Wednesday, September 1, 2010

Why the Cubs Shouldn't (and Likely Won't) Lower Ticket Prices

Yesterday, I was perusing a few of my regular Cubs blogs in an attempt to get reacquainted with a team I had all but ignored since last Thursday.

I noticed a post by friend of Aisle 424, Cubbie Doc wherein he outlined his plan for the Ricketts to boost attendance next year at Wrigley. 

One part of his plan is to lower ticket prices:

Slashing prices by about 10% would seem appropriate. It might not hurt to lower prices of the bleachers even more than that, and possibly even reduce the cheapest seats (the top part of the upper deck) even more.

While I agree that reducing ticket prices might result in a bit of a boost to attendance next year, the question is whether it would help their revenue stream, which is what the Ricketts care about (and so would you if you had a $450 million credit card bill that needed paying).
Let's say that his assumption of about 25,000 season tickets is true (and I think he's probably pretty close with that guess since I've seen guesses range as high as over 27,000).  Those 25,000 seats are sold next year whether the Ricketts lower the prices, keep them the same, or even raise them.  When you have over four times as many people waiting for your product as you have product available, it tends to push the price up pretty high and the Cubs have over 100,000 on their waiting list.

Think about it. I might be about done with forking over my cash year in and year out to a loser team that doesn't seem to have any tangible sense of direction or strategy that doesn't involve revenue streams, but there are over 100,000 people looking over my shoulder waiting for the opportunity to buy in.  Those tickets are sold.  There may be some turnover in who they are sold to, but they are sold and you can put that in the bank next to all the money the Cubs will collect in January from season ticket holders.

So now what do they do to sell those single game tickets?  Let's say that demand for tickets declines next year.  There are still many games where they are going to sell out, or get at least the 15,000 or so tickets that remain unsold to season ticket buyers.  The Cardinals series, the White Sox series, and generally all the interleague series in the middle of summer will sell and they will sell early. So let's suppose that given all of those virtual sellouts, the Cubs can expect to sell about 5,000 single game tickets per game over the course of a season to bring average attendance to 30,000 per game.  That would be a precipitous drop of over 20% from the current average of 38,217 they are averaging so far this year (which is down about 3.5% from last year).

Let's also assume that dropping the price of tickets 10% from $52.56 to $47.30 increases single game demand by 20% (which I think is considerably more than it actually would).  But lets see what that does to the revenue stream:

So under the new price structure, the Cubs would average 31,000 per game instead of 30,000, but they would bring in about $9 million less in ticket revenue.  Those extra 81,000 fans per season would have to each spend over $110 on concessions and memorabilia to just break even in revenue, and I find that unlikely.

In order to break even at about $129 million in ticket revenue, a 10% drop in average ticket price would have to result in a 67% increase in single game ticket demand.  That is also unlikely without a dramatic increase in team performance, but if we figure that in, then there is really no reason to even consider a price drop since better performance will sell more tickets regardless of price.

So while I appreciate Cubbie Doc's desire to keep ticket prices in check, the only way to really make ticket prices go down is to make season ticket holders stop buying. I don't think that is going to happen as much as I thought it might earlier this year.  I took a poll in Aisle 424 last night and when posed with the question, "Will you renew next year?", most thought long and hard about it and said they probably would end up renewing.  I know Yellon has stated that not even the crime of the Cubs selling $10 bleacher seats to games he paid $60 for will keep him from renewing.  It doesn't sound like Cubbie Doc is going to stop buying.

Look what happens if the Cubs decide to raise the average ticket price by 10% next year and that causes single game ticket demand to fall of a cliff by 50%:

Despite lowering the average game attendance to 27,500, they would still come out ahead in revenue from our baseline assumptions.  Granted, they will burn through that 100,000 wait list like it was set on fire by the Cubs' bullpen, but if they really wanted to raise ticket prices while hoping and praying that the on-field team performs well enough to justify it for future seasons, they could probably do that and get away with it.  That is the kind of cushion they have and that is the reason they had representatives in their ticket office brazenly talk about how Cubs tickets are practically recession proof.

As long as the season ticket waiting list exists and season tickets sell out every year, all the Cubs technically need to do is find out how much pain their most loyal fans are willing to endure every year, both on the field and in their pocketbooks.

Today, Bruce Miles reported on a pow-wow between Tom Ricketts and the beat writers on a few things, but included these bits about ticket prices and ticket sales:

--On whether the Cubs would hold the line on ticket prices for next year, Tom was noncommittal, saying the Cubs hadn't formulated their pricing strategy yet.

--On attendance being down this year and thousands of seats being empty of late, Tom said: "Obviously, we want every seat full every game. The attendance has been very, very strong in the grandstand. But certain day games and then the last couple of night games, the bleachers have been softer. We've got to put a winning product on the field to make sure all the seats are full every year."

