April 30, 2009

The Biz Beat

Yankee Ticket Pricing

by Shawn Hoffman

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"It's incomprehensible that you watch a game, and there will be front-row seats empty."
—Major League Soccer Commissioner Don Garber, on the new Yankee Stadium.

"Don Garber discussing Yankee attendance must be a joke. We draw more people in a year than his entire league does in a year... Hey Don, worry about Beckham, not the Yankees. Even he wants out of your league."
—Yankees President Randy Levine, on Don Garber.

Levine's emotional response to Garber's comments—one that some might say downright betrays a certain insecurity—probably should have told us that something was coming. The Yankees were clearly frustrated with all of the empty seats surrounding home plate and the dugouts, both from a PR standpoint and in terms of revenue maximization. Hal Steinbrenner had even admitted that some tickets were a little overpriced, given the awful economy.

So, on Tuesday, the Yankees took an enormous step toward fixing it. They cut the prices of some of the most expensive full-season seats at Yankee Stadium in half, from $2,500 to $1,250. Tickets which had previously gone for $1,000 were cut to $650. Customers that had already bought season tickets in those sections are being offered a refund or a credit.

That, at least, was the main story being told on Tuesday. But the full release is much more complex, with a number of price cuts, refunds, and credits—to the point where some of it seems almost arbitrary. Some $2,500 seats are being cut in half, while others are staying the same? Some customers can get refunds, while others only get complimentary tickets? Just imagine the Yankees' ticket staff trying to make sense out of all the requests that will be coming their way in the next few weeks—based on their recent track record, don't be surprised if Charlie Steiner and Mark McGwire show up.

Putting aside the assorted refunds for a second, Maury Brown has a really good rundown of how many tickets have actually had their prices lowered. Here's the data, in spreadsheet form. The numbers wind up being relatively clear in terms of what they mean going forward: the Yankees' total earning potential for this selection of 1,895 seats is down by about $83,000 per game, or $6.7 million over the course of the entire season. They'll also be giving away thousands of premium tickets to existing season ticket-holders. (One note: I'm almost certain there were other cuts that weren't included here, such as the $750 Delta SKY 360 Suites, which are now $550.)

These are big concessions, and the Yankees are going to be returning a lot of cash that had already been booked as revenue. But this certainly isn't charity; they wouldn't be doing it if they thought it was going to decrease their total intake, be it this year or over a period of years. So while their revenue potential is certainly down, it stands to reason that they could actually make more money with the new price points.

Let's assume, for a second, that the Yankees really did sell 75 percent of their premium seats on a full-season basis, as the team has claimed a number of times. Since we don't have a section-by-section breakdown, we'll use 75 percent across the board. By that measure, the Yankees would have been bringing in about $1.22 million per game from those 1,895 premium seats. Now check out the second sheet on that spreadsheet linked above; even though the team cut the prices of many of the top tier tickets in half, their break-even point is actually fairly low: if the Yankees can sell 80 percent of their tickets at the new prices, they'll be able to match or exceed the revenue that they would have made by selling 75 percent at the old prices.

Looking at it another way, the average price drop is only five percent. A five percent bump in volume, regardless of how many tickets have already been sold or given away, would make this a positive move. That's some pretty low-hanging fruit, and it clashes with the mainstream meme that most premium ticket prices are being cut in half. Also keep in mind, the Yankees are almost certainly targeting sections that haven't sold well—in some cases, prices were cut by fifty percent in one section, and left the same in the next section over. This will allow them to hone in on those poorly performing spots, and probably move well past their break-even point.

One other interesting note to keep an eye on: the Yankees are saying that these price cuts are for the 2009 regular season only, whatever that means. Are all prices going to revert back to where they were, going into 2010? Doubtful. The economy might be in somewhat better shape by then, but corporate demand probably won't fully recover for at least a couple of years.

There's also the issue of the givebacks, which are difficult to quantify. Premium tickets could end up flooding the secondary market—at much lower prices, obviously—which could really hurt the team's ability to sell new full-season packages. Still, with the break-even point being so low, this may not really matter in the end.

What's most important to remember is that the Yankees are still going to make a ton of money this year (far more than last year), and are very well-positioned going forward. Let's say they only make $1 million per game off of those 1,895 premium seats, well below any reasonable estimates. Based on Forbes' 2008 estimates, that alone would put them in front of all but six teams in terms of gate receipts—and that's before they sell a single ticket for any of the other 50,430 seats in Yankee Stadium. So no need to fret, the new ballpark is still a massive ATM machine.

Obviously, the Yankees were caught off guard by the sheer magnitude of this economic slump. The general pricing strategy was probably set years in advance, and it seemed perfectly in line with demand, at least up until this past fall. But looking forward, there's no reason to think the Yankees won't be able to at least sustain these new prices. Even with the major banks struggling, New York is still filled with companies that can afford to buy suites or premium packages. There's certainly some competition—the Mets' packages are much cheaper, and the Giants and Jets will be opening their new stadium in 2010—but the Yankees are still the undisputed, crowned jewel of the area as far as sports venues. There will probably still be some remaining empty seats, but these price cuts should help them maximize revenue in 2009, while lining up easier sales for 2010.

Shawn Hoffman is an author of Baseball Prospectus. 
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