Inning 5: What Affects the Cost of Going to a Game?

Being a sports fan seems to get more expensive every season. Just look at the jump in average ticket prices during the 1990s:

And these are average prices. Let’s not even talk about filmmaker Spike Lee’s $1,600-per game courtside seats for Knicks games at Madison Square Garden or the $425,000 a season pricetag for the Hall of Fame Suite at Yankee Stadium.

What happened? How did going to a game get to be so expensive? The answers are in this inning.

A. Demand

It’s easy to confuse desire with demand, but there is a difference. You might have the desire to buy tickets for a game, but if you don’t have enough money, you’ll end up watching the action on TV.

But desire is part of the equation, too, because even if you have enough money, you might prefer to spend it on a concert rather than a ballgame. Demand for sports tickets exists when fans have the money and the desire to buy them.

What about price? How many tickets will a team sell during the course of a season if the tickets are priced at $30, at $25, at $10? Or, to put it another way, how many tickets will fans demand at each of these price levels? A demand schedule and a demand curve offer two ways of looking at the relationship between the price of tickets and the quantity of tickets demanded by fans.

A demand schedule shows the relationship in table form:

A demand curve shows the relationship in graph form:

Demand Curve for Tickets

Note: Assume that the stadium seats 50,000 fans and the team is winning a few more games than it loses. Price per Ticket = an average of all the different price levels of stadium seats.

This is probably a good time to make the distinction between quantity demanded and demand.

Quantity demanded refers to a specific point on a demand curve—how many tickets will be demanded at a given price. When the quantity demanded goes down in response to a price increase, the relationship between price and quantity demanded will be reflected in movement along the demand curve.

But what if chronic bickering between owners and players leads to an overall drop in demand for baseball tickets at every price level? Or what if the overall demand increases because two very likable superstars are locked in a race to break the single season homerun record? In either case, the overall change in demand will show up as a shift in the entire demand curve to the left or right. An overall decrease in demand will cause the curve to shift left. An overall increase will cause it to shift right.

A number of factors can influence overall demand:

• Changes in per capita consumer income—The increase in real wages during the 19th century helped to create greater demand for professional sports and other forms of entertainment. People had more money in their pockets, and they had more leisure time because they could afford to work fewer hours.
  

• The number of consumers in a given market—New York and Los Angeles are big markets with more prospective ticket buyers and television viewers. Cincinnati and Pittsburgh are considered small markets. Sports economist Roger Noll calculates that the average small market team will draw only a half to two thirds as many fans as a team in a large market.

• Changes in consumer attitudes, tastes, and/or preferences—After the 1994-95 baseball strike, fans soured on professional baseball. Overall attendance dropped 20 percent during the 1995 season, and many teams, especially in the smaller markets, offered special ticket promotions to lure fans back—$1 general admission tickets for kids in Pittsburgh or food-and-ticket combos in Detroit, Milwaukee, and a few other cities.

• Changes in the price of a complementary product—Don’t forget all those other costs—parking, food, souvenirs—that go along with buying a sports ticket. When the price of these complementary products goes up, fans begin to think twice about going to a game. A Melrose, Massachusetts father of four, who works for an athletic shoe company, told the Boston Globe that he often turns down free tickets to professional sporting events: “I can’t afford to feed them [the kids]. You sit there, and you have a hot dog and a couple of beers [the kids?], and you walk out $100 lighter. I just don’t have that kind of money.”

• Changes in the price of a substitute product—If the price of movie tickets keeps going up, a $15 bleacher seat might not seem so expensive after all.
  
  

B. Why Didn’t Demand for Tickets Drop When Prices Rose During the 1990s?

Fans scramble for a souvenir, Fenway Park, Boston, 1948. Photo by Leslie Jones, courtesy of The Boston Public Library, Print Department. Click on photo for a bigger image.

When the price of something drops, people tend to buy more of it; when the price rises, they are likely to buy less. Sounds like pretty basic stuff.

So, when ticket prices rose sharply during the 1990s, pro sports attendance should have dropped. But it didn’t. Overall demand for professional baseball, basketball, football, and hockey remained strong—even after bitter labor disputes.

Baseball is a prime example. Some markets experienced a steep decline in attendance after the 1994-95 strike. But in other markets, attendance recovered and demand was stronger than ever. (The Cleveland Indians opened a new ballpark in 1996 and sold every seat for the 1996 season before Opening Day.) In 2001, total Major League Baseball attendance topped 72.5 million.

Why? Because in many markets, demand for major league baseball proved to be fairly inelastic.

Price elasticity of demand relates to the question of how consumers respond to a change in price. Will they cut back their purchases a lot or just a little when the price of an item rises?

Price elasticity of demand often depends on whether or not consumers can find an acceptable substitute for the product that is going up in price. When substitutes are plentiful, demand is more likely to be elastic because consumers have more freedom to adjust their spending decisions. They can choose to buy a comparable product at a lower price.

But when there are few acceptable substitutes, demand tends to be inelastic because consumers don’t have as many options. For example, if producers raise the price of fuel, consumers can try to drive fewer miles or adjust their thermostats, but there is a limit to how much they can cut their fuel consumption. And if the price of a product like medicine goes up, consumers don’t even have the option of cutting their consumption. There are no suitable substitutes for certain medicines, and taking the proper dosage is essential.

So what about sports? Although diehard fans may disagree, sports tickets are not among life’s essential products, and at first glance there would seem to be plenty of entertainment substitutes—minor league sports, movies, concerts, outdoor recreation. But apparently enough fans/consumers still believe that a professional sporting event is a unique form of entertainment, so they are willing and able to spend more of their money to compete for the limited supply of tickets. And as long as demand remains strong, teams can continue to push up ticket prices.

