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Variable pricing

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I'd estimate one day out of every eight this offseason will be truly noteworthy for Nats' fans, and suffice it to say that today will restart the clock. See Curly W (commenting and collecting other blogs sites).

Brandon (Curly W's sole proprietor, as we say in the blogging business) finds a nugget from Tony Tavares that mostly escaped attention amid the speculation about Jim Bowden's future with the club and the ballpark lease and Bob "Grimace" DuPuy saying stuff that he'll probably later finesse feebly. Specifically, Brandon exposes Tavares' variable ticket pricing scheme (or the foundations of one, perhaps). As reported by St. Barry of Svrluga:

Tavares, who is also unsure of his future, has begun thinking of different ways to structure ticket prices, including making more desirable games, such as weekend dates against teams such as the Baltimore Orioles and the New York Yankees, more expensive, but offering discounts for games that would traditionally draw smaller crowds, such as Monday and Tuesday nights against lackluster opponents.

Brandon is critical of the concept, commenting that such a scheme would make the good match-ups more cost-prohibitive, would lead to fewer sell-outs, would serve to punish the fans, and would potentially alienate the fanbase.

That last point is especially well-taken. I have the barest understanding of the process by which athletic teams (and other mainstays of the broader entertainment industries) set their ticket prices; but I do have some understanding, and based on that limited understanding, it seems that teams carefully evaluate their market---based on size, demographics, geographic promixity, general avidity, and more specific "hot button" topics and opponents. Presumably, teams pay consultants to do this work in a competent manner. (Presumably---hopefully---MLB has given the Nats the means to hire a few of those guys.)

I suspect it's an awful risk to tinker with ticket prices (much less raise them, even in select circumstances) before the fanbase can adequately be evaluated. Hopefully, the Nats will not make any hasty choices that would alienate a growing but still perhaps indeterminate fanbase.

I do not believe that variable ticket pricing is any sort of direct or indirect, intentional or unintentional, punitive measure, though. Certainly, if one is not careful and sensitive to the desires of the fanbase, the response will be negative. But punish-and-reward are not in the price-setter's lexicon; rather, the important consideration is to set the price(s) at the point the market will best bear it (them). Likewise, Tavares' job is not to reward or punish the fanbase. It is, as an analyst once noted, to focus on the bottom line:

Baseball owners, like most business owners, are interested in maximizing profits or minimizing losses. Thus they set ticket prices with that goal in mind. Since having an additional fan attend the game does not have much effect on the cost of holding a game, this means that prices are set to maximize revenues.

For example, if there are two million fans willing to pay $10 to see the game, but only 1.6 million willing to pay $12, then it would not be a good economic decision to raise ticket prices from $10 to $12, because it will decrease revenues and profits. But suppose instead that there are 1.7 million willing to pay $12. In that case, ticket prices will be raised to $12, because the increase will generate an extra $400,000 of revenue.

Variable ticket pricing, in a sense, adds another tier to this analysis. (And the analysis already has several tiers; just look at a layout of, say, RFK Stadium. Prices are stratified based on location and sight-lines. Similarly, service industries use the same method at times; for instance, airplane ticket prices change depending on first class or coach---and they also change upon departure and destination point. I should know this last point, as a resident of Richmond---where, until recently, the absence of low-cost carriers and the proximity to a couple hubs meant sky-high prices.)

As noted by sports business writers, the practice dates back more than two decades in college football, and MLB teams have recently started to implement it. Consistent with Tavares' quotation, variable ticket pricing in MLB tends to track "opponent quality" and "day of the week". The team must be sensitive to the preferences of the fanbase, lest too many fans opt not to jump on board (the conclusion in the link above seems to be that the St. Louis Cardinals struggled some with this), but just as the goal sure as sin isn't to reward the fans, it's also not necessarily to sell out the ballpark.

Instead, the goal is to maximize the value of each available seat. This can be done by raising the price of a ticket for a heated contest against, oh, the Orioles, or by (theoretically, at least) lowering the price for uninteresting games against the Blue Jays or Rockies. There's a point where you can go too far in either direction, obviously, but I'm no economist.

So, is Tavares' quotation a good thing? Not really. But it's not really a bad thing, either. It's just the way it is---or the way it soon might be. As of three years ago, MLB front offices still by and large feared the concept, citing fan confusion and consternation. I'd suspect Tavares should tread lightly here, at least at first. (Of course, he might be gone soon, anyway.)

But there's a reason why nowadays, about half of MLB's teams employ variable pricing (or "Marquee Games"). The reason, I'm sure, is that such a scheme---if properly employed---works. Fans are willing to pay what they're willing to pay, be it two bucks or twenty or two hundred. They might prefer to pay two, but if they'll pay twenty or two hundred, the team certainly won't stop them. And remember, one of the principles of variable pricing is that two teams are playing at this game; given DC's, eh, hospitality to out-of-towners (and DC's renewed status as an MLB town), there are lots of Yankees, Mets, and Red Sox fans milling about and creating demand for a seat.

Post-script: The hope, obviously, is that if extra revenue resulted from variable ticket pricing then the team would put it to good use (or even use at all). Let's hope the Nats would honor our good faith.