Sports ticket prices are collapsing. Is that good news for fans?

The stadium scene.
Aug. 4 2011 10:06 AM

Plenty of Good Seats Still Available

The collapse of the sports ticket bubble.

Illustration by Robert Neubecker. Click image to expand.

A few months ago, it seemed like Major League Baseball was in the throes of a ticket apocalypse. Through the first two weeks of the season, six teams had set all-time single-game lows at their current homes. The surprising Cleveland Indians led the American League Central in the standings, but remained in the cellar at the turnstiles. The New York Yankees, whose ultrapricey new stadium has been beset by empty seats since it opened in 2009, hosted record-low crowds for four games in a row. It was as if fans, having quietly absorbed more than a decade of price hikes and the advent of $9 beers, had spontaneously decided to go on strike.

Ticket sales have improved since—overall attendance is now roughly flat year over year. Even so, there's a good chance this will mark the fourth straight year that Major League Baseball has seen ticket sales slide after a record year in 2007. You can't blame it on steroids, either. NFL, NBA, and NHL attendance have likewise dipped over the last three years.

The obvious culprit is the sinking economy: Lose $4 trillion in spending power, and at least a few consumers are going to save by watching games at home in hi-def. Yet as the economy lurches back to its feet, there are signs that the sports ticket bubble will continue to deflate. That could have far-reaching effects on ticket prices, competitive balance, and the very existence of the major pro sports leagues that aren't the NFL.

Sports leagues' ticket woes aren't always visible to the naked eye. According to Team Marketing Report's Fan Cost Index, three of the four major leagues saw average ticket prices rise last year. (The NBA, which cut prices by 2.3 percent, was the exception.) These figures, though, only take into account the face value of tickets. Teams are understandably hesitant to cut prices outright, since it's a tough move to undo should the economy (or the team) suddenly rebound. Instead, we've seen a frenzy of discount offers, attempts to goose the turnstile count without tipping off season-ticket buyers that they're paying more per game than their seats are worth.

Perhaps the first sign of the ticket bubble came in September 2009, when the Baltimore Orioles offered an unprecedented deal: tickets for $1 (plus the ubiquitous "handling fees") for the entire month, except for games against the Yankees and Red Sox. Attendance barely budged. That fall, several NBA teams began quietly offering two-for-one deals to fill suddenly half-empty houses. The previous season the New Jersey Nets, lame ducks at their home arena after announcing a move to Brooklyn, actually gave away tickets to one game for nothing more than Ticketmaster fees.

At the same time, the high end of the ticket market showed signs of softening. Last fall, the New York Giants demanded that fans pony up as much as $20,000 for "personal seat licenses" before being allowed to buy season tickets at the New Meadowlands Stadium. That may have been a workable price point when ground was first broken for the stadium three years prior, but fans balked at the hefty fees in 2010. What was once a lengthy ticket wait list quickly evaporated, leaving the team with thousands of empty seats on its new building's opening day.

It's a remarkable turnabout for an industry that remade its business model over the past two decades around selling expensive tickets to corporations and rich people. It's no coincidence that the biggest surge in ticket prices came not during the 1970s and early 1980s, when free agency drove up player salaries, but during the 1990s, when the rich got dramatically richer thanks to the Reagan tax cuts and the Clinton economic boom. At the same time, a wave of new stadiums and arenas—mostly built with taxpayer dollars—flooded the market with pricey new luxury boxes and club seats to cater to fans' newly bulging wallets.

The result was a dramatic shift in the nature of sports business, and in the type of fans that clubs tried to attract. After an exhaustive search through consumer-price-index surveys, economists John Siegfried and Tim Peterson determined that the only demographic segment that attended more baseball games in the 1990s than the '80s was households earning more than $50,000 a year (which back then was still real money). As the rich poured into new stadiums and arenas, the less-wealthy folks who'd traditionally been the core of the sports market were largely priced out, or at least limited to splurging on tickets once or twice a year.

