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Raptors: the Game of Dynamic Pricing RAPTORS: THE GAME OF DYNAMIC PRICING Introduction The ticketing industry for sports, and more specifically the NBA, had been simple in the past with differential pricing. Differential pricing is based on the concept of price discrimination, which is a widely used strategy adopted when a market is comprised of segments that have different demand characteristics.1 Sales was slowly declining as consumer demand decreased for some less popular teams and executives from teams across the NBA began trying to come up with ways to fill this declining profit. This was when dynamic pricing was introduced. Many teams in the United States began adopting the concept and it left Raptors with the issue of whether they should jump on the bandwagon or continue with their current pricing strategies. Beth Robertson, Senior Vice President of Ticket Sales & Service, was sitting at her desk on a Summer afternoon thinking about how she could increase ticket sales. Due to the Raptors team‘s lackluster performance in the past few years, the team had to come up with a pricing strategy to fill the financial gap. A History of the NBA The NBA (National Basketball League) was officially born on August 3rd 1949 with the merge of the BAA (Basketball Association of America) and National Basketball League (NBL) after a 3-year ongoing battle to satisfy both the players and the fans. Prior to the merge, the BAA was established in large cities, often holding their games in major arenas such as the Boston Garden and NYC‘s Madison Square Garden. On the other hand, the NBL only existed in small Midwestern cities, holding games in small local gymnasiums. From 1948-1949, the BAA had already begun to attract some of the country‘s best basketball players, where four NBL franchises (Fort Wayne, Indianapolis, Minneapolis, and Rochester) moved to the BAA and brought along their star players with them. Representatives from the BAA and NBL met at the Empire State Building in NYC on the day of August 3rd, 1949 to finalize the merger. The head of the BAA since inception, Maurice Podoloff, was elected the head of the newly founded NBA. The NBA was now made up of 17 teams, which represented both large and small cities across America. However, during the 1950s, the number of teams along with the amount 1 http://cortoleo.free.fr/Euromed/ISM/Managing%20Leisure.pdf 1 of fan support began to decrease, and by the 1954-1955, only eight teams remained. To get back on track, that same year, the NBA transformed the game by creating the 24-second clock, which made the game faster-paced and more fun to watch. This new strategy worked, as fans returned to watch the games. The NBA expanded throughout the 1960s and 1970s to what it is today, in which the league includes 30 franchises and attracts players and millions of fans from around the world. Ticket Pricing History To go along with the fact that the LA Lakers remains one of the most successful teams, it is no surprise that tickets to a Lakers game remain the priciest in the league, with the average cost of a Lakers ticket at $89.24 in 2007, up 4.5% from the previous year. This marked the 6th straight year that the Lakers have topped the list with the highest NBA ticket price.2 On average, NBA ticket prices have usually hovered around the $50 mark, but there have always been over a million tickets each season for $10 or less. Some teams even offer tickets for as low as $5. In November of 2009, the average ticket price for an NBA game fell for the first time in 8 years due to the weak economy. During this season, the average price fell 2.8% to $48.90, which made it the biggest drop in the history of the league, and the first decline since the 2001-2002 season. During this season of ticket pricing decrease, 14 teams had price declines, 13 kept them unchanged, and only 3 teams had increased prices. Once again, the LA Lakers had the highest ticket price average at $93.25, with the Boston Celtics in second at $68.55.3 Current Pricing Strategies Variable Pricing Many teams in the NBA have implemented variable pricing in order to better reflect the value of each game, recognizing that not all games are created equally. The ticket prices for each game are assigned based on the value and demand of each game, which is influenced by various factors including opponent‘s quality, day of the week the game is played, etc. For example, the same seat for a Saturday night game against the LA Lakers would be worth much more than a Monday night game against Minnesota. However, for many years, teams would have priced these two games at the exact same price, a 2 http://www.sportsbusinessdaily.com/Daily/Issues/2007/11/Issue-41/The-Back-Of-The-Book/NBA-Average-Ticket-Prices-Up- 36-This-Year-Fan-Cost-Index-Up-26.aspx 3 http://www.reuters.com/article/2009/11/02/nba-tickets-idUSN0236620620091102 2 price too low for the Lakers and far too high for Minnesota. With variable pricing, the whole concept is to price accordingly to what the demand for each particular game is. The variable pricing of these tickets apply to both single and group tickets. In terms of single tickets, the cheapest ticket that could be purchased is $12.50 (price floor), which is in the upper bowl section. In the lower bowl section, the minimum price is at $47. Of course, due to the factors mentioned above, ticket prices in other areas also varied. However, the single price for each of these tickets never goes below the minimum price that was initially charged. Even if there is no demand at the minimum cost, the Raptors would let the seat go rather than charge a lower price in hopes that people would purchase it at the lower price. In terms of the group tickets (10+ people), there is only one group price difference between the cost of a single tickets versus the cost if you purchase a group of tickets. For example, a single ticket in the lower bowl section that sells for $47 could be purchased for $35 each if purchased as a group. For the fans, they will need to figure out which variables they value more in order to maximize their dollars spent on an NBA game. Most people generally prefer to enjoy entertainment on Friday and Saturday nights due to work and school commitments. However, some people who do not have children or don‘t mind staying out late on weeknights, might prefer to go to a game on Sunday-Thursday nights. Besides the day of the week, many fans prefer a matchup between two outstanding teams, over a couple of games against mediocre opponents. Premiere teams and teams consisting of some of the NBA‘s best star players generally put on a more exciting show, thus demand for those games are higher. Finally, seat location is generally the most elastic variable in ticket pricing, whether it be an NBA game, an NHL game, or even a concert. The seating area in which consumers value the most is extremely crucial to getting the most out of their money spent.4 Season Tickets Each NBA team also offers special season tickets, which offer different benefits to the consumer depending on the team. Season tickets are generally beneficial to those who are completely dedicated to their team, and like to go to every single game. In order to become season ticket holders, customers must put down a down payment, usually around $500 depending on the team. The season tickets then include a ticket to each game that team is playing that season (81 games in total, including home games and non- home games). The down payment is then subtracted from the total season price. For example, if a 4 http://espn.go.com/blog/truehoop/post/_/id/19278/not-all-games-are-created-equal 3 customer wants to purchase premium lower box tickets for the season, and it‘s $40 for each game, the total cost would be $3240 for all 81 games, minus the $500 down payment. Of course, the costs depend on the seating the customer chooses, but once chosen, the seat will be the same all season long for that customer. Season tickets offer members many benefits, the primary one being a substantial amount of savings, usually between $5-$100 on each single game. Members also have access to backstage tours, freebies, presales to extra tickets before they go on sale to the public, invites to special events, the chance to participate in contests, etc. Ticket holders may also sell their tickets above face value to other fans, if they are unable to make it to a certain game. Raptors: How the Team Came to Be The Toronto Raptors were established in 1993 as part of the NBA‘s expansion into Canada, for a record expansion fee of $125 million. A nationwide ―Name Game‖ contest was held to help name the team and develop their colours and logo. The final selection—Toronto Raptors—was influenced by the then- popular movie Jurassic Park and the team's colours included bright red, purple, black, and silver. "Naismith" silver was chosen as an ode to Canadian James Naismith, the inventor of basketball. Along with the Vancouver Grizzlies, they played their first game in 1995. Before the inaugural season began, sales of Raptors merchandise ranked seventh in the league, marking a successful return of professional basketball in Canada.
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