A price-based solution to the scheduling issue

Submitted by UMaD on June 18th, 2009 at 12:41 PM

Inspired by Brian's idea to replace lost revenue from home games against a 1AA school with a higher priced marquee matchup every other season (e.g. Alabama , Oklahoma, Texas) it occurred to me that cupcake-scheduling can be blamed on fixed-cost ticket pricing. Under this accounting, a ticket for a 1AA opponent earns the same revenue as all others. Every home game earns the same revenue, so revenue is maximized by maximizing home games. But in reality, the true market rate for a bad opponent is less than the face value of a ticket, while for a good opponent, its much more. (We see this in black market resale rates, especially on campus. e.g. OSU: $100+, MAC teams: $25, 1AA: even less). Season ticket holders subsidizes the unattractive matchups because they're getting a great deal on the more attractive ones. But if a pseudo-market-driven variable pricing scheme was in place you’d sell tickets at prices depending on the opponent and have a more realistic assessment of where revenue comes from - games that interest fans, not just the Michigan Stadium experience.

A marquee matchup every other year, with tickets selling for $70-150 (or more), would make up the lost revenue of a $15-35 1AA opponent very quickly. The key is to stop comparing potential revenue from one marquee matchup to the face value of two home games at the season-ticket-average-price. Instead compare a bad matchup to the closer-to-true market value of marquee matchups: pretty likely less than half of a marquee matchup.

MLB has introduced variable pricing for “premier games” – interleague play and rivalries. Its just a few dollars but why can’t Michigan do the same on a bigger scale? The total cost for season tickets in the short run could be maintained, just allocate the total to games with a distribution that is closer to the market rate. If you did this, I can’t believe you wouldn’t come to a very different revenue-maximizing scenario. Better accounting leads to better decisions.

This is a revenue opportunity for NCAA football as a whole and, in my eyes, a systemic problem (at least for the power-house teams.) Variable pricing for non-conference games (if not the whole season) would create incentive for more attractive matchups and people would be willing to pay a lot of money to see more of them.

Under Canham , Michigan Athletics was a marketing leader. They can do it again and it really wouldn't be as dramatic as it sounds if phased in and marketed correctly (via keeping the total cost of a season ticket unchanged for a year, or implementation for just non-conference games while upping the cost of big ten tickets). More revenue without raising prices on the core schedule is a win-win.

Secondary benefits – another national TV game most likely, and another thing to pitch to FL, CA, TX recruits. Michigan is again viewed as a leader rather than playing catch up to OSU and other powerhouses. More TV revenue and marketing opportunity (though I know these are less tangible and benefit is split to other Big10 schools).

One flaw in this analysis: Impacts to local businesses and residents for parking/restaurants/etc - lose one home game every other year. That is not insignificant, but I think the revenue gains for the school would outweigh the community impacts especially since the U calls the shots. A second potential flaw is that ticket revenues would vary from season to season with the “off” away game year having a lower season ticket price than the “on” years. Perhaps there are some accounting troubles that irregular revenue streams create, but again, nothing that the $$$ shouldn’t be able to smooth over. Also you could just agree to split gate 50/50 (or close to it) with your opponent to create a more consistent revenue stream… Once every major program catches on to this everyone continues to benefit. We get better games, more attention, and more money generated by NCAA football in total. (Yes, I realize the same rationale applies for a bowl playoff and its still not happening, but there are entrenched interests with the bowls actively preventing change. No such hurdle exists for pricing, to my knowledge.

Is there a good reason for the flat pricing scheme that exists? Is it just because its easier for the University to do it this way? What am I missing?

Comments

rdlwolverine

June 18th, 2009 at 12:50 PM ^

If season ticket prices remain constant, then rejiggering the prices of the individual games doesn't really do anything.

The fact of the matter is that well over 90% of the tickets are sold on a season ticket basis. In that sense, the price of the individual game tickets doesn't really matter. Only the price of the season ticket package matters and it's not clear how much more that would increase from the proposed schedule change. The Athletic Department probably has incentive to price them somewhere below market value to maintain season ticket sellouts.

