OptionIt Allows Teams to Combat Secondary Market

Last week OptionIt, a ticket futures marketplace, inked the Boston Celtics to a pilot deal, their most high profile team yet. It’s a small deal – only 15 games and a handful of seats at each game, but it’s a direction more teams need to seriously assess, given the amount of value they currently relinquish to the secondary ticket market.

OptionIt functions similar to the option market for stocks. Customers can purchase an option to buy a ticket to a certain game for a set price. The option carries a cost and has an exercise date by when the customer must decide to purchase the ticket at the exercise price or let it expire and lose the option price. OptionIt will only sell as many options as it has tickets, so every option is guaranteed a ticket, which makes sense since capping supply will boost prices. If OptionIt allows this to function like a true marketplace, more popular, marquee games will see option prices increase from the higher demand, and they could also increase the exercise price for tickets, essentially replicating the auction process StubHub uses through a different approach.

While teams continue to struggle at the gate, continue to cry poor about revenue numbers and economics, they move at a snails pace relative to other industries to try to fix the problem. A former President of Business Operations for a baseball team once told me that teams fail not when they are trying to sell tickets with a bad team, but by not fully capitalizing when they field a good team. In line with that, it’s a wonder why more teams have not integrated dynamic ticketing and simple, yet intuitive concepts like OptionIt.

Without even introducing the dynamic pricing through market conditions, teams capture a new revenue stream by introducing the option fee, which a third party collects today. For playoff games, or marquee games against big draws, that can net a comfortable six-figures without any cost attached (assuming a straight revenue share type deal with OptionIt). Start using market-based dynamics on the exercise and option price, then teams can begin to capture more of the ticket value they currently give away to the secondary market and ticket brokers.

Teams need to shift their focus from creating new ticket promotions and all-you-can eat packages to controlling a market in which they are the content owner, or at least balance it between the two. As much, if not more money is left on the table from not capturing full value when demand is high as is lost by not selling tickets some tickets at today’s discounted prices. If teams focus on the higher margin opportunity, they can help bolster revenue without even selling a seat.

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Ticket Sales Problems Magnified in NHL

We have focused on lagging NFL ticket sales putting local games at risk of blackout, a recessionary indicator for what is hands-down the most profitable and popular sport in the country. Recent MLB numbers show significant year over year declines in two-thirds of the markets. Hidden behind these stories is the effect on hockey in the upcoming season.

Unlike MLB, the NBA, and especially the NFL, hockey does not have media contracts in excess of a billion dollars and as many big, long-term sponsorship deals as the three major leagues. Same concept applies at the local level – media deals are insignificant for most teams relative to the other sports. Without these guaranteed cash flows, teams rely for a higher percent of revenue on ticket sales, creating much greater exposure to the market.

Last week the Minnesota Wild, with the current longest sellout streak in market where hockey is popular, announced they still have tickets available for every game this year. Late last season the majority of teams announced ticket price freezes or even reductions, which may help stabilize sales but could hurt margins and will certainly not lead to increased revenues.

Given the ownership situations in Tampa Bay and Phoenix creating a glut of negative publicity in each of those markets, and nationally to an extent, the NHL could see a significant and potentially debilitating drop at the box office this season that puts many teams on alert. Someone will have to explain on Phoenix sold any tickets this off-season given the circumstances. Dallas has an owner facing bankruptcy and a lot of ticket money going towards Cowboys games, Florida has always been a bad hockey market, so its likely to be high on the list of discretionary spending cuts for struggling fans. Take the argument right to NY where unemployment is above the national average, Wall Street money is not at its previous levels, and the Yanks and Mets captured a larger share of sports spending this summer (with the Jets and Giants coming), hockey is at risk of getting squeezed.

Teams have responded by reducing cost structures, notably salaries have slightly retracted the past year or two, but likely not enough. With the CBA coming due it could be time for the league and its players to reevaluate the entire system, bring salaries further in-line with what the sport is relative to the big three (a lot smaller than they think), and look for new revenue streams (which they are trying to do online). More importantly they need to put teams into markets they can succeed in and correct the national media situation.

