Do The Thrashers Have Large Talons?

Friday, December 19, 2008

How To Price Tickets When Times Are Tough

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.

15 Comments:

  • I'm not so sure that corporate demand is all that "inelastic". Even boomtown Alberta is feeling the pinch of oil at $34, drilling and construction projects are being suspended right and left. Maybe they can call it the "NoGrowth Saddledome". To me, the Thrashers fate will depend on what happens when the complex ownership structure is finally unraveled in court, on how much leverage some of the wannabees in the ownership group used to be part of the big show, and on how much damage to their personal fortunes has been done in this downturn. I haven't seen the names of any NHL owners on the list of Bernie Madoff's victims
    but the amount of net worth lost among America's wealthiest families has been catastrophic even without the biggest scam of all time.

    By Blogger Big Picture Guy, at 11:25 AM  

  • Great post. So how long until all the legal b/s is overwith and we can get some focused ownership to produce a good product again?

    Hopefully, after we get Tavares and before we lose Kovy.

    By Anonymous Sean, at 11:51 AM  

  • BPG: Certainly there is some point at which corporate demand ceases to be inelastic, but in a comparative sense it is much more so than the average local fan.

    One other "inelastic" factor is that major sponsors (Delta, Home Depot, Coke, UPS) usually sign up for multi-year sponsorship deals that have them buying luxury boxes and blocks of seats. Most of those listed above sponsor both Hawks and Thrashers and have "all-event" ticket deals.

    re: Fortunes. Belkin's fortune is related to credit card sales who know how much money he has today. The two DC owners Levenson and Peskowitz have holding companies with many smaller businesses. Given the widespread nature of the economic downturn it is hard to imagine that some of those companies are not hurting.

    Another unknown is whether there is any Thrashers-related fallout from the Maddoff Ponzi scheme. I have no idea whether they had investments or not--but so far the names revealed are something of Who's Who of the American Jewish community. It is pretty shocking and sad to see Speilberg and Jewish foundations get swindled.

    By Blogger The Falconer, at 11:52 AM  

  • I'm attending my first Thrasher's game of the year - thanks to two tickets from following 'free' link posted on a certain message board. So I have two $32 face tickets for that cost me $7 total in ticketmaster fees. On the way to the bulb I'm stopping at WalMart and picking up two $10 toys to exchange for vouchers for 2 tickets each. So I'll have acquired 6 seats for a total cost of $27, or $4.25 per - and I haven't even stepped up to the spin-to-win yet. They still have spin-to-win, right?

    ~~~~~~~~~~~~~~~~~~~~~~~

    By Anonymous Anonymous, at 12:05 PM  

  • Belkin owns Lookout Farm, a working farm in Natick, Mass. so he'll never go hungry, not literally at least. One window on Levenson and Peskowitz finances is a public company called TechTarget which just shut down two trade magazines it published and laid off 12% of staff. It looks like Messrs. L&P sold about half of their holdings in that company at the IPO but with TechTarget's stock price down around four dollars a share (the IPO was $13 a share), they have paper losses of about $6 and $4 million on the remaining half.

    By Blogger Big Picture Guy, at 12:35 PM  

  • Unfortunately the market in Atlanta is not going to support the league and this has nothing to do with the current economic crisis. The NHL's vision of placing the league in the southern markets was misguided. The 'grace period' has come and gone and with the exception of a few southern markets, it's time to fold up the tents and bring them back up to where there are enough fan and corporate support. I am dumbfounded when I read and hear of ticket giveaways to simply fill the seats. In fact I can remember a 2 for 1 in Florida, promoted by McDonalds over 5 years ago! Bettman bit off way more than the league could absorb when they placed some of their teams and they are now seeing the mess that was created when home crowds such as yours might top 5,000...yes tickets sold is one thing but actual butts in the seats is another...

    By Anonymous Anonymous, at 1:08 PM  

  • Anon: What about the "failure" of NHL hockey in Detroit between 1975-1985? What about the failure of the Blackhawks to see tickets from 1997-2007? How about a playoff Boston club that regularly ranks in the bottom 1/3 in attendance? Based on NHL history it would seem that even in Original Six cities people will refuse to buy tickets after an extended period of crappy hockey.

    Using your line of argument those markets are all "failures" because people didn't buy tickets for a bad hockey product. Atlanta has one playoff appearance in 10 years and that was a sweep--even with the sweep, season ticket sales jumped greatly--but then the team finished 27th out of 30 teams the following year.

    Two things result in a successful NHL franchise outside the north: 1) a large enough market and 2) a decent hockey product.

    Dallas has met conditions 1 and 2 nearly every year and are a strong franchise.

    Tampa meets condition 1, but not condition 2 for their 1st 10 years. Now that they have won just a bit their fanbase is solid.

    Two southern teams (Nashville and Carolina) are in markets that may simply be too small to support a team (they are similar size to Buffalo). Nashville has competed for the playoffs nearly every year but the there simply is not a great deal of corporate support and there may not be enough fans in a metro of that size in the long run.

    Big time cities like: Miami, Tampa, Atlanta, Dallas, Phoenix, Washington, Anaheim and Los Angeles are big enough to sustain a team that isn't dreadful on a regular basis.

    By Blogger The Falconer, at 3:46 PM  

  • I see your points however...'traditional' markets may see a dip in attendance with a bad product but those markets will never lose the fan base. The southern market teams will see a rise in ticket sales with a good product, but once the teams tanks, those fans will be gone for good. Miami, being in a large market as you say, will never see consistent ticket sales because they will never have that solid fan base. Sure they may see a spike from year to year, or if they are lucky a two year period, after a successful season on the ice. But those fans are 'temporary' riding the good times and will be lost once the teams turn south (pardon the pun). Interestingly enough about the Stars, they were riding a sellout streak up until 2004. I'm not suggesting anything in particular about that market because I think it is solid, but when it happened it was an interesting fact to me.

