The increase should be expected if we assume the economy has sufficiently rebounded. But if baseball teams systematically overcharge for tickets for whatever reason - a fluky possibility - that would hurt the chances of seeing attendance grow. I doubt that happens because my sense is that the folks who set ticket prices have a pretty good handle on demand conditions in their local markets.
Yesterday I posted about the Wisconsin Badger Herald editorial written by "staff" (affectionately known as "Herald Staff" to those of us employed at MP) who named the names of UW-Madison students who scalped their Rose Bowl tickets. Herald Staff was especially vitriolic towards the fellow students, saying there was a special place in Hell for them.
But this vitriol is nothing new as a New York Times letter to the editor from 1910 (via Craig Depken) shows.
From a letter to the editor in the Dec. 7, 1910 NYT:
A year or more ago there developed in this "Greatest City of a Great Country" a violent agitation looking to the prohibition by law of speculation in theatre tickets, but our city fathers were evidently unable to find a way out of the difficulty. I am informed that the City of Chicago has recently passed an ordinance compelling all theatre tickets to have the price printed on them, and making it a punishable offense to sell any tickets above this figure. This would seem to be an effectual remedy for the evil.
Why do some consider arbitrage in tickets to be evil? When I was a student at Mizzou, it was not uncommon to hear stories of students who had won the men's basketball ticket lottery selling their tickets for a few thousand dollars. I don't recall hearing anyone saying that was evil. Personally, I thought to myself "lucky bastards."
The basic scarcity problem holds: resources (and thus goods and services) are scarce relative to the infinity of human wants. How are goods divied up and who does the divying?
In a market, it is the people who define the market - buyers and sellers - evaluating prices and other opportunities that do the divying. The same is true in a market for tickets. People who buy tickets value the tickets more than the money they give up. Ticket sellers value the money more than the ticket. This holds true in all voluntary market exchanges.
But why is the secondary market for tickets to events viewed differently? Comments are open.
The Cleveland Indians are getting ready to open a skating track and 10-lane snow tubing hill at Progressive Field during the offseason.
...Senior director of merchandising and licensing Kurt Schloss declined to specify financial goals. He says the aim is attracting fans downtown during the offseason.
That's from the Akron News. That raises the question of why the Indians would offer a service to attract "fans downtown". Color me skeptical, but I doubt it's much of a factor. Does Target sell products and to attract people to the mall? No. Target does what it does to generate profits. The fact that customers may have to come to the mall to get to Target is coincidence.
The stadium gets used 81 times a year for baseball games. That means there's 284 days a year that it stands empty and generates no cash flow. Why not make it into a winter sports park and generate some cash during the offseason? That's why we have concerts and football games at ballparks, even if some ballparks are a bit cozy for a gridiron.
It's certainly possible that getting people downtown is an actual goal since the stadium is owned by the city of Cleveland and is managed by the Gateway Economic Development Coporation, a public body. If so, they'd set a lower price to attract more people to the area than if all they cared about was customer traffic at the stadium.
The admission price for 2 hours of snow tubing at Progressive ($20) is higher than the price charged for two hours of snow tubing ($13) at our local ski "mountain" in south central Minnesota, Mount Kato. It's also more expensive than 2 hours of tubing at Afton Alps ($16), a ski area just east of the Twin Cities. Tubing for two hours at Alpine Valley, a ski area 30 miles from Cleveland, costs $15. I'm no tubing price expert in any way, shape, or form, but $20 for tubing at Progressive seems a bit steep to be the result of an attempt to bring people downtown. Maybe it's a novelty thing.
Lastly, is this a signal that the Indians are in financial trouble? Not at all. The stadium is going to be empty during the winter months regardless of team profitability. They might as well put it to some use.
"Colleges charge a premium for admission to see males play, even
when women's basketball teams are ranked as among the very best
performers in the nation," write the authors, Laura Pappano and Allison
J. Tracy, both of the Wellesley Centers for Women. By charging less for
admission to highly ranked women's games, the authors say, athletics
departments engage in "institutional discrimination that is camouflaged
as sensible economic practice."
