Of late we have been looking at value provided by sports franchises in different leagues. For most of these analyses, we have basically focused on how much fans are asked to pay for each win. We also make adjustments for factors related to market size, median income and capacity. Today’s analysis looks at pricing in the NHL.
Of all the pricing analyses we have done, the NHL is the strangest. The most surprising result is a lack of a positive correlation between winning rates and ticket prices. Our standard procedure is to develop a model that predicts ticket prices as a function of winning percentage, payroll, market size, median income and other factors that we would expect to be related to demand for tickets. We do a lot of testing in these models in terms of evaluating different specifications (interactions, nonlinear effects, etc…). In none of these specifications did we find a significant positive relationship between winning rates and prices. The most powerful predictor was median income.
The other thing that we have been experimenting with in these models is using social media data as an explanatory variable. The logic is that social media metrics (follows and likes) provide an unconstrained measure of fan support. This provides a means to assess the relative aggressiveness of how team’s price.
Something to consider in these pricing analysis is the question of how prices are set. At one extreme, we might suppose that prices are set in order to maximize revenues. This is a reasonable starting assumption but the implication is that teams are extracting every dollar possible. On the other hand, teams may price below fan’s reservation prices if the team is trying to build brand loyalty. The key point is that while consumers might be willing to pay very high prices, if they don’t view the prices as “fair” then loyalty can be adversely affected. Perhaps the best way to look at our list is that the teams at one extreme price the least aggressively (most benevolently?) while the teams at the other extreme are trying to extract every dollar they can from their fans.
At the top of the list we have Ottawa, Dallas, Boston, San Jose and Chicago. After adjusting for market sizes, income levels and social media presences we find that these teams underprice. This is an interesting list as it contains both high brand equity teams like the Blackhawks and the Bruins as well as less prominent teams like Dallas and San Jose. It is also notable that the Blackhawks and Bruins price above the league average while Dallas and Ottawa price near the bottom. Interestingly, over the past 3 years Ottawa has basically sold out its arena. The implication is that Ottawa (and the other teams on the list) could likely impose a price increase without too much loss of demand).
At the other extreme we have Philadelphia, Florida, Winnipeg, Toronto and Edmonton. Again, this list contains both high (Toronto, Philly) and low profile teams (Florida). Toronto is especially notable as they charge by far the highest prices in the league. Winnipeg’s price are also extreme as they price higher (according to Team Marketing Report) than teams in New York, Chicago or Los Angeles.
Mike Lewis & Manish Tripathi, Emory University 2013.