    Look, I'm all for a large and expanded market for the NHL. I happen to believe however that the NBA reject in Bettman and the NHL should have been better prepared when expanding the league. They have been and are trying to emulate other pro sports in hopes of capitalizing on their successes. With the expansion and more recently the switch to Versus, it is becoming a failure on both accounts. I question your rationale for what it takes to have a successful franchise, a large market and good product. I believe it takes much more than that and it starts with placing teams in areas that are already familiar with the game. Hockey should be built as a regional sport and allowed to grow from there.

    We can go on and on about this and I see what you are saying but I have to disagree somewhat. I personally happen to believe that the decisions from the top have been bad concerning the issue of expansion and more specifically the southern markets.

    By Anonymous Anonymous, at 5:08 PM  

  • Anon: We might be able to find some points of agreement if I clarify "good product" a bit more.

    What is "enough" success in a non-traditional market? Certainly you can't expect to qualify for the playoffs every year--that is a bar that is unrealistic in a 30 team league. At the other end of the spectrum one playoff appearance every decade is probably not good enough to sustain interest in markets not named "Toronto" or "Montreal."

    What I have in mind for "success" is a team that qualifies for the post-season about half the time (16/30 teams do so that seems reasonable) and a team that is competing for the playoffs 6 or 7 year out of a ten year period.

    If there is a history of general competitiveness I don't think the fans in non-traditional markets will abandon a team after just one bad year--being competitive in previous years buys you some breathing space with fans.

    But long term sucking doesn't fly even in original six markets. I am old enough to remember when they gave away cars to get people to attend games in "Hockeytown" and I have sat in a mostly empty United Center to watch Blackhawk games in the last decade. Both are cities where Howe and Hull are revered but people stayed away when the product was bad for a long time.

    By Blogger The Falconer, at 5:35 PM  

  • Fortunately I am not quite old enough to remember the car giveaway...There is no doubt that a good product is one of the keys to keeping fans, that I will not debate. But my point is that the fans in those traditional markets are still there when the teams are bad, they just might not be buying tickets. Hence, they will be buying those seats when the team does well on the ice. But in markets such as yours and further south in Florida, those fans are not there even keeping an eye on the team when times are tough. I'll say it again, hockey is regional and should be treated as such. Introducing a 'new' game to markets where it's not known will only last so long, with a few exceptions, in my opinion. Florida, Tampa Bay, Nashville, Phoenix, and Atlanta are markets that will continue to struggle, even when the team prospers on the ice. Yes league wide there are problems with some of the traditional markets but they will recover with a good product. I question whether the above mentioned teams can sustain a good fan base even with on-ice success.

    By Anonymous Anonymous, at 6:00 PM  

  • "Hockey is regional"

    Literally millions of us yankees (myself included) are relocating to the south. There almost as many people born in "yankee" states in Atlanta as there is in the Buffalo metro region.

    The children of parents who watched Gordie Howe, Stan Mikita and Bobbly Clarke are moving to warm weather areas at high rates.

    Since 1960 New York metro has only increased by 22% while Atlanta, Dallas, Tampa, Miami, Phoenix have all grown in the neighborhood of 200%. The US population is gradually relocating south ward and the NHL is wise to begin developing those markets.

    By Blogger The Falconer, at 6:24 PM  

  • Count me as a northerner who feels bad for the raw deal you guys have had. At this point, you must have the patience of a saint to deal with the "Screw the South" people. The simple fact is that hockey SHOULD succeed in Atlanta, but bad management has set your franchise back to starting from scratch.

    By Anonymous Mike in MN, at 8:18 PM  

  • Think of it this way: How different would things be in Atlanta if they had hired Poile and Trotz instead of Waddell and Fraser?

    You'd have to think that, at that size, the area would have embraced the team more than the Predators have been in Nashville to this point.

    By Blogger James Mirtle, at 9:50 PM  

  • Mike in MN hit the nail on the head...bad management. It's being allowed by the ownership, keeping the GM currently in office while the on ice product is suffering due to a lack of capital being used to attract and retain quality players. The GM can only work with what he is allowed to work with. If ownership says you have $39mm to allocate to salaries, than what is a GM to do? You could fire Waddell and put another GM in there, but if a low salary limit stays in place and because of that Kovy and other higher paid players and forced out because they are breaking the budget, what are you going to do?

    It's not impossible. Look at the Kings, how they are building a talented team while being well below the cap for now. And they are signing and retaining players. The Kings payroll is lower than the Thrashers, and, would probably challenge for a playoff spot except for the fact that their schedule is really frontloaded with home games and have to play much of the second half of the season on the road.

    There's the difference good management makes. It's not totally Waddell's fault the Thrashers are in the state they are in. He's not without blame, however. But it's time to invest a little more by the owners at the top. You have to spend money to make money. They haven't figured this out quite yet.

    Get a good product out there, and you will never give tickets away. Detroit, Chicago and Pittsburgh are proof.

    It's time for the owners to wake up. Now, not later. Before it is too late.

    By Blogger spiker97, at 11:23 PM  

  • Saw a big couple of Falconer quotes on Mirtle's blog. Congrats.

    Any clue when the AS ownership might finish up their "day" in court?

    By Anonymous Hockey Booze, at 1:58 AM  

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