UMaD

June 18th, 2009 at 1:00 PM ^

It doesn't really matter in terms of revenue for the part of the schedule that stays constant. But it would change how a home-and-home vs. Texas would be perceived and the cash it would generate relative to a 1AA opponent. Right now, the 1AA game generates as much revenue as the OSU game which we all know isn't true. You're selling tickets in a lump, with the assumption that more tickets per season equals more revenue. Season tickets don't cost the same if there are fewer home games. But they could and should. Everyone would trade 2 home games tickets vs. 1AA for 1 home game against Texas.

BlueNote

June 20th, 2009 at 12:08 AM ^

Yes, basically the athletic department is increasingly screwing the season ticket holders with shitty home games and getting as much money as they can RIGHT NOW. Eventually the season ticket holders will tend to get mad and start to take their money away. In the meantime, however, the department is flush with cash that can be used to improve the program . . . which in theory will produce more wins and satiate the season ticket holders.

Essentially, we are running a deficit right because we are printing cash to jumpstart this football program. Hallelulah Sweet Jesus send us the rescue package and while you're at it send a big fat stimulus check to my mailbox.

UMaD

June 18th, 2009 at 1:03 PM ^

"Only the price of the season ticket package matters and it's not clear how much more that would increase from the proposed schedule change."

My point is not to raise season ticket prices via a schedule change its to propose a more attractive schedule without negatively impacting revenues. Raising ticket prices (or not) is, to me at least, a side issue. I want attractive games, like everyone else, but think the "we-lose-money-with-fewer-home-games" argument is bogus.

colin

June 18th, 2009 at 1:10 PM ^

but don't you suppose that the AD has run the numbers on this? I think your logic is pretty good, but it's far from concrete and I have to imagine the AD has actual data. For example, what percentage of attendees are season ticket holders, single ticket buyers and day-of scalpers?

Also, consider that as this is collegiate athletics, profit-maximizing schemes may come off as somewhat crass. There's a reason why there's no advertising in the Big House, despite the fact that if implemented, it could similarly offset costs and create the matchups fans want. My guess is that the risk of being seen as greed-driven in this particular setting (we're all doing this for the kids, remember) could certainly damage the brand while offering relatively little upside (again, haven't seen the concrete numbers). The status quo is already quite good, don't fix what ain't broke, etc.

UMaD

June 18th, 2009 at 1:41 PM ^

Its not a profit-maximizing scheme necessarily, though it could be implemented that way. Revenue, obviously, could be one rationale for the AD to make a change...

Its an entertainment-maximizing scheme that addresses the primary rationale for not scheduling better matchups (fewer home games). While the system isn't "broken" it can obviously be improved. The biggest fans/students/alumni have right now is cupcake scheduling. I think it can be addressed with what is essentially an accounting change. Season ticket prices (over a two year span) could be identical to currently priced tickets, just with a better matchup each season and one fewer home game over two years.

UMaD

June 18th, 2009 at 6:17 PM ^

Yes. A valid point. The equation maybe is different if you live in Ann Arbor. But I'm not sure it is. Ticket prices on the black market would probably be more than double for Texas/Alabama right? This is the best indication of value I have.

michiganfanforlife

June 19th, 2009 at 4:10 PM ^

What about the apparel sponsor? You see Addidas in every shot of a Wolverine uniform. They do get a bit of cash from them... We would all like to see bigger matchups, but it's all up to the AD to make it happen. I think that BM thinks the ND out of conference game is enough for the season. I don't agree, considering the horrbile system (BS -- I mean BCS) that is in place - it would help us to play better teams OOC.

Michigan Arrogance

June 18th, 2009 at 1:19 PM ^

that the cost of a season ticket would increase slightly (50 bucks, say) if you replaced DSU with Texas or something. sure, whatev.

why not split the gate with these teams? i think that's how Canham structured the ND deal in 77

Blake

June 18th, 2009 at 1:35 PM ^

Right now, the price of tickets is already variable. The athletic department has 2 "premium" priced games per year, so the OSU game's face value is say $65/ticket and the Eastern game is maybe $50/ticket.

As was said above, the majority of the seats are sold on a season ticket basis, so very few of the premium game tickets would get sold on a game by game basis.

If you're saying that they should raise the value of the OSU ticket so it's consistent with the street value of said ticket to cut out scalper profits, maybe that's an option knowing demand is high.