The NHL needs ESPN now. They need to make the NHL Network relevant. And they need to move teams into markets they can succeed in and then do a better job of selling tickets and promoting the league. Last week’s big preseason marketing push barely scratched the surface. Maybe doing it in NY and getting buried beneath the glut of news is not the best stage.

Something to keep an eye on the next few months.

New Ticket Offers: Innovative or Another Reason to Worry?

In this blog, I’ve previously lauded the Cleveland Indians for cross-marketing deals with the Browns and creating ancillary revenue streams by hosting dinners on the field and additional events outside the game. However, after the Tribe recently announced another cross-marketing deal, this time with the Blue Jackets, a few weeks after owner Charles Dolan claimed the team would lose $15-20mm this season, I’ve started to question how far teams should take these off-field deals.

Cleveland is not alone, as most major league teams are trying creative ways to move ticket inventory – and many continue to struggle as much or more than the Indians, notably Pittsburgh, San Diego, and Tampa Bay. When evaluating company stocks, I always feel that when a company starts introducing products or services it has maxed out a saturated market (i.e. Coke/Pepsi moving outside Colas) or its struggling and started to scramble. The day the ice cream shop down the block started selling potato chips and sandwiches, it was clear the ice cream business was not doing well and the store was doomed. Best Buy selling outdoor patio furniture is another example of a sign that a company may be struggling with its core competencies and in for a rough patch.

It’s no secret Cleveland is struggling, but have they become desperate? Running cross promotions with the local hockey team a month after trading away your two best players for financial reasons may come off as more gimmicky than value-add to fans and customers. I’m sure team management asks these questions of themselves before embarking on these initiatives – does it align with the brand, what is the benefit to the fans, what does the cost-benefit trade-off look like, etc. In addition to the quantity of these non-baseball deals serves notice that the team is really struggling, the totality of the deals also serve notice with fans, and can dilute the brand as it becomes less about baseball.

The Indians face a tall order. The region has a number of cities struggling due to the recession (a recent news publication listed 8 of 10 top struggling cities in the Rustbelt area) and due to its on-field struggles Cleveland unloaded its most recognizable stars at the last two trade deadlines. Now its left with a team of disappointing signings (Hafner) and many unknowns, struggling to sell tickets, bleeding money, and no saving grace evident. It’s somewhat haunted by signing Fausto Carmona and Hafner to early contracts with the good intention of locking them up, but the lasting effect of clogging payroll on two underachievers.

They can’t blame the ballpark like a Florida Marlins or Minnesota Twins, though the Twins don’t have the same attendance problems. At this point, do these additional business deals risk diluting the baseball brand and losing more core fans, while not attracting new fans who view the promotions as gimmicky. Or can the team actually use these marketing deals and promotions to remain sustainable while rebuilding the team? An interesting question that will play itself out in baseball over the next season or two in cities like Cleveland and San Diego, with business savvy staffs and struggling teams.

Nets Ticket Deal Defies Marketing Principles

Below is an adaption of the previous post with edits and more structured arguments:

Nobody will ever accuse Nets CEO Brett Yormark of lacking creativity or innovation. However, the recently announced “Match-Up” 10-game ticket plan raised eyebrows and drew some criticism. The plan bundles arguably the ten biggest draws on the Nets schedule – Lakers, Celtics, Cavs twice, Magic, Spurs, Heat, among others – plus, fans receive five reversible jerseys with Nets player on one side and an opposing superstar on the other.

Team marketing veterans will question marketing other team’s players through a ticket promotion because it defies building brand loyalty and not using marquee games to increase sales for less attractive matchups, for instance forcing fans to buy Indiana and Sacramento tickets in order to see Lebron’s Cavs.