The report analyzed
ticket prices at every level, from single-game to season tickets, at
292 Division I colleges. The results showed that ticket prices for
women's games lagged far behind those for men's games at the same
institution at all of the top 25 women's basketball programs in the
country—even at colleges where the men's team ranked lower than the
Tickets to college sports—and men’s and women’s Division I college
basketball in particular—may appear on the surface no different than
tickets members of the public may buy to attend professional sporting
events. But unlike professional franchises, colleges are non-profit
organizations and, in many cases, public institutions. Decisions around
ticket prices do not reflect an actual marketplace, but internal
calculations and decisions that necessarily reflect a value placed on
the event by the institution. This distinction is critical because
previous research shows that lower-priced events are perceived as lower
quality and less worth watching or attending. Our review of ticket
prices for men’s and women’s Division I college basketball for the
2008-2009 season considered entry fees charged by 292 institutions at
various seating levels, including season ticket packages and single
game tickets. Our results showed significant gender gaps at every
pricing and seating level with colleges charging a premium for male
play. This gap persisted even among teams identified by the NCAA as
top-ranked women’s teams with large fan followings. Analysis of
attendance figures further showed that the gender differential in price
across schools is not accounted for by differences in attendance.
Because athletics, and particularly college basketball, have an
increasingly prominent cultural profile, the practice of effectively
de-valuing women on the court has implications off the court as well.
The results support the broader contention that women athletes—as women
in traditionally male arenas—continue to face institutional
discrimination that is camouflaged as sensible economic practice.
I do not doubt their findings, but I wonder if they took into consideration something: that basketball fans are more willing to buy men's tickets than women's tickets, and not because of sexist attitudes. Perhaps, just perhaps, sports fans find men's games, on average, more exciting to watch than women's games.
I wonder if the authors asked themselves this question: why would those in athletic departments be willing to "leave money on the table" to feed their sexist attitudes? They note themselves that top-ranked programs tend to charge less for women's games than men's games. If fans are willing and able to pay the premium, why aren't they charged the premium?
One "solution", if you want to call it that, would be to force all colleges to charge exactly the same price for men's and women's ball (and to not set lower prices for men's games). Then let's see what happens to attendance at women's games.
Here's Stacey Brook with a similar take that it is the demand side of the market that the authors of the paper are ignoring.
The article is full of hilarious quotes, like “During the life of
the seat right, the owner can treat it like a house, selling it at a
higher price than he paid” (I hear that idea has worked out really
well for a lot of homeowners in the past couple of years), and it is
worth a read. This approach is being used at UC Berkeley, where they
plan to sell about 3,000 seats in the refurbished Memorial Stadium as
part of the Endowment Seating Program (ESP), at the
University of Kansas, and perhaps by Tottenham of the English Premier
League. Cal is selling the $175,000 and $220,000 seats with a 30 year
financing package, and the cheap $40,000 seats with 40 year financing.
The article claims that about 2,000 have already been sold. Tottenham
may try to finance the construction of a new 60,000 seat stadium with
this type of financing.
The article is short on details, so lets run the numbers: $175,000
financed over 30 years at a 5% fixed rate of interest comes to $933.96
a month, or $11,207.52 per year. Over that thirty years, the “owner”
would pay $161,224 in interest. Some information I found at a Cal web site
says that the seats can be purchased for a “30-year annual payment plan
of $11,994 to $15,421″ which is close to my 30 year/5% fixed
calculation. There appears to be some tax benefits, and, of course,
the payments are fixed over 50 years, so there will be no future ticket
price increases to worry about. I don’t see how Cal can get access to
the capital up front, when they appear to be financing the “mortgage.”
A couple of curious things from the “Facts about ESP” page:
“Annual renewable program – no long-term encumbrance or contract.
Sign a typical pledge agreement. Enjoy Cal games as long as you wish
and then return the seats back to Cal to be resold.” Translation: Easy
“The ESP program provides for transferability if fully paid for –
gift to children or grandchildren or sell to a third party” Note the “If fully paid for”
clause. I wonder what happens if you can’t sell your seat for the
$175,000 you paid for it? Sounds like you owe Cal the full amount if
the price declines.
The Jacksonville Jaguars are widely believed to be the first American professional sports team to use personal seat licenses, PSL's, to sell seats. With PSL's, a version of the familiar two-part tariff in economics, a fan must pay a flat fee that essentially gives that fan a right to buy certain tickets each year. Then the fan must pay for the tickets.
The two-part tariff is nothing new to American sports, having been used for years to distribute seats to college football and basketball fans. The flat fee in this case the donation made to athletic departments. The higher the donation, the better the seat quality.
I find it interesting that the supposedly non-profit protectors of amateurism were more creative in raising revenue than their for-profit brethren. Maybe that's what you have to be when you are "non-profit." But I digress.
Now some teams are trying a new pricing model in which fans can mortgage seats to games. Fans can buy these seats and pay for them over a long period of time, say 30 to 50 years, and pay an "administrative fee" (i.e. interest). This seat then becomes the property of the fan who can do with the seat as he/she, more or less, pleases.