Where did the money come from to fuel strong demand for tickets? Much of it came from customers at the high end of the income scale. During the 1990s, top earners—those in the upper 20 percent, and particularly those in the top 5 percent—saw their income increase sharply, thanks to a combination of stock market gains and rising earnings for high-yield workers.

According to Census Bureau figures, the average income (in constant dollars) for the top 20 percent of U.S. households went from $111,881 in 1990 to $141,620 in 2000—an increase of nearly 27 percent. And for the top 5 percent of U.S. households, average income went from $178,158 to $250,146—an increase of more than 40 percent.

Those customers, along with corporate customers and diehard fans, did not see minor league ball as an acceptable substitute for major league entertainment, so they continued to pay higher prices for tickets. After all, even the most talented minor leaguer will not impress a prospective client—or a ten-year-old child—the way Sammy Sosa or Ken Griffey, Jr. will.

Sometimes there’s just no substitute for the real thing.

C. What about Supply?

Supply is the other half of “supply and demand,” and it has a big impact on ticket prices. Three things affect the supply of sports tickets:

• The number of seats in a ballpark

• The number of games in a season

• The number of teams supplying games

Number of Seats in Ballpark

Under normal conditions, sellers are willing to supply additional quantities when prices rise. But the number of seats in a ballpark is fixed, and there is no easy way to make more tickets available when a team is winning and demand is strong. In other words, the supply of tickets to a professional sporting event is fairly inelastic.

But the supply of higher-priced tickets is another story. Maybe owners can’t easily expand the total number of seats, but they have other options. They can: 1) add high-priced luxury suites to an existing ballpark; 2) change the mix of existing seats so that there are more premium-priced “club seats;” 3) sell more seats as part of season ticket packages; and 4) sell personal seat licenses. (See Inning 4, Ticket Revenue.)

Note: What do all these options have in common? They are aimed at the high-end, high-revenue segment of the sports market, where demand is strong and money is plentiful.

The Number of Games in Season

Bat Day at Yankee Stadium, 1965. Photo courtesy of National Baseball Hall of Fame Library, Cooperstown, New York. Click on photo for a bigger image.

In theory, sports leagues could increase the supply of tickets by scheduling more games. But in reality, adding games to the season is not a practical option, because demand varies widely from one market to another. Baseball tickets are scarce in Boston or Baltimore, but there are lots of empty seats in Minnesota and Montreal. And unlike many other products, the supply of pro sports cannot be tailored to meet the level of demand in a particular market. A movie distributor can choose to release foreign films only in big city markets where demand is strong, but a sports league has to schedule the same number of games for every team, regardless of how many fans the team is drawing.

There is also diminishing marginal utility to consider. How many games a week can a person watch and still have a life? At some point, there’s the danger that a longer schedule won’t hold fans’ interest—especially in markets where the team is having a losing season.

And even if the demand for pro sports were strong in every market, the supply of games would be limited by the fact that athletes are human beings who can play only so many games before their bodies start to break down. Professional football players are lucky if they can get out of bed on the day after a game; playing more than one game a week is pretty much of a physical impossibility.

Lots of cities would like to land a pro sports team, and there is no shortage of investors willing to put up the money for a new franchise. But increasing the number of teams isn’t necessarily in a league’s best interest. Sure, the owners of existing teams would be happy to split the hefty franchise fee they extract from a new team. But one of the things that makes a sports franchise so valuable is the fact that leagues tightly control the number—the supply—of teams. If the supply of franchises increases too quickly, existing franchises might lose some of their value.

Equilibrium

The market for sports tickets, or any other product, comes into balance—into equilibrium—when the quantity of tickets that fans demand equals the quantity of tickets that teams supply. Markets are said to be in balance when:

1. Sellers are satisfied with the quantity they are selling at a certain price.

   AND

2. Buyers are buying all they want at that price and would not want to buy more at a higher price.

But in everyday economic life, markets seldom, if ever, reach a state of equilibrium because supply and demand are continually changing.

During the 1990s, demand for sports tickets remained strong in most major markets, while the supply of tickets remained constant. More people with extra money to spend were competing for a fixed number of seats, and that’s why ticket prices rose so much in major markets.

But in markets where demand was weak, ticket prices rose less. Why? Because it’s tough to raise prices when fans aren’t lining up to see the games.

D. Higher Salaries

Only a Contributing Factor

Is the cost of higher salaries being passed on to fans/consumers in the form of higher ticket prices? Of course it is.

Labor is a resource—a factor of production, an input—and if team owners have to pay more for labor, they will try to pass the additional costs on to fans. But the driving force behind higher ticket prices is strong demand, not high salaries.

A comparison between the Boston Red Sox and the Montreal Expos illustrates the point. The Expos had the lowest average ticket price of any Major League Baseball team during the 2002 season: $9.00 If you want to know why, just look at the highlight clips of a Expos home game. The sight of all those empty seats will tell you everything you need to know. Demand is so weak that popcorn vendors would outnumber fans if the Expos tried to raise ticket prices.

Now take a look at Boston. The Red Sox had the highest average ticket price in baseball in 2002, $39.68. That is nearly four-and-a-half times what the Expos charge, yet sellout crowds at Fenway Park are not unusual. Demand for professional baseball in Boston is exceptional. Even in the dead of winter—three months before Opening Day—fans who brave their way through snow and ice to buy tickets at the Fenway Park box office often have to settle for the bleachers or deep right field.

How high will ticket prices go in markets like Boston? The answer depends on whether or not demand remains strong.