Before overtly criticizing the Nets on these points, teams must come to accept and act on the following facts: 1) success is the top driver of sustainable attendance, not ticket deals; 2) marketing’s top fear should be price cuts (applies to any business); 3) fans will buy jerseys of top players, often regardless of what team they root for. Now, look at New Jersey’s situation, who like many teams is rebuilding. Off two straight seasons out of the playoffs, it traded its marquee superstar in Vince Carter (though Devin Harris is a rising star), and have all but deserted its current fans with the planned move to Brooklyn. Further, they play across the river from Madison Square Garden, in the worst NBA arena. Few jobs could be tougher than selling Nets tickets, especially in the current economy.

Given these circumstances, why not market some of the teams and superstars the Nets play to get fans out to the arena. The annual list of top jersey sellers indicate fans value certain individuals, so the Nets are leveraging that to add value to potential customers. In fact, the team improved its own marketing by attaching a Nets jersey on the reverse side, rather than having fans go to the NBA Store and just buy the Kobe jersey with no Nets branding.

Packaging the ten best games into the same package is another way the Nets differentiated the offer. Teams have trained fans to expect the Cavs and Lakers games tied to Charlotte, Minnesota, Memphis, and the rest of the NBA Lottery. It does not excite fans, and they face a tough decision deciding whether to buy that package. The Nets eliminated any question about the value – every game in this deal has an attraction, so fans feel like they are getting a deal, rather than judging if one ticket to see Kobe is worth buying four games I do not care about. Ticket offers have become a dime a dozen, but this package rises above the clutter, and gives fans that “wow” moment. By combining the best teams with the most sought after jerseys, the Nets added value for customers and increased the fan’s willingness to pay for the offer. This approach should boost sales above what teams typically see for ticket deals.

Further, the Nets did not slash prices by bundling ten games they are selling quarter-season ticket packages at or near full price, a quick way to boost your full-season equivalents. Arguably, the team will net more revenue than had they separated these games, paired them with less attractive opponents that drive fans away, and been forced to cut prices later on.

Teams need to accept reality, as the Nets have, that fans want to see Kobe and Lebron and want to buy their jerseys, and some fans only want to see the NBA stars, not a watered down package of lottery teams. Rather than continue to ignore these facts, teams need to find ways to capitalize on it, earn brand favorability, maintain a sustainable business, and be ready to maximize profits when your team is on the short list of NBA elite. Each team holds a monopoly or duopoly in its market, so jointly promoting your team and an opponent will not lose that fan in the future. For all those who criticize the Nets, I will place my bets on their average ticket price and overall attendance for those ten games, the true measures of success.

Nets Ticket Deal: Inappropriate or Innovative?

The Nets set off a buzz around NBA and sports marketing circles last week when they released the Match-Up ticket plan – 10 games against the NBA’s biggest attractions and 5 reversible jerseys with Nets player on one side and opposing superstar on the other side. Traditionalists didn’t know where to start, with promoting opposing teams players or attaching all the big games to the same ticket plan instead of forcing fans to buy the unsellable games in order to see Lebron. Brett Yormark broke basic ticket sales and marketing rules NBA teams have followed for years in one announcement.

Nobody has ever accused the Nets or their CEO for lack of creativity and innovation, but that only proves even the best salesmen can’t fill the arena with a bad team and a bad arena. That said, this deal makes sense for the team. Before addressing the potential negatives, some positives. Immediate awareness of the ticket plan with a splashy, unique offering, so everyone knows it exists. It’s generated interest. Though not scientific and not a large sample, I’ve heard numerous people say, “Wow, I’m thinking about buying that.” For how many ticket plans, and ticket price cuts scroll through, rarely does it actually elicit excitement – this one has.

On the flip side, the Nets are promoting other team’s players, not the best way of marketing your own team. Before digging in, keep two important points in mind that have proven themselves over time: 1) team success drives sustainable attendance, not ticket deals; 2) marketing’s top fear is cutting prices (applies to any business). New Jersey is coming off two straight seasons out of the playoffs, traded away its marquee superstar in Vince Carter (though arguably Devin Harris is a better player now), and have all but deserted its current fans by threatening to move to Brooklyn. Oh yeah, they play across the river from Madison Square Garden in the worst arena in the NBA. Like showing up for a gun duel with two fists, they have no chance to succeed under these circumstances.

