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ticket sales & operations[1]

ticket sales & operations[1] - l'hnrm couer of...

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Unformatted text preview: l'hnrm couer of Rob-n Amman. it- l 3%.. ‘ mantra ‘ Milli? Ticket Sales and Operations This chapter examines a number of issues Facing sport managers with respect to the selling and pricing oftickcts For sporting events. First. the chapter provides a perspective on attendance trends For collegiate and professional sports and their implications For increasing revenues From charged admissions. Next, the oppor- tunities and problems sport managers face in establishing a price For admission to a sporting event are discussed because pricing is one of the least understood as pects of sport management. The chapter also devotes considerable attention to the major impacts emerging technology is having on the sale and distribution of tickets, including web—based ticketing applications. The chapter concludes with an in-dcpth discussion oFthe organization and administration olticket sales. The intent is to provide the reader with a basic understanding ofvarious kinds oFrick— eting plans and methods. Accounting procedures as well as current ticketing sys- tems are described. It is estimated that U.5. consumers spend almost $12 billion a year on tickets to sporting events.‘ As shown in chapter 2, the importance of ticket sale revenue [0 professional sports varies considerably from one league to another, Whereas in the NHL and NBA gate receipts are the single greatest source of income. the media-rich NFL receives less than one third of its overall revenues from ticket sales. Gate receipts are the lifeblood ol'rninor league baseball. A Former general manager with the Class A Everett Giants notes, “The core ofa (minor league) team’s existence is the admission ticket"(p. 27f).2 Approximately haifthe total rev- enues generated by minor league teams comes from tic.th sales, and it has been pointed out that high attendance is desirable not only for the ticket revenue, but also For the revenue from the sale of concessions and novelties. The size of the concession revenues greatly influences whether a team is profitable. In many cases, concessions account for more than 25% ol-a team's revenues.’ (p. 25) At the collegiate level, ticket sales are a primary source of revenue. NCAA stud- ies on the financial condition of intercollegiate athletic programs show that in- TICKET SALES AND OPERATIONS I 351 Table 9—1 Principal Revenue Sources for NCAA Athletic Programs by Division Div. IA Div. MA Div. II Div. III Source of Revenue Ticket Sales Student Fees Donations Bowls Government Support Institutional Suport NCAAIConf. Distributions Radiof’I'V SignagefSponsorship (NA) Guarantees Source: Rcvcnues and Expenses of Divisions If“ and Ill Intercollegiate Athletics Programs: Financial Trends and Relationships n 1999. D. Folks, Indianapolis, IN: National Collegiate Athletic Association. Figure 9—1 Percentage ofScating Capacity Sold by League Over I’ast Several Yeats NHL - NFL E §§i§§ MLB 352 0 CHAPTER NINE i come from the sale of tickets constitutes a significant share of overall revenue (Table 9- I}. At the Division [-A level, 2.7% ofathletic departments annual rev: enues are deritmd from ticket sales. the single largest revenue category. At Mlcl‘ll- gan and Ohio State. ticket sales to football games in 2002 earned each athletic department approximately $28 million.‘ W’hen the University ofMichigan raised the cost ofa football ticket by $10 to an average of $41 per game, the inctease brought Michigan’s tickct prices in line with other Big Ten competitors such as Penn State and Ohio State. which charged on average $38 and 541. respectively.’ The prominence ofticket revenues diminishes for smallcr collegiate programs. At the Division II and [II levels, direct subsidies from the institution or student ac- tivity fees. or both, replace gate receipts as the most important sources ofrevenue. A concern for many of these schools is that when faced with a funding crisis in which support for sports has to be weighed against support for academic prof grants, support among students and administrations for athletic programs may di- minish. It appears that managers at all levels will be faced with the chaliengc of sustaining .tndr’or increasing revenues from ticket sales. —-——-———-——-—————._—_.__—_—— _-_———_——_—_—.—___..—_.