The rise of the online secondary ticket market could end up changing that dynamic. Ironically, resellers like StubHub initially looked like they would help drive prices still higher, as fans used them to unload sought-after tickets for more than face value. Teams also watched the sites to determine the market price for seats, and then raised their face values accordingly. MLB even anointed StubHub (now owned by eBay) as its official reseller in 2007, earning teams a cut of every ticket resold.

In recent years, though, StubHub et al. have been a boon for bargain hunters. A glance at FanSnap, which aggregates tickets posted on various resale sites, shows thousands of tickets available for virtually any game you'd care to see, often at well below face value. If you want to take in next week's Indians-Tigers AL Central showdown in Cleveland, for example, you can snag lower box seats in the infield—normally $44—for as low as $25. As a bonus, reseller fees are typically lower than teams' own ticket fees. Given those options, it would be stupid to pay full price at the ticket window.

There's a snowball effect here that can be dangerous for team finances. Just as rising prices on StubHub led teams to hike face values, so does a glut of online tickets lead to the deep, club-sanctioned discounts we've seen of late. (There are other signs of increasing desperation: No fewer than three New York sports teams have assigned "personal customer agents" to try to induce me to buy tickets from them directly; I'm sticking with StubHub, so long as it's cheaper.) There comes a point at which fans come to expect a deal on tickets, whether from the team or on the secondary market, and hold off on buying until they see a bargain. That pressures clubs to offer more discounts, leading to a downward spiral of ticket revenue.

We've seen this story before, incidentally. Last summer, the concert industry, which had been riding high after years of seemingly unstoppable price increases, completely tanked. Scads of tour dates and festivals were canceled after it became clear that no one was buying tickets. Humbled promoters promised lower ticket prices, while cutting way back on the number of shows offered.

The sports ticket bubble will ultimately stabilize, but as we've seen with the housing market, the landscape won't look quite the same afterward. For a handful of top teams, times are still flush. While 18 out of 30 MLB teams have seen attendance dip, the World Series champion San Francisco Giants are up nearly 5,000 fans per game, and their opponents in last year's Series, the Texas Rangers, have seen attendance jump by more than 8,000 per game. Likewise, premier events like the Super Bowl continue to set their own prices, as seen when the NFL managed to sell several thousand $200 tickets to watch the big game on video screens outside Cowboys Stadium—and after the "party plaza" sold out, tickets were scalped on StubHub for double face value.

Where we look to be headed, then, is a two-tiered system. A handful of top teams and events will be able to charge whatever they want, while most everyone else is forced to give away tickets. That's great if you're a budget-conscious fan of a cellar-dwelling team—or even a fan of the contending Indians, who remain 26th in the league in attendance. (Thanks to the widely observed phenomenon that teams get their biggest bump in attendance the year after winning a pennant, fans generally end up paying the most to see teams that are just past their prime.) For leagues as a whole, however, it seems likely to exacerbate the spread between the haves and have-nots.

Unlike musicians, sports teams compete on the field for both wins and players. When the Eagles (not the Philadelphia ones) cancel tour dates, they don't have to worry about another band snapping up Joe Walsh as a free agent. In the sports realm—not counting the NFL, whose outrageously huge TV contracts, split evenly among its 32 teams, has effectively made it into a television show with a sideline in ticket sales—a more pronounced revenue split can be catastrophic for low-revenue teams, since somewhere in the neighborhood of 30 to 40 percent of revenue comes from ticket sales.

Unless team owners discover a new willingness to share, baseball in particular could be headed back into the small-market vs. big-market abyss. For the NBA and NHL, it could lead to more teams following the example of the Phoenix Coyotes and New Orleans Hornets and becoming wards of their leagues. Declining ticket revenue could also be a major factor in the NBA losing some or all of its upcoming season to a lockout, as now appears likely—according to Forbes estimates, revenue from NBA ticket sales has dropped 6 percent over the last five years. For fans, that's the potential downside of the collapsing ticket bubble: Yes, it's a great time to find ticket bargains, but that only applies so long as the box office stays open.

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