The Cubs have variable pricing based upon opponent or time of the season and set their prices accordingly based upon what they perceive people would be willing to pay. (yet the scalper culture still infests itself around Wrigley)

However, since your proposal doesn't raise the actual season ticket price any, very little additional revenue is realized. On top of that, part of the reason the AD schedules low level schools is that their "appearance fee" is lower, so it may take $400k to attract Eastern to come down the road, but it would cost far more to bring in a bigger name opponent, or if you had to make a return trip to say, Oklahoma, the total revenue is far less than scheduling Eastern 2x.

UMaD

June 18th, 2009 at 6:15 PM ^

Wouldn't Oklahoma's appearance fee be negated by Michigan's appearance earnings the following season? I'm not attempting to raise revenues necessarily, just suggesting a way that 2 bad home games can be revenue neutral to a one good one.

If season tickets cost, say $400 a season - who cares if 8 x $50 or $110+50+50+50+50+30+30+30 (where ND is the $110, B10 games are $50 and boring non-conference games are $30... Just for illustrative purposes). The revenue is the same. But the accounting is different, and more representative of what people are willing to pay. But the math changes. Its as realistic to give away DSU tickets for free as "bonus gift" on top of season tickets while raising season tickets $50 than it is to charge $50 for DSU. While it adds up to the same thing as a package, it changes the equation used for decision making.

An example:

Lets look at two consecutive seasons of 8 home games in a row (ignoring the home and home with Notre Dame, which complicates matters by making some seasons 7 home games and others 8 - for simplicity we'll assume ND is played every year in AA). Lets assume each of the 4 Big 10 games are $50 for a total of $200, which remains unchanged. You have 4 non-conference games to schedule.

Under the current model its pretty simple:

Scenario A (where we play ND and 3 cupcakes at home each year)

Year 1 Non-Conference: $50+50+50+50 = 200
Year 2 Non-Conference: $50+50+50+50 = 200
Total = $400

Scenario B (where we play ND, two cupcakes, and Alabama home-and-home)

Year 1: $50+50+50+50 = 200
Year 2: $50+50+50+0 = 150
Total = $350

You lose in Scenario B, so obviously you pick Scenario A. Now lets look at the proposed system which doens't change overall costs to purchase season tickets, but accounts for things differently.

Scenario A (where we play ND [$110] and 3 cupcakes at home each year)

Year 1 Non-Conference: $110+30+30+30 = 200
Year 2 Non-Conference: $110+30+30+30 = 200
Total = $400

Scenario B (where we play ND, two cupcakes, and a quality opponent [$60])

Year 1: $110+30+30+60 = 330
Year 2: $110+30+30+0 = 270
Total = $400

Since the majority of ticket holders are repeat buyers you could just charge the same amount. Or, you can include the impacts of the ND series (which I was ignoring above) and charge the same amount each year by alternating a quality home game whenever the team travels to south bend.

The problem with this model is it doesn't take into account concessions and whatever other revenues they earn from home games. This would pretty easily be countered by raising the ticket price slightly from say the $60 I've noticed. As Brian has suggested and others have demonstrated... people will be happy to pay extra to see games that aren't glorified exhibitions.

NYWolverine

June 18th, 2009 at 3:16 PM ^

Aren't the increased value paid for by MLB "premium game" fans more a function of Ticketmaster and Stub-Hub, and not the team's own box-office? I thought a team sells season-ticket packages, sells FAR fewer tickets with some sort of premium attached, and then sells its remaining seats to a third party who can then inflate or deflate prices based on market value.

In this way, you get a ticket with Ticketmaster's $30 value on the face, that would have cost $20 as part of a season ticket package, but whose value would vary on Stub Hub depending on the market. All these variables don't really affect the team's bottom-line, they want the guaranteed money from their sale to Ticketmaster, or Stub-Hub, or whoever.

So, I'm just not seeing how premium matchups would help M all that much since M has historically sustained itself on season-ticket packages without much reliance on single-ticket sales or any need for a third party vendor for tickets. If you can fill the seats with season tickets, you've done your job. If it ain't broke, don't fix it.