Given these circumstances, why not market some of the teams the Nets are playing to get fans out to the arena. I have always felt small market teams struggling for attendance should leverage opposing teams and opposing stars more than they do. Face reality, a giveaway for the 5 Nets uniforms would not generate any excitement (nor would that same giveaway in most arenas). Add in Kobe, Lebron, KG, Dwight, and Wade, and you have added value for your fans, you increased their willingness to pay with the promotion. [I argue teams should consider marketing alliances to push travel packages in opponent cities, i.e. Nets market to Cleveland fans, or Boston fans, to capture revenue from fans with peak interest when a team’s own fan base can’t fill the arena – another subject for another day.]

Without running an analysis on sales numbers it’s hard to draw conclusions about the bundling all quality games together in one package vs. leveraging each game to upsell less attractive games. At a high-level, fans are now trained to expect the Cavs game packaged with Sacramento, Indiana, and Memphis. They don’t get excited about that, its still a tough decision to buy that package. The Nets took away any question – every game in this deal has an attraction, so fans feel like they are actually getting a deal, and are not left to judge if buying 4 games I don’t care about is worth the ticket to see Kobe play. This approach should boost sales for this package above what teams typically see for ticket deals.

Further, the Nets didn’t slash prices and they bundled 10 games together, so they are selling quarter-season ticket packages at or near full price. From that perspective, it’s a quick way to boost your full-season equivalents. Arguably, a bigger revenue bump than would have been received by separating these games and pairing them with less attractive opponents that drive fans away.

Time will tell if the plan succeeds, as measure by attendance numbers and revenue generated. Teams need to accept reality, as the Nets have, that fans want to see Kobe and Lebron and want to buy their jersey’s not necessarily those of the home team. And some fans only want to see the NBA stars, not a watered down package of lottery teams. Rather than continue to ignore these facts, teams need to find ways to capitalize on it, earn brand favorability for your team, maintain a sustainable business, and be ready to maximize profits when your team is one of those on the short list of NBA elite. For all those who criticize the Nets, I’ll place my bets on their average ticket price and overall attendance for those 10 games.

Teams Not Adding Value, Exhibiting Innovation With Ticket Offers

Darren Rovell wrote this week that only a handful of teams immediately offered partial season ticket plans following the release of the full NBA schedule, a somewhat surprising revelation given the expected difficult ticket market projected for the upcoming season. It begs the question if teams are doing enough, and how risky is lowering prices on the long-term stability of ticket sales.

First, I’m shocked that in this day of emerging social media and fan engagement that no team (from the information I gathered) ran any prediction contest to win tickets. Here’s 41 home dates, pick who we play on which dates, most right gets tickets to the game of their choice, second best gets the option to buy tickets to any game at any price point, or something along those lines – what day will the team first host Lebron, closest date wins tickets, etc. That would at least serve to stir up engagement, incentivize fans to start to following on its various platforms building the customer database, and serve as a platform to publicize ticket offers. The perfect engagement opportunity during what amounts to a dead period in the NBA, but little action.

Next, teams should be wary of aggressive price cuts this early in the sales cycle, yet need to flex innovation to move tickets. Creating multi-game plans that force fans to buy 6 games in order to see Lebron or Kobe is old hat. A still fledgling, unproven is bundling tickets from multiple sports – a Hawks-Braves partnership, or a Rangers-Mavs bundle. Another popular plan is the “Pick-A-Plan”, essentially an a la carte multi-game ticket package. Teams could put a different spin on this, allowing fans that purchase this a la cart plan before a specified date to create a theme around the games they pick, then the team can pick the best four and put them for sale for one month, the person whose plan sells the most gets a full refund on the tickets. You can try to unify the fans that buy each of these ticket packages into the same section, create some camaraderie, and make the experience meaningful.

