Sunday, January 13, 2008

Frontal lobotomy

Took the boys to Arco this afternoon to see the Kings. The price, free, was right; it was an “open practice,” which we enjoyed with 10,000 or so Kings fans. For an ailing franchise that has limped through the season with nary a sellout, it was a smart marketing move (let alone an easy way to sell a few thousand $5 King Dogs, $8 beers and $5 Cokes).

I have been fascinated with professional sports for three-plus decades, and the business of pro franchises for more than half my life. Television contracts drive sports; putting buts in the seats is an important, but less consequential, contributor to a franchise’s bottom line. But – and speaking of buts – pro sports teams have generally been arcane in pricing their product.

Quick TV timeout: Think about variable pricing and its transparency. When demand exceeds supply (or, at a minimum, increases), the cost of a plane ticket, a hotel room, a round of golf, a concert ticket, or a person’s time increases. Basic math, eh? There’s a finite supply (of plane seats, hotel rooms, tee times, venue seats, or hours in a day), and thus the proprietor can – and should – charge more when demand intensifies.

Back to the game: Professional sports are just now grasping the concept. Bundling and packages have heretofore served as their solution: Buy a 10-game pack and you can see the Lakers; otherwise, you’re out of luck (e.g., you can’t buy a single-game ticket).

Until recently, the cost of a ticket to a Tuesday night Giants-Marlins game at AT&T park was the same as a Saturday Giants-Dodgers game. Demand for the said Marlins game was below capacity; demand for the Dodgers game greatly exceeded the 42,000-or-so folks you can pack into the phone booth at Third and King.

I enjoyed an ah-ha moment last summer in my quest to buy tickets to a game at Yankee Stadium. My schedule was fairly fluid – midweek, weekend, whoever was playing … I was ambivalent. But, the Yankees charge substantially more for a weekend game – let alone a Red Sox rivalry – than a mid-week contest. The same seat does not cost the same. (BTW, the Giants, alas, are employing a similar pricing strategy.)

If you are operating an airline, managing a hotel or golf course, promoting a concert, or chartering a professional sports team, your sunk costs are, well, sunk. Your inventory (supply) is capped. And, once the flight takes flight, the day ends, the concert commences, or the game takes place, your revenue opportunity vanishes.

Cynics would argue (check that: would Eyeore) that maintaining price integrity is paramount. Bullocks; such a practice is irresponsible if you bypass revenue opportunities. Two examples: A flight that’s half full costs (sans a few bucks for additional fuel) essentially the same as a three-quarter full flight. IBID for a ball game or concert, but with much larger revenue implications. In addition to the lost revenue from not selling a ticket, the venue loses a chance to park a car, sell memorabilia, or pour a beer, let alone the opportunity to deliver a sterling experience and create a fruitful relationship.

Think of other as-yet-untapped opportunities where supply is perishable and demand fluctuates. Restaurants could, during peak periods, charge more for food and booze. Movie theatres could do the same for gotta-see new releases. Accountants and lawyers could place a premium on their services during high-demand seasons. Bakers, butchers and candlestick makers too. Failure to do so is drunkingly foolish, reminding me of Grouch Marx’s opine: I’d rather have a bottle in front of me than a frontal lobotomy.

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Post-script (14 Jan. 08): From this morning's Bee:

The one thing the organization won't do is cut ticket prices. Gavin Maloof said he isn't keen on offering last-minute slashed rates, a technique the Boston Celtics have used.

NBA teams have access to software that provides live updates on how seats are selling and at what price. Halfway through the 2004-05 season, the Celtics began heavily using that technology, called StratTix, to offer last-minute ticket deals to sell out TD Banknorth Garden hours before tipoff.

Gavin Maloof said he feels such a strategy "devalues" the product.

"We've never been big on discounting," he said. "We feel we have spent the money on players; our payroll is right under the luxury tax. We feel … (discounting) sends the wrong message."

Quick math: The Kings are averaging 13,875 fans in a venue that seats 17,325. On an average night, 3,450 seats perish. At $10/seat (give them away!) and $30 in spending/fan (parking, concessions, memorabilia), the Kings are forgoing -- at no additional/marginal cost -- about $138k in revenue each game, or about $3.4mm for the remainder of the season, on top of the lost opportunity to increase their fan base/deliver a memorable experience.

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