If it's true that M is already charging a premium for OSU and could do the same for another top opponent, that's only a $15 profit over baseline to axe the full $50 you'd get from another homegame. TV revenue notwithstanding, the proceeds of which I think have to be shared amongst the Big Ten, I don't see a true motivating financial factor to do it.

I think the non-financial factors are more significant: recruiting, press-coverage, BCS heavyweight gravitas, likelihood of a successful night-game (woo!), and it's obviously what the fans REALLY want.

ddbbhh11

June 19th, 2009 at 3:44 AM ^

why not just give season ticket holders 7 games every year. then every other year when you have your 8th home game against a great opponent, you sell those tickets for $100-$150 each? if $100, then you made up your ticket loss from your 7 home game season the yr before. if $150, you made up some of the revenue lost from concessions, etc. and your tickets. it should just be a separate game not included as part of your season ticket.

wolvrine32

June 19th, 2009 at 4:22 PM ^

I think part of the reason this isn't done is forecasting the price for every game gives you a lot more of an opportunity to get it wrong. Any type of administrators hate getting it wrong. If they set the price too high for game X and didn't sell out, for example, that would look really bad. So it is much easier to set the price for a season and end up in the same place.

Not to mention, look at how many years the Big Ten has had 2 teams in the BCS. That (in the minds of the AD's) validates the current scheduling strategy as a good one. We get screwed by seeing less good games, but they keep those revenue streams up.

UMaD

June 21st, 2009 at 1:11 PM ^

Most tickets are sold to season tickets so it really doesn't matter if you get individual games wrong.

The point about making BCS games is valid though. The current ranking system doesn't really reward playing a tough schedule. Hopefully UofM looks past that as we've done in the past.

wolvrine32

June 22nd, 2009 at 10:17 AM ^

Rationally, you might be right.

Given that, I really think it does matter if you get an individual game wrong, if you work in the athletic department. Say you overprice Eastern Michigan, and those individual game tickets don't sell. Now you're faced with explaining that. Say you underprice Ohio State, or a hypothetical Texas matchup and the tickets sell out much faster than anticipated. Or worse, *don't* sell out.

I agree with you that I'd like to ultimately see better matchups. I'm just trying to relate what the folks in the athletic department are thinking about (not just at U-M, but all of them in college athletics.) This is their job, and they aren't about to do anything risky or rock the boat without a mandate from up high.

Look at the infamous Halo. How innocuous did that probably sound on paper? But Goss almost certainly lost his job at least partly over that.

ShockFX

June 19th, 2009 at 8:04 PM ^

Good post.

In my opinion, there are two key factors into our scheduling at the moment. First is the cost of the renovations, each home gave forgone is something like $5M in gate revenue. If we look at a 4 year period of 2008-2012, replacing 1 cupcake a year with a good team (home and home) is forgoing about $10M in revenue. Depending on naming rights fees and suite revenue and such, that's somewhere between 5-10% of the outstanding debt from the renovations. Sadly, it's a financial slam dunk to schedule cupcakes until the cupcake costs a LOT more.

Second, our team is weak right now. I'm going to set aside the slight benefit to recruiting that scheduling tough games MIGHT generate. Unless someone out there believes that Michigan is going to have a 11-1 record in 2009 - 2010/11/12 (I don't think Bill Martin could get a quality home and home scheduled before 2012, but I could be wrong), there is no benefit to having a harder schedule.

Bill Martin is not all about dollars, Bill Martin is about long term success. And in the short term, it's going to result in poor scheduling and frustration amongst the most rabid fans (us). Once the revenue from the BTN and the suites comes online and the renovation debt is being paid down (and the team is performing again) we WILL see the kind of games we all want to see.

UMaD

June 21st, 2009 at 1:09 PM ^

My point is that each home game IS NOT $5M. Thats math based on the false assumption that each game creates equal revenue. Again, the good games are subsidizing the bad in the season ticket package as evidenced by resale amounts. I don't think you're foregoing any real revenue by dropping two bad games for one good game because you can charge, at worst, the same season ticket price as with the bad games. Assuming of course you're willing to charge differently...

Scheduling is usually done a few years out, so the "our team is weak right now" argument doesn't fly beyond the present. Or so I hope... Most scheduling arrangments for home-and-homes happen several years in advance.