Allow me to translate the Cubs-speak that was being fed to the reporters: 
  •  "Hadn't formulated their pricing strategy yet" = ticket prices probably aren't going to move in the downward direction much, if at all.
  • "Attendance has been very, very strong in the grandstand" = We love that our season ticket holders keep coming back for this shit.
  • "The bleachers have been softer" = There are only a few fools who buy those ridiculously bad seats in full season packages at secondary market prices.
  • "We've got to put a winning product on the field to make sure the seats are full every year" = We've got to get our smoke and mirror tricks down pat to fool people into thinking this roster is going to contend next year.
The Cubs know they have us. They know it because we have never given them any indication as a fan base that we are fed up. Sure, there were tons of empty seats last night, probably something like 17,000 in attendance, but the announced crowd was over 31,000.  Apparently, they announced over 33,000 for today's afternoon game. That is because no matter how shitty the opponent, how bad the weather, or how many losses the Cubs pile up while playing guys like Koyie Hill and Micah Hoffpauir, you won't see any attendance figures below 25,000 this year (or next year) because of season ticket sales.
As long as the season ticket holders continue to line up like cattle, ticket prices aren't going anywhere but up, and as business-people, the Ricketts would be foolish to do anything otherwise.


JustinB said...

If I were to guess, I'd say prices go up a little. There will be outrage, blogger jokes, and then everybody will wait for hours in the virtual waiting room to scoop up tickets.

I do think Ricketts will do something like increase the "value days" or whatever that is. I don't know what the number is now, but I'm sure he can find a few more Pirates/Nationals/Marlins weekday games to "discount". That way, there is a talking point to say "sure prices went up a little, but we added more value days!".

Aisle 424 said...

They may not even have to do that, but you are right in that I bet there is a way to play with the numbers that makes it seem like they are being benevolent, when they are just maximizing their revenue.

I don't blame them. If I had a product that never worked right, but had people lined up around the block to buy it, I would also be more interested in selling it for as much as I could while I tried to get the damn thing to work right.

As fans, we need to stop buying the hype and the hope and the dreams and make them earn the loyalty they take advantage of.

Doc Blume said...

Ticket sales are one aspect...

But getting people to actually attend the game (and avoiding 10,000 no shows) is something that needs to be a high priority as well. The Cubs have lost a ton of revenue this year in concession sales, and on top of that, television rating have plummeted. In order for the Cubs to continue to have high revenues, they will need to not only sell the tickets, but get people in the stands...the last part of the plan that I felt was important to solve the Cubs current "people problem" was to get a superstar of some sort. There isn't any draw at Wrigley right Sandberg, Dawson, Sosa or Caray.

Cubs fans are distracted right now by other things. I still think a ticket price decrease is important to keep interest in the team...and it also shows some good will.

For the first time ever I had people balking at the price of the tickets when I would sell my seats for individual games. These are people that I have sold tickets to for years, even in 2006...I charge them face value...and a number of them they said no this year before the season even started and we realized how crappy this team actually was. There was only one reason they said no...the tickets just cost too much.

Revenue isn't the ultimate goal here. Showing some good will is another goal. Will lowering ticket prices fix everything?'ve outlined that very well, but if the Cubs do increase the prices again, single game ticket sales will plummet.

There were some creative ways that many of us documented that the Cubs used to actually increase ticket prices without "increasing" them this year. The could use some creative pricing to lower ticket prices without "lowering" them as well.

Raising ticket prices after a bad season is something that Bill Wirtz would have done...and we all saw how that worked out for the Blackhawks.

Good post, Tim!

Aisle 424 said...

Thanks Doc. I enjoyed your post and there was a time that I would have agreed with you, but I don't think the Ricketts can afford goodwill at this point. If they cut revenue, they will have to cut payroll and that means a team that won't be able to compete, and worse for them, a team that everybody knows won't compete. A 10% cut in prices isn't going to make that kind of hit on a Cubs fan's psyche go away.

With no hope, tickets are selling on Stub Hub for 1/2 of face and less. That is the going rate to watch a crappy team play at Wrigley. They can't reduce the prices that far next year. They just can't with their debt obligations. So they will sell hope and make a couple of moves this off-season to whip people into believing again and the ticket prices will pretty much stay the same.

There may be a slight market correction, because I do think they overshot this year, but it won't be much, and it probably won't affect season ticket holders much unless you are a season ticket holder in a lousy section of the 500 level, or way under the upper deck in Terrace Reserved.

I think the plan is to do their best to make it look like they will be competitive next year and keep the revenue streams where they are. I'm working on a post about why I think that now.

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