Wednesday, September 18, 2013

The NFL is doubling ticket prices for some seats to Super Bowl 2014. Economists would say yes. Public Relations experts would say no. What do you think?

The National Football League (NFL) has announced the ticket prices for seats to the 2014 Super Bowl taking place in New Jersey:
Super Bowl fans can prepare to pay double for the best seats. The NFL expects the most expensive tickets for its championship game will be about $2,600 each for 9,000 premium seats for the Feb. 2 game at MetLife Stadium in East Rutherford, N.J.  
That's more than twice the $1,250 cost for similar tickets at last season's Super Bowl in New Orleans. 
According to the BLS the "Admission price to Sporting Events" increased by only 2.6% in the last year. The NFL is more than doubling the price to its marquee game for these premium seats. What is going on?
"We are looking to close the gap between the face value of the ticket and its true value as reflected on the secondary market," NFL spokesman Brian McCarthy said Tuesday.
Now it makes sense. The NFL is incensed that "secondary sellers" like StubHub or individuals on E-Bay are buying tickets AT THE PRICE the NFL offered for sale ("Face Value") to the public and then reselling them at a higher price to someone "willing and able" to purchase them at a higher price ("Secondary Market").

Using a basic Supply and Demand graphs, we can easily illustrate what is going on:
There are only 9,000 premium seats available in the stadium. This number is fixed regardless of the price of the ticket.  The market supply curve will be vertical ("Inelastic") at 9,000.

We can insert a market demand curve to establish an equilibrium price for the tickets and the price the NFL is expected to charge for the premium seats.
How did they arrive at this price?  They learned from last years Super Bowl in New Orleans.  The price of a premium ticket on the Secondary Market last year ended up around $2,600 (could have been less, or more).  The NFL representative suggests that THIS was should have been the actual price of the ticket.

The NFL offered those tickets for sale at a Face Value of $1,250.  In the graph below, you can see $1,250 is much less than the scalped price.  This suggests that at $1,250 the "Quantity Demanded" (12,000) for the tickets was greater than the "Quantity Supplied" (9,000).  I just made up the number (12,000) to use as a reference.
So, 9,000 people were able to get tickets for $1,250 and 3,000 fans were left without.  Because the market did not "clear" at 9,000 there will be some fans, not all, willing and able to purchase tickets at a higher price. This is where the Stub Hub's of the world take over.
Recognizing there is a shortage of tickets to meet demand an exchange is set up to entice at least 3,000 of the people that bought tickets at $1,250 to resell them.  Let the bidding begin.
The the scalped price, and ultimately the "true value as reflected in the secondary market", emerges from the scrum.

The NFL's pricing strategy is to side-swipe the secondary market and reap windfall from what they project will be the true price for a premium ticket to the Super Bowl.

When this becomes more widely publicized, the NFL will come under lots of criticism for charging such a high price.

According to Economics 101 they are doing the right thing. According to Public Relations 101 they are probably doing the wrong thing.

What do you think???
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