I saw this a couple of hours ago on my Facebook News Feed:
Awwww…I have my friends trained so well- they all know that I welcome the opportunity to tell others that they are being dumb. Normally this sort of thing would go in the back of the queue, but Mr. Greenwood, in addition to being one of my best friends, holds an important bargaining chip:
(I may have once told him that, if for whatever reason he ever felt the need to propose to me, his chances of me saying yes would go way up if the World Series ring was used as an engagement ring. I don’t think I realized at the time how heavy the damn thing is, but I still contend that I could make it work.)
I did a little digging to see what it was that he was complaining about here…I didn’t have to look far, since Dan Shaughnessy has a nice little rant on the topic over at the Boston Globe:
John Henry and Theo Epstein are preparing you for the Big Slide. While they continue to raise ticket prices and drain every dollar out of Fenway, they are telling you to put your expectations on the shelf. No more “championship-driven’’ campaign for your Red Sox. The Sox are building a “bridge’’ for the future. They are giving up on competing with those big, bad Yankees.
Okay, now I get the part about raising cost and decreasing value…and I’m a little perturbed that it looks like Mike Lowell is likely heading to Texas. But I digress. Clearly, Mick wants me to make the case that it’s not in the Red Sox’s best interests to be acting in this way. Unfortunately, the scenario isn’t quite that simple. I promised Mick a model, so let’s take a took at the market for tickets at Fenway Park:
The supply of tickets is basically fixed at just under 40,000, since, at least in the short run, the team can’t increase or decrease the number of seats in response to changes in price. The demand for tickets increases as the price of the tickets goes down, but it’s unclear how elastic the demand is. If consumers are more price-sensitive than I am giving them credit for, then the curve would be flatter, and it would be more vertical than I’ve drawn it if customers are less price-sensitive than I think they are. (Mick seems to think that they are not very price-sensitive, since he says “If it’s a move for Halladay then fine, but you can’t announce a ticket raise, a rebuilding year and then trade the fan favorite all within two weeks of each other. I really hope the region reacts the right way…but they won’t.”) In any case, the ticket price is currently set below the price where demand equals supply (just assume with me that there is one representative “average” price that we can talk about), which is why people wait in line to get day of game tickets and go to ticket scalpers and such. This shortage creates that oportunity for scalpers to stretegically snap up tickets and resell them at a profit, since there are people out there who are willing to pay above face value but couldn’t purchase tickets because they were sold out.
Now let’s consider what my friend is expecting to happen in 2010:
The “decrease in value” that he refers to is represented by the shift down and to the left of the demand for tickets- if you’re lowering the quality of your product, people aren’t going to be willing to pay as much for it. It’s that simple. (Again, my friend hopes that Red Sox fans see the reduction in value and vote with their dollars, since that would send an important market signal to the organization.) When you couple the reduction in value with the increase in price, you see that the shortage gets much smaller. It’s unclear how much smaller the shortage gets- it could be as I’ve drawn it here, it could go away entirely, or the changes could even result in a surplus of tickets (read, an end to the Fenway Park sell out streak). It all depends on how price-sensitive Red Sox fans are and how much they are put off by the changes in the lineup.
In a way, this could be good for the Red Sox’s profitability from ticket sales. (Not what you want to hear, Mick, I know…) The organization was clearly not maximizing profit in this channel before, since they were selling the tickets for a lower price than the maximum that the market would support. Now, as long as they can still sell all of the tickets at the higher price, they will be more profitable, especially if they aren’t spending those extra dollars on expensive things like Jason Bay and Mike Lowell. That said, the situation raises an interesting question: Why, if they could sell the tickets for a higher price this whole time, were the prices ever set below market value?
The rationale usually given is that sports organizations don’t find it in their best interests for their teams to be seen as exclusive, or overpriced, or whatever else along those lines, since it hurts the overall size of the fan base as well as revenue and profit through other channels such as broadcasting, merchandise (even though merchandise is subject to profit-sharing), etc. It also could simply be the case that more expensive tickets cause people to clam up when it comes to buying refreshments and other items once they get to the park, and it certainly doesn’t hurt from a PR standpoint to have a long string of sold out games. The important point is that the ticket prices were set to result in a shortage on purpose, so we can infer that the organization believed that that was the overall profit-maximizing thing to do.
The main conclusion is that, even though the higher prices combined with the lower value is likely to result is lower demand for Red Sox tickets, it isn’t necessarily going to hurt, and could boost (if the increases are chosen carefully), stadium revenue and profit. Whether that potential gain outweighs the negative impact on other revenue and profit channels remains to be seen. From the fan perspective, it shouldn’t be surprising that if Red Sox fans are going to be loyal no matter what, they stand a chance of being treated like the puppy that is taken for granted because it’s always happy to see its owner regardless of how the owner treats it. Note to Sox fans: Stop acting like that puppy and the organization will have an incentive to actually take your preferences into account.