will do it to make sure they hit attendance milestones. It’s my opinion that if you price and allocate properly from the beginning, the effect of dynamic pricing is minimal in MLB.
The real underlying problem is that no game is ever the same. I spoke to one industry leader in dynamic pricing who uses 80-to-90 variables in its pricing algorithm. The real issue is how to weigh these variables. Any common fan can name a few basic variables that will increase or decrease the likelihood of purchase. Ballpark experience, date, time and opponent are the most basic. Add in promotions, weather, entertainment options, frequency of opponent, star players on opponent, frequency of home games in a given month, team performance in the previous week, starting pitcher, team performance at home, and potential milestones/debuts. While all have an effect on sales, the question is how much do they affect each individual game? What does a Katy Perry concert across the street do to your walkup? If it rains all day, but gametime weather is clear, how much should you change prices? How does an algorithm take into effect “first nice day of the spring?" What effect does interleague play, now in its 15th year, have? No game is ever the same.
Dynamic pricing would work for the following MLB teams: Phillies, Yankees, Giants, Rangers, Brewers, Red Sox, Angels, Twins, Cubs and Cardinals. They have the season-ticket demand and overall sell-thrus to warrant its use. Dynamic pricing would increase revenue in most cases and increase tickets sold as well. The key is taking care of your existing season ticket holders with benefits (batting practices, pregame entry, discounts at sponsors, priority to non-baseball events) when rolling out dynamic pricing in the marketplace. These fans are the ones who pay the bills for the teams and should be treated accordingly.
As for the other 20 teams in MLB that sell less than 67 percent of their tickets, when there are so many tickets available at the box office and secondary market, it’s hard to change prices. The issue for these teams is what a fan is really worth? If you have few fans can your really be discounting against them? Why would you buy tickets when teams should be giving them away? Darren Rovell recently postulated that some teams should do $1 tickets to increase attendance. Many business experts would agree with his hypothesis. $1 in revenue is more than $0 of an empty seat. The percaps or dollars taken in per capacity for many teams is $5-15 depending upon your parking scenario. I have my eyes on the Astros and Athletics, who are testing dynamic pricing this season. For now my dynamic pricing rule of thumb is simple: 80 percent sell-thrus and it’s OK. I’ll keep looking at this issue as the MLB season moves on with industry leaders Stratbridge, MarketShare, Digonex and QCue.
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David Simmons is a graduate of the University of Central Florida who worked in the front office of the Los Angeles Dodgers over 4 seasons and has a decade of ticketing experience.. He serves as CFO for Players For The Planet and currently resides in Baltimore. You can follow David on Twitter @davidesimmons
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