What teams should avoid is slashing prices too early or without recourse. This week, the Texas Rangers announced discounts up to 75% on some weekday games the rest of the season – mind you, this is a team in the playoff race with improved attendance over last season. But offering these cheap tickets without adding value to the early buyers sets bad precedent for future fan action. In conjunction with this offer, teams unloading last minute ticket inventory should offer current ticket holders seat upgrades at low prices, making upgrades available only to fans that purchased prior to a certain date, or to season ticket holders in less preferred ticket positions. Provide an incentive to hold a ticket, and give those that purchased an advantage. Then back fill available tickets that upgraded in the low price, last minute offering. It’s possible to double incremental revenue, while maintaining the incentive for early purchases.

Many teams are publicly stating financial losses. It will be interesting to see what, if anything, struggling baseball teams due to lure fans out down the stretch, and what the numerous NBA teams that did nothing to improve during the off-season

Jets, Giants Learn Lessons / NFL Needs to Change Antiquated Rules

In the past week, the New York Jets have started to call people from the season ticket waiting list to notify them of availability and the New York Giants have taken to reduce game ticket prices in the new stadium by up to 37% to help move inventory. Two teams that had given sell-outs for long time periods, now must get down to business for the first time in many years. The announcements illuminate a few issues at play that involve current market conditions, breaking traditional marketing rules with price changes amid secondary market pressure, and the NFL’s local blackout rule.

Dating to 1973, networks will black out any games not sold out within 72 hours of kickoff within the home team’s 75-mile local market. Similar to the Chicago Blackhawks methodology until recent years, the spirit of the rule is to get people to attend the games and avoid television competing with ticket sales. Its now 2009, many studies have shown no correlation between ticket sales and availability on local television. In fact, if anything, blacking out games will negatively effect ticket sales by damaging team affinity in its local market. Often, teams and networks arrange to buy up unsold inventory before game time to avert blackout, a loophole within the rules. However, a better solution – do away with the rule. Roger Goodell could never black out a Jets or Giants game in New York without an onslaught at his Park Ave. office. Using these backdoor loopholes to get around the rules is unfair, since the league and networks then help decide who gets blacked out (sorry Detroit). The league should help promote the local team – dismiss the rule.

Team marketers, and marketers in general, always live by the rule that you can never reduce prices because it trains customers to delay purchases in hopes of more cuts. The Yankees threw that out the window chopping high end ticket prices in half during the season. Taking that lead, the Giants are preemptively reducing prices now, over a year before moving to the new stadium. On one side it’s a smart move because its shows they are cognizant of current market conditions, and will not stubbornly hold out on fans. It also gives the team time to compensate early buyers with additional value in other ways.

On the downside, PSL prices remain fixed, and that seems to be a sticking point with many fans. NFL teams need to look at other PSL systems. Possibly a timeshare system, where PSLs get sub-divided and fans can buy half or a quarter of a PSL, and based on the price determine their place in a lottery to select games each year. Or the team can add perks for PSL owners, group off-season parties, better access within the stadium, and deals for non-football events at the stadium. One problem is that teams put a PSL on almost every ticket, making price the only differentiator. A different approach is to make the PSL a differentiator, raise the prices, cut the inventory, and add a laundry list of features.

Today’s economic situation is exacerbating the situation, but the secondary ticket market is the real problem. Why should fans commit to this upfront investment when tickets can usually be had at market value – much lower than face – closer to the games? Those ridiculously priced Yankee seats, readily available for a fraction of face value. Teams must recognize season ticket holders often rely on the secondary market to recoup expenses, when they price tickets where fans will actually lose money the eventual backlash is significantly lower demand due to the unstable market. Prices must drop until its economically stable.

PSLs help fund the outrageous stadium price tags teams run up. What if teams took a phased, modular approach to stadium building. Build the core stadium and key amenities, but skip on that extra $100-300mm in extras until you gauge what the market is willing to pay for the stadium. Maybe the Yankees could have cut the cushioned OF seats if they knew ticket sales would sag or prices reduced. Maybe the scoreboard can be 10’ smaller without changing demand. Cut stadium prices, reduce PSL or entry-level tickets, but make it easy to add (and actually plan the construction) amenities in the first few years if demand exists.