__— Admlssion Priclng Prafissional' Sport: Increasing gate receipts can result from either selling more tickets or raising the unit cost or price of tickets sold. Through the prosperous ‘905, many organiue tions were able to accomplish both. From 1991 to 2000. ticket prices for all Ieagues grew at an annual rate of8.4%, so that gate receipts more than doubled." The economic recession that persisted in the early years nfthc new century, how— ever, contributed to widespread attendance declincs across all four major leagues. As discussed in chapter 2. almost halfthe teams in the r 'HL, NFL. MLB, and the NBA reported attendance losses in both 2001 and 2002 Figure 9-] shows the percentage of available seating capacity actually sold across the four major North American sports leagues from 1995 to 2001702. The over- all profile indicates a generally flat or stagnant attendance pattern during this pe- riod. The league demonstrating the most significant improvement was MLB, moving from selling 56% of its seating capacity in 1995 to over 64% in 2002. However, an inspection of individual team attendance records reveals that 10 MLB teams posted doublevdigit attendance losses during ll'lC 2002 season. In part, the inabiIity ofmany MLB teams to sell a significant portion of their seating capacity is attributable to the MLB's 162 regular-season game schedule’s being much longer than those ofthe other major professional sport leagues (NBA 82: NHL 82; and NFL 16 games). Given baseball’s significantly iarger inventory, it is more difficult to sell out the SI home dates. Clearly, the widespread erosion in fan attendance is attributable to several factors. In addition to the persistent economic slowdown nfthc early 20005, other factors contributing to attendance losses include the increased competition from the en— tertainment industry, the availability of more sports programs on free or cabie television than cver before. and the stcady cost increases ofatrentling major sport— ing cvcnts. TICKET SALES AND OPERATIONS I 353 The impact of escalating prices was dis- cussed at length in chapter 2‘ As Show" in Figure 9-2 Rising Cost oFAttending Major League Figure 92. ticket prices to sporting events more than doubled From 1991792 to 2002- Sporting Events for "Family of Four" 03. The relatively high prices make it likely % change that potential spectators will substitute a $145.21 host of other less gapensivc entcr‘fiill'lmen; $254.88 ' t -tt in ames. [)Du' Glamor-‘5 -m d er-l- g 5 $152.55 $290.41 there is little empirical evrdence on the type and extent of switching that occurs among $240.43 emen‘finmem cpl-mm (such as mmlng ‘1 Based on Fan Costlndex (Pct) calculated by Iron: Mart-Hing Rrpartro WNW-la inflcad 0f attending 3“ NBA 531T”); represrnl the average test for family offour attending a major league the potential For cost-saving substitution is considerable and deserving ofcareful exam- ination by sport managers. It is clear thar the relatively high costs associated with attending major league sporting events place them in a particularly vulnerable price position (see Table 9—2). grams, 2 caps). __—_——_——-———-— ______________.__.__....._————-———— Table 9—2 Price ofAlternarive Entertainment Options Estimated National Range 0! Type of Entertainment Costner Engagement “(31an $0.03 to $1.00 per day (1] Internet Access $0.75 to $1.25 per day (2) Watch Cable“! $1.75 to $2.00 per day (2) Watch Satellite TV $2.00 in $3.00 per day (2) $3.00 to $5.00 for three-day use (2) $4.00 to $6.00 for three-day use (2) $5.00 to $7.00 for three-day use (2) $5.00 to $10.00 for single viewing (3) $9.00 Io $20.00 (1, 2) $5.00 to $40.00 $45.00 (3) $56.00 (3) 311.1310 $36.08 ($13.30") $31.50 to $81.99 ($50.02“) 533.1610 $91.15 (543.65”) $3219 to $75.91 (541.56") Rent a video tape Rent a PlayStation 2 cartridge Rent a DVD Attend a movie Purchase a 00 Go out to dinner Rock Danced tickets Broadway Show Attend MLB Attend NFL Attend NBA Attend NHL (1) Based on Cost of electriciry. Sunk cost nfpurehasingTV is not included. (2) Based on cost of montth subscription fees or standard rental cost. Sunk cost ofcour purer. VCR, DVD player. CD player, satellite dish. PlayStationZ unit is not included (e.g.. consumer already Owns aTV or DVD player]. (3) Source: Newsweek, Iuly 9. IDOL (Horn, 2001}. ("l Average Ticket Cost only. Does not include parking, {nod concessions, program. or souvenir. Source: 12am Mariam; Ripanwebsite, January 2003 354 I CHAPTER NINE game (2 adult and 2 child tickets. 4 sodas. 4 hot dogs, 2 beers, 2 pro- Until recently. tickets to most major professional sport league games have not been price sensitive. Even (luring the 2003 recession, almost 7 out of every 10 major league teams raised their ticker prices. During this period the NFL and MLB increased their ticket prices on average by 32.9% and 8.7%, rcspecdvely. it appears the pricing approach ofinost sports teams is cost oriented. The override ing concern of this pricing strategy is recovering costs. it has been reported that most costvoriented service providers do not lower prices during slower demand periods.7 This finding is particularly relevant. Among the 23 MLB teams that in— creased ticket prices in 2001, 15 lost attendance during that season. Although a direct causal relationship between increased prices and declining attendance has yet to be established, given the increased price sensitivity in difficult economic times, switching From a COSIvDrientetl to a more demand-oriented pricing strategy appears to be prudent. Empirical evidence indicates that the most effective price changes are based on