I agree with the logic behind your example; in fact, I stated the same thing above.

You are correct about many primary season plan holders relying on the secondary market to recoup costs, and that’s exactly why the Yankees launched TicketExchange…to counteract the cut rates prices on StubHub that were lessening the value proposition of having a season plan. As a now former season ticket holder, what drove me away wasn’t the high price of the my ticket, but the heavy discounting on StubHub. If it looks like TicketExchange has restored value to the season plan, I’ll likely be back. That’s what the Yankees are banking on. However, I think they need to do more, including loyalty programs.

Regarding the chart, I am pretty sure you are looking at the blue bars, which represents winning percentage.

Too much else to respond to directly, but I’d sum it up this way. The Yankees goal is not to fill the ballpark, but maximize revenue. However, it also needs to create an experience and cultivate a fan base. Although baseball tickets are not inelastic to price, I strongly believe more important influences are value proposition and distinction of being a season ticket holder as well as the appeal of rooting for a superior product and premium brand. In other words, if Yanks want to getting attendance moving up again, they need to keep spending on stars, make sure the secondary market doesn’t dilute value of primary sales, and add a robust loyalty plan that offers unique experiences (e.g., batting practice on the field; meet and greets; etc.)

I would think that the secondary market purchasers would definitely affect attendance. 1) I’m pretty sure attendance figures are for those who come through the turnstile, not tickets sold. So if I do not purchase that ticket, then I do not come to the park and do not get counted as attending. Now, someone else may buy the ticket, but cumulative effect of others like me is to lower the number of people going to the park. 2) In terms of secondary market ticket affecting _sales_, it’s clear both from selling patterns I observe and from conversation with those in the area of the seats I usually buy (I prefer grandstand level, front row, behind home plate) that huge chunks of these seats are bought solely, or at least primarily, for purpose of secondary market resale. I also know, anecdotally, that some season tickets are bought to attend playoffs and world series games, with regular season secondary market sales funding the purchasers ‘free’ playoff games, or alternately, huge secondary market playoff and world series ticket prices funding ‘free’ regular season games. Either way, many season ticket purchasers are counting on the secondary market for funding a large chunk of the entire season strip of tickets. So I’d say we secondary market purchasers have a large effect on sales, as many primary purchasers count on us to underwrite large chunk of their purchase.

Regarding the chart, it’s a little difficult to read as the exact numbers aren’t there, but I only see one year to year increase, and the yest, year to year, are negative. But to your point of taking three years to notice – I’d posit that since season ticket purchasers drive most sales (as far as I know – may be wrong) that’s only three major purchase instances. People’s behaviors, especially ingrained habits, which going to the Stadium obviously is, take some time to change. There hasn’t been a game since the new stadium where I don’t hear massive grumbling about prices and I think the effect on sales is cumulative.

Your second paragraph is the most interesting. First, in regards to ticket pricing and maximizing revenue. This is very interesting. I don’t have a citation, so bear with me. In some stadium negotiations for a particular stadium, the stadium owner wanted a larger number of seats, while the sports team tenant wanted a smaller number. With a smaller number, the team was more assured of a sellout. When a sellout was assured, ticket buyers were eager to buy tickets in advance to avoid being locked out from the event or having to pay more to, and deal with, scalpers. Once a sellout is not assured, ticket buyers do not rush out and buy tickets because they know they can always get a ticket later, and overall ticket purchases drop.

I do recall a discussion in EC101 talking about maximizing revenue for a stadium for a given event, and it was not a sellout, as you say. The optimal price to maximize revenue is a higher average price with no sellout. But if we’re talking about a season, not an event, we’re into the feedback loops where a purchaser says to himself “Oh, I can always get a ticket later, no need to buy now.” I would think that attitude would definitely would affect aggregate pre-season sales, big time. So a sellout season at a lower price would maximize revenue over a season, but not, as we agree, for a given event.

Lastly, the idea of a scalper as a risk manager is the most interesting part of the discussion, to me. So, a ticket is a perishable good. The risk is that no one buys the ticket and the seat expires unused. The scalper buys the ticket and now assumes the risk for the item going unsold, or for having to dump it at a loss. In exchange for taking that risk off the hands of the Yankees, the scalper needs to earn a return. Assume the scalper does nothing but study the ability to earn the maximal spread, I’d argue that the scalper is better able judge the expected future price for the ticket than the Yankees are. I’d also argue that the number of empty seats proves that point. Do you think a scalper would count on an early season, mid-week game against Toronto is going to bring over $1000 for a seat? No way. But the Yankees have set that price for a seat and it’s obvious many of those seats are going unused, just by looking around the Stadium.

It turns out I’m not the only one to view scalpers as risk-allocaters. I just found the article below, with London School of Economics PhD student Vincent Geloso writing this:

“Mick Jagger does not have an incentive to search correct price and supply. In fact, it is logical – in a maximization of risk to value – to under-supply tickets relative to demand and under-price tickets relative to the market price.

The logic is the following:

Estimating the audience-maximizing (and revenue-maximizing) supply (and price) is a very risky venture, especially since his markets change with every Rolling Stones concert tour. Hence, there is great volatility in the returns (and possible losses) of his portfolio of concerts. To minimize these risks, he would have to spend considerable resources to collect information and the marginal returns (relative to other uses) of using additional resources to correctly estimate price and supply. Therefore, it is rational to check what the desired profit margin is, and set price and supply to obtain this the easiest way possible.

As a result, the scalping market will emerge to reallocate tickets afterwards because it specializes in managing those risks only!”

http://www.aei-ideas.org/2013/04/ticket-scalping-as-an-efficient-market-for-risk-management-that-helps-not-hurts-mick-jagger-and-the-rolling-stones/

It just seems to me that pricing every seat to grab every last drop of revenue that a scalper would get for, say, a Sox game in a close season down the stretch, means the Yankees can no longer offload the risk of ensuring those seats will sell, and I think that idea has blown up in their faces.

Anyway, this is way too long already, I apologize for that, and hats off to you for your great blog. You know way more than I do about what’s going on with the Yankees. Me, I just want to get a decent last-minute seat for a cheap price for a mid-week day game (and the reduced number of midweek day games is a whole ‘nother topic!)

Regards,

Mike

I am not sure what you mean by buying and selling risk…that’s not what scalpers do…but the Yankees goal is to maximize revenue. Neither you nor I know what the optimal price is, but setting a price that ensures sellouts is likely not it.

Finally, I think you are reading the charts incorrectly. Attendance increased in 2010, and 2011 was about the same as 2009, so if price was a problem, it took fans three years to notice.

One thing promoters of all types seem to not get, including the Yankees – ‘scalpers’ don’t by and sell tickets, actually, they buy and sell risk. By pricing themselves into the maximum of the secondary market prices, the Yankees have assumed that risk and now it’s backfiring on them. Also, to the degree that pricing affects it, when stadiums fail to sell out, the rate at which they sell tickets decreases as people realize they can pick up an occasional ticket whenever they feel like it and not have to buy a strip in advance. That behavior is affected by both the secondary market AND the declining willingness of casual fans to pony up big.

BTW, your chart shows declining attendance every year but one since the new stadium opened. I’d say price has a great deal to do with that. It takes time to change peoples habits. As they come to realize the degree to which the Yankees are fleecing them by jacking every price in the stadium to the maximum pain point, behaviors will slowly change. As we’re seeing now. It’s not just StubHub, it’s the demand side of the supply/demand curve, to the degree that it is influenced by price.