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How To Price Tickets When Times Are Tough

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David Shoalts has been writing a series of articles about the effect of the fiscal crisis on the NHL. The Thrashers are one of the teams featured in his most recent article about discounting tickets. It is fairly informative and reasonable and I encourage you to read it (click here).

The persons interviewed in the article suggest that discounting tickets in a recession is a big mistake and that teams ought to offer more "service" or "add value" to the package by giving free parking rather than cutting prices. The Thrashers attempted to do exactly this by advertising major new "value" additions this summer (I still have my sheet somewhere around the house). But it didn't stop the sharp decline in sales--you can only hide a poor product behind bells and whistles so long.

Here is a key quote:

"I'm terrified of giving away product," said Mike Veeck, who owns and promotes six minor-league baseball franchises and is the son of the first promotional genius in that sport, the late Bill Veeck.

"If people are cutting prices, then maybe something is wrong with their original pricing structure," Veeck said. "Fans get used to paying your discount in about 12 seconds. Then that becomes the norm and you have to pay tremendously to get them back."

Now I hear what Veeck is saying but he is partially right and partially wrong. The NHL has a VERY different customer base than minor baseball. In the NHL you have corporate clients who have fairly inelastic demand (they buy tickets regardless of the team's performance) and well off individuals for whom price is also fairly inconsequential. Then you have the rest of the fan base where demand is elastic (varies depending upon the quality of the team). In the case of Mike Veeck's six minor league baseball teams almost all of his customers fall into the latter category. They are local families who pay with the expectation of a reasonably entertaining baseball experience. Not too many corporations buy up rows of seats at minor league baseball parks.

What NHL teams like the Thrashers and Panthers have done is essentially created a two tier pricing structure. The listed "ticket prices" are essentially only paid by corporate clients and people for whom price or quality is not a major issue. Virtually everyone else who buys tickets get a discount (very heavy this year) on the nominal price of the tickets. This is in part a concession to the reality that there is weak demand for a poor on-ice product. Mike Veeck doesn't have Home Deport, Delta Airlines or Coke buying up luxury boxes and rows of seats at full price--the Atlanta Thrashers do have that. If they lowered all face value prices they would be throwing away the money from the inelastic consumers. If they don't lower the prices for the elastic demand consumers they leave that money on the table.

In the short run, a two tiered pricing structure is logical--but you can only get away with it for so long. The more consumers become aware of it the less effective it is. And that's the rub. I'm one of those people who always bought season tickets and I stopped this year because I realized what was happening--virtually any single game ticket could be had at below face price if I was patient. In the long run this is not a sustainable approach because consumers learn and change their purchasing behavior. In this sense, Mike Veeck is right that giving away the product is a self defeating strategy in the long run.

The Thrashers cannot heavily discount single game tickets forever. Eventually the club must offer a compelling product that will allow them to end heavy discounts on all tickets. That is the only way they can reduce the red ink associated with owning this franchise. It turns out that the NHL in the south is like most other business--price is linked to the quality of the product you are selling. If you're an owner in Montreal or Toronto this might not be true. But even in original six cities like Detroit, Boston and Chicago long stretches of disappointing teams have resulted in rows and rows of empty seats. Even in the "Traditional Markets" the product matters. Montreal and Toronto are the only markets I know of where you could put a lipstick on a pig then hang a NHL jersey over it and charge the locals $70 to watch it. (I'm not sure that having a market where people buy hockey regardless of the quality of the product should be a point of pride.)

This is not Toronto or Montreal. When the team qualified for the playoffs they saw major increases in ticket sales and when the team failed miserably they saw a major collapse in sales. How would you try and sell a decade with no playoff victories? There are many times where I genuinely fell bad for the Sales and Marketing people who work for the Atlanta Thrashers. They try hard but they have faced a nearly impossible task for 10 years. You can only sell "NHL excitement" so long before the losses take their toll on consumer demand.

Winning is the ONLY long term solution if the team is to stay in Atlanta and hold down losses. In this sense the interests of ownership and fans are linked. We want to see some exciting playoff victories and they need those victories to make money (or at least not lose their shirt). To my mind this is the best part of being a gate driven league--the pressure is always on to win.

In the NBA the Hawks were brutal for years but the TV money made the financial consequences of being terrible more palatable for ownership. In the NFL you see teams like the Bengals who field a sub-par team every year and walk away with profits because of the TV rights money. In the NHL you must win at least every so often. That ultimately is why there are discounted tickets in most of the markets who have struggled on the ice in recent years. Winners get paid and losers don't.