anticipated reactions of customers, rather than on only a firm's own costs and circumstances.! Approaching the market with greater sensie tiviry to customers’ price tolerance levels is crucial to sustaining fan support. Recognizing the precarious position of sports properties, some in the industry have adopted a more [JrlCCASCnstllVC approach to the market. The owner oFthe NBA Los Angeles Laircrs proclaimed, "The league must do everything possible to slow rapidly escalating costs of tickets" (C 4).9 There is evidence rhat teams are recognizing this because in 2002-03, 55% of teams across the four major sports leagues either reduced or did not increase the cost ofa ticker during that season. In that year, over half the NBA reams [amend ticker costsusorne significantly. For example, Portland and Seattle were reduced 36% and 32%, respectively. It appears that the widespread pattern of substantial, almost automatic annual inv creases that persisted through the decade of the 19905 came to an end by the 200203 season. Collegiate Sports Table 93 indicates there were steady attendance increases for college football over the last several years. Although there was relatively mode-5r growth (about 5%) in the number of colleges fielding Football teams in this period, total attendance in basketball and football over the same period grew by more than 3.5 million to more than 40 million spectators in 2001. Given the dependence on Football revenues. most schools competing in major conferences (Big 10, Big [2. Par: 10. SEC) have developed "priority seating" prov grams for Football, which ties preferred seating locations to additional donations to the athletic program. To purchase the best seats in the srarlium, Fans have to make an extra contribution to the athletic department for rhe right to buy those scars. This "privilege" may cost a seasonerieket purchaser at a major school as much as $5,000—10,000 For two season tickers. Generally, the larger the dona- tion. the better the seat location. First introduced in the early 19805, priority seat- ing has become the norm at the: Division I level, with abOnr 90% of Division [A schools currently implementing the concept. TICKET SALES AND OPERATIONS 0 355 Table 9—3 Attendance Trends for Selected Sports Full Season Totals by Year (in millions) Sport BASEBALL NILE teams Attendance Minor Leagues Teams Attendance BASKET BALL NBA Teams Attendance NCAA Men‘s Teams Attendance NCAA Women‘s Teams Attendance FOOTBALL NFL Teams “— 32 19,742 Attendance 19,050 32 20.763 20.953 (NA) NCAA College _ Far-yr HOCKEY NHL Teams Teams 5 601 606 Attendance 39.483 39.147 ' "i gal-“TI” ' “iffy . Attendance 17.641 18,057 18,800 20,372 20,614 Source: US. Census Bureau, Statistical Abstract oftlte United States, 2001 When it comes to establishing ticket prices, it appears that most sport managers make decisions "by the seat of their pants." For example, it has been suggested that "ticket prices for professional sport teams are the bestiinformed games {ital- ics added] ofmanagement" (p. 144).” Historically, sport managers have relied al- most exclusively on their own judgment as to what tickct prices would be most acceptable to Fans. The prevailing approach has bccn to raise prices incrementally by some arbitrary percentage or flat rate Although prices have consistently in, creased For admission to most professional and collegiate events. pricing decisions scam to be based loosely on two considerations, either the estimated revenue 356 0 CHAPTER NINE Prlclng Tickets for Sporting Events needs of the organization or managcmcnt's perception of what the market will beat In this section, we discuss some of the issues and concerns sport managers should consider in establishing prices for thc services they provide. It is important [0 consider thc price a fan pays for a ticket in a broad context. Normally, price is conceived ofas simply the direct amount of money sacrificed to acquire access to a desired service or event. However. the monetary price of buying a ticket is only part ofthe overall direct monetary expenditure made by a fan. Fans pay consid- erably more from 25 to 50 cents on every dollarifiar such things as transporta- tion to and from the game, parking, and ballpark concessions." As chapter 11 illustrates, expenditures on concussions alone have growtt substantially, with fans who attend major league games spending an average of$12 each on food and bev- erage concessions. For trinity fans, transportation costs are a significant part of the total cost of are tendance. These costs an: a fitnctiun of mode oftransportation, travel distance, and fee for parking at a stadium. ballpark, or arena. The magnitude ofthesc 3X7 penses varies widely. It is increasingly common, however, to find the fee for park: ing adjacent to a crowded sport venue almost as castly as the admission charge itself. In addition to these direct expenses. individuals may incur extensive non— monetaty costs associated with traveling to and from sporting events. There are two types ofnonmonerary