Earlier this month, the boards of regents at the University of
Kansas and the University of California-Berkeley approved plans to fund
stadium expansions and renovations by selling something called "equity
seat rights." Fans who are approved for financing can buy their seats
and pay for them—with interest, of course—over as long as 50 years.
Once the seat is paid for, it's yours, just like a house.
If this "mortgage" model catches on, it will mark a radical
departure from the past, when most new stadiums were financed with a
combination of taxpayer dollars, private loans and corporate
Here's some back-of-the-envelope calculations. I'm using numbers for Cal. I called the Cal ticket office to check on my calculations, but did not receive a call back from a person in-the-know*. So if you have more info or find anything wrong with the calculations, let me know via email or in the comments.
The article notes that the University of Kansas is charging a 6% "administrative fee" - i.e. interest. According to the article, the cheapest mortgages for Cal games are $40,000 for 40 years. Assuming a 6% fee per year for Cal and payments to be made annually at the end of the season, the mortgage requires annual payments of just over $2,650, or $442 per game for a 6-game home season ($378 for a 7-game season). The highest priced seats would go for $220,000 for 50 years, or an annual payment of just under $14,000 or $2,326 per game for a 6-game season ($2,000 for a 7-game season). According to the Cal website (see here), these prices include tickets, donations, parking, and other amenities. Still, that's a large chunk of change.
The recession and the financial turmoil have played havoc with some
universities' ability to raise revenue for stadium improvements,
pushing administrators to be creative in the ways that they raise
capital. That's the whole idea behind these mortgages. It's
interesting that at a time when many consumers are reducing their debt, sports fans would shell out this kind of cash in this way
for sports tickets.
Though the idea may seem preposterous—and even repellent—given the
state of the economy, proponents say the plan is actually a boon for
serious fans because it allows them to circumvent the annual pain of
rising ticket prices. "If you get a letter from your team that they are
increasing season ticket prices 10%, it wouldn't make you real happy,"
said Lou Weisbach, chief executive of the Stadium Capital Financing
Group, the Chicago-based subsidiary of Morgan Stanley that's financing
these instruments. "If you own an equity seat right for that team,
That's one way to look at it. It is also a way for the teams to hedge against lower
ticket prices that would come, say, if the economy remains sluggish for
some time or if the relative quality of the team falls. The relative quality could fall if the average opponent Cal faces improves while Cal does not improve or does not improve as much. The relative quality would also fall if Cal simply gets worse.
The other issue I want to tackle is the investment idea. Fans can resell their seats at a profit if the opportunity presents itself. What type of investment return could be obtained on the tickets? The return will be dependent partly (mostly?) on the fortunes of the team. It's interesting that the two teams that are featured most prominently in the article, Cal and Kansas, are teams that are having a good run in D1 football but that do not have a long-term history of success. It's hard to say what these teams will do in the future, but the value of the tickets will surely fall, all else equal, if these teams fall to the wayside for a long period of time.
*Update: Dave Rosselli from the Cal athletic department returned my call today and confirmed my calculations above for the Cal Endowment Seat Program (ESP). Like KU, Dave confirmed that his university charges a 6% administrative fee.
Let me refer to the standard way of buying season tickets - giving a donation and then buying season tickets - as the, well, standard way. To get the choicest seats, a fan has to give $1,200 donation and then pay $350. That's for this year. So a fan would have to pay $1,550 for season tickets this year for seats in the best part of Memorial Stadium. Compare that to $2,650 for the basic ESP program seat. What fans get in exchange is, essentially, set ticket prices and donations, access to club facilities, and other amenities.
Dave also noted that the ESP tickets are transferable, say from terms set in a will upon the death of a ticket holder. He also noted that Cal and KU are the only two colleges that are using this type of program. However, about a dozen other schools are looking seriously at implementing it.
Dave also noted that Cal did a break-even analysis in which they calculated how many years it is before the ESP program essentially pays for itself. I don't recall the number of years they came up with and I don't have time at the moment to do one myself. But here's some information I did remember from Dave's call. In their break-even analysis, they assumed that
ticket prices would increase at 3% per year. With the ESP, fans
essentially lock in ticket prices at 2009 prices. Dave also mentioned
that ticket prices will be higher in years where Cal plays 7 home
games. They play 6 home games this year. I would safely say that donation amounts would also increase from year to year.
Lastly, I want to thank Dave for returning my call on a Saturday afternoon.