Case study series on dynamic pricing: MLB

Ticket brokers like StubHub and scalpers brought dynamic pricing into sports ages ago, but not until recently did officially-sanctioned dynamic pricing emerge. The MLB has been the most aggressive over the last several years and 26 of the 30 teams now use dynamic pricing. Last time, the airline industry was placed under the microscope. This week, let’s assess the MLB and what ticket pricing principles in that realm can be transferred to the theatrical business. Unlike the movie industry, there is a lively and active secondary ticket selling market, most prominently on StubHub. But teams became concerned this resale market devalued tickets and responded with dynamically priced tickets and other programs for ticket resales. The SF Giants paved the way four years ago. Variables used included: weather, winning streaks, starting pitchers. The algorithm came from ticket-pricing firm Qcue, who built it with data on popularity of opposing teams and prices from online secondary ticket markets.

The pilot was a resounding success - it pulled in an extra $500K over the season. With a World Series win and solid performance since then, the Giants continue to capture more market value than under a static pricing system. Ticket revenues are up by 7-8% per year. Though season ticket sales skyrocketed, the team still caps a quarter of the ballpark to dynamic pricing. The prices varied by $1-2 at the beginning, but can now go as high as $5-15 more for high-demand games.

Between studying the MLB and the airline industry, the project continues to narrow down into the exact type of test we’ll conduct:

Here are the major takeaways from the case study of the MLB:

• The relationship between sports games and movies draws more similarities than airlines. However, movies – unlike sports – are not one-time events. Watching a movie is still less “must-see” because you can see it in many other formats later.
• The goals of this project are similar to what the Giants and MLB wanted: more revenue from high-demand movies (games) and ensure that seats at less popular movies (games) that would otherwise go vacant are sold.
• Contact Qcue for a conversation. Que also sets prices for 30+ NHL, NBA, MLS, and MLB teams.
• Start finalizing the short list of variables we want to consider.
• Where can we get data to develop a simple-as-possible algorithm?
• Set a ceiling and a floor for ticket prices to preserve revenues and to ensure people do not think you’re greedy. Consumers will not buy into perceived greed.
• The type of test the project continues to narrow. The current intended focus: reward those who buy tickets early. Prices increase as ticket inventory decreases or as the date of the movie approaches.