time costs that sport managers should be cognizant 01': travel time and waiting time. The amount of travel time that creates a barrier to attending events obviously varies according to the individual and the event, bitr apparently even small travel times will inhibit attendance. Substantial effects have been reported for travel times of 30 minutes and less.” The cost of waiting time—forcxample. in long lines to purchase tickets print to a game or to use a bathroom stall in the women’s restroomimay be substantial. Substantial enough for some people to conclude that thc non-monetary costs as- sociated with attendance are too hiin even though the direct ticket charge may be acceptable. In these instances, fans not able to see a favorable btdance between the nonmonetary and monetary costs associated with attendance are likely to seek al- ternate forms ofctttcrtainment. The investment that fans make includes not oniy the direct charge of purchasing a ticket, but also the monetary and nonntonerary opportunity costs (travel and waiting time) associated with attendance. For some people. these access costs may involve more personal sacrifice than money and, therefore. may be more influential than monetary costs in determining whether or not these individuals attend. The important point is that sport managers should consider all the costs of attending sporting events. Psychology of Pricing Establishing a price that will be acceptcd by sports attendees requires considering several psychological dimensions of pricing. The most important ofrhese are dis cussed in the following paragraphs. Expectedprice threshold. Research has shown that consumers have an expected range of prices they are willing to pay For a particular program or service attd for various products." People refrain From purchasing a product not only when the TICKET SALES AND OPERATEONS I 35? price is considered too high. but also when the prict: is perceived to be too low. If a price is set above a threshold price, people will find it too expensive. [fa price is set below the expected level, potential consumers will be suspicious of the qual- ity ofthe service. The upper and lower boundaries of this zone ofacccptance may have been formed from an individual's rccollecrion of prices asked or paid in the past. An important firtmr in establishing tire sxperrtdprr'td :iJmimr’zz’ may {we to: initial price the organization chargesfiir admission to do event orfiir A particular service. If consumers have not previously attended this type of sporting event or have no previous exposure to the service, the initial price is likely to become the reference price. This first price firme establishes in the consumer's mind the fair price for the service. Hence. it becomes the reference price against which subsequent price revisions are compared. An organization is likely to have more flexibility in the first pricing decision than in any subsequent decisions, which will always be con- strained by consumers’ relating their sense ofappropriateness and fairness back to the former price. The first pricing decision, therefore. usually has a strong deter- mining impact on the level ofpricc tltat can be charged for that service through- out its life. The function of the initial pricing decision in formulating a reference price point emphasizes the risks involved in pricing an event or service too low when it is first offered, so that potential fans or patrons will be enticed to try it. This objective can best be achieved by offering a promotional price that is recognized by all po- tential users as temporary, A fixed. relatively short period during which the spe7 cial, low promotional price will apply should be established. This should be communicated togetherwith the regular price that will be charged for the service at the end ofthis uirttroductoryn period. Understanding sport consumers' expected price thresholds is important for ath- letic directors concerned with attempting to generate revenue from what have been commonly labeled “nonrevenue” sports. Although deriving substantial gate income from many ofthcsc sports may not be possible or even intended, some of these sports appear to have potential for expanded revenue production. Good prospects, for example, include many women’s sports and men's baseball and [toe key. The challenge facing many programs is how to induce people to pay either at all, or more, for something that historically has been provided free or at a nominal cost. Currently, in the Big 10 Conference. for example, the general public can at- tend three fourths of all sporting events sponsored by the member institutions at no direct cost. This pattern of fret: admission is common among collegiate insti- tutions across rhe United States and Canada. Athletic directors hoping to generate more front nonrevenue sports face a chal- lenging dilemma. Whereas establishing the first price is crucial to setting the start- datd for any subsequent price adjus...
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