Thursday, November 02, 2006

As the NBA season begins – will pricing drive ticket sales?

The National Basketball Association tipped off their 2006-07 season, Tuesday night. Throughout the league ticket sales appear to be on the rise, along with the cost of tickets to NBA games. Team Marketing Report (TMR), reported Wednesday evening NBA ticket prices on average have increased by 3.6 percent to $47.20. In the last two seasons according to TMR the average NBA ticket price has increased by a combined 7.7 percent. What is interesting, several franchises are offering tickets at a significant discount, offering minor league sport event pricing for a major league sports event.

The NBA continues a ticketing policy first introduced during the lockout shortened 1998-99 season. Each of the NBA’s 29 teams played a 50 game schedule. Sending a strong message to their fans, the NBA Board of Governors in each city offered at least 1,000 tickets for $10 each. The original idea was for the $10 ticket to end after the 50 games. Nine years later, not only has each NBA maintained a $10 ticket, but several franchises are taking the concept of a discounted ticket to the next level offering season and single game tickets for $5 or less.

The cheapest NBA ticket is the $2 ticket the Dallas Mavericks are charging for select seats. The Portland Trailblazers offer a $3.96 tickets, the Indiana Pacers a $4 ticket and the Minnesota Timberwolves a $4.62 sent ticket. The New Jersey Nets, Denver Nuggets, Atlanta Hawks, Utah Jazz, Memphis Grizzlies, Orlando Magic and Charlotte Bobcats all have tickets as inexpensive as $5.

According to TMR 1.7 million NBA tickets for the 2006-07 season will be priced at $10 or less. Is it a good or a bad business decision for NBA to offer ‘cheap’ ticket prices? If by offering inexpensive tickets does it affect an NBA team’s ability to market and sell more expensive tickets?

One of the teams to offer substantially discounted single game tickets are the Portland Trailblazers. If ever an NBA franchise was in need of an image makeover it is the Portland Trailblazers. Nicknamed the “Jailblazers” after all the legal issues the team has confronted with their players in recent years, owner Paul Allen’s decision to put the team up for sale and then decide to not sell the team, the Blazers are a problem looking for solutions.

The Oregonian’s Helen Jung dubbed the Blazers ticket pricing “fire sale marketing”. This is a business that has lost $100 million in the last three years. Paul Allen maybe the sixth richest man in the world, but as long has he owns the Blazers a business hemorrhaging in red ink trying to do something is better then doing nothing. The team is offering a $199 season ticket and a flex package of tickets – 25 tickets for $99.

Blazers President told the Oregonian regardless of what the Blazers do as far as ticket sales and pricing for this year, the team will once again lose tens of millions of dollars, adding, "try to maximize what we can control right now." Patterson is right, economically the Blazers won’t be going to work with a $10 ticket, why not offer a season ticket at a fire sale pricing.

David Reibstein, a marketing professor at the University of Pennsylvania's Wharton School believes the pricing may give fans an opportunity to reconsider attending Blazers games.

"It's very negative to go into a stadium and be alone," Reibstein told The Oregonian. "A full stadium is much more interesting and exciting. . . . Part of the excitement is just the energy within."

There is nothing worse then attending a sports event with the stadium or arena half full. Whoever attends the game, ends up wondering why they’re at the game, as if those not attending know something about the product that those who are attending the event didn’t know. Paul Allen may have more money then he’ll ever need, but he isn’t going to continue to be an NBA philanthropist. There are much better causes he can give his money too, then providing an NBA franchise for the City of Portland. As well, tickets being offered at a substantial discount is a good short-term or band-aid solution, It can never work long-term.

"This is a great time for the fans to sample the Blazers' product," Rob Cornilles, president of ticket-sales consultancy Game Face Inc., who has worked with NBA teams including the Boston Celtics and Washington Wizards told The Oregonian. "They're giving us a major league team for minor league prices."

"The downside for the organization is that they never can get back to a healthy revenue model," he said. "A year from now, when you want to charge double or triple or quadruple the amount for those same seats -- that becomes a very challenging prospect for the organization."

The NBA is hoping the second time is a charm in Charlotte. Robert Johnson became the first African American to own a franchise in the NBA, NFL, MLB or NHL when the NBA awarded Johnson an expansion franchise. The Bobcats played their home games during their inaugural season (2004-05) at the Charlotte Coliseum. The team moved into the Charlotte Bobcats arena last year. It may have been easy to point fingers at George Shinn when it came to an NBA owner who had worn out his welcome in Charlotte, but attendance issues continued to plague Johnson’s Charlotte franchise the last two years. The facilities capacity for basketball is 19,000. Last year, the Bobcats averaged 16,366 well below capacity.

Shinn believed he needed a downtown arena to succeed. Taxpayers had no interest in building an arena for Shinn, but they built a state-of-the art facility for Robert Johnson, yet Johnson isn’t having much success in selling tickets. According to The Charlotte Observer, the 16,366 figure for last year was inflated by numerous ticket giveaways, tickets that didn’t generate any revenues at the gate for the Bobcats.

The Bobcats made several key marketing mistakes when they moved from the Coliseum to their new $265 million downtown arena. The biggest error in judgment after taxpayers reluctantly paid for the arena, the Bobcats raised ticket prices last year. Season ticket sales actually dropped from year one to year two, year two being the first year in the teams’ new downtown arena.

The teams’ giveaway ticket policy for 2006-07, there will be no more freebies. Greg Economou, the Bobcats’ chief marketing officer who came to Charlotte from the league office at the request of NBA Commissioner David Stern told The Charlotte Observer: "We need to create brand value, where people realize the value of something. You can't give it away."

The Bobcats offered 1,000, $199 season tickets ($5 per game) and sold out their inventory for the 2006-07 season. Bobcats season ticket sales fell to 5,700 one of the lowest totals in the NBA. Energized by the 1,000 $199 season tickets, the Bobcats have sold more than 8 thousand season tickets this year.

"If we are to average 16,200 this year, I'll be very happy," said Tim Hinchey, the team's executive vice president/business operations, who is starting his first full season with the team in The Charlotte Observer report. "The difference is we'll have a paid house."

"Even if we don't sell another ticket this year, my average gross per game is up more than $100,000 compared to last year," said Hinchey.

Hinchey raises a valid point, but no longer giving away tickets, offering ticket prices as inexpensive as $5 per game, the business of the Bobcats is taking a step forward.

Longtime Charlotte sports consultant Max Muhleman believes that once the on court product improves, people will purchase the more expensive tickets in the Arena’s lower bowl.

"I think the market has the wherewithall, but maybe not the appetite yet," Muhleman said. "As long as they improve the team, I think the market will respond. (The lower bowl seats) were just too high at first."

One NBA team who believe they’re heading in the right direction at least at the box office are the Orlando Magic. The Orlando Sentinel reported the Magic have sold more than new 3,800 season tickets this year, and had an 89 percent renewal rate. The Magic haven’t won more than 45 games in a season or advanced beyond the first round of the playoffs since Shaquille O’Neal left the Magic a decade ago for the Los Angeles Lakers. There is a belief in Orlando the Magic will have a winning season, and stand a good chance of making the playoffs. The Magic will be offering 9,752 seats for $30 or less, well below the NBA average ticket price.

"This franchise was born and grew up here, but I think during the early teen years, it may have gone astray. There was some disconnect with the community," said Alex Martins, Magic chief operating office in an Orlando Sentinel report. "We want to get back to the point where we are a model franchise, both on the court and off it. And we're going to get there."

The Denver Nuggets held their ticket prices at the same price for three consecutive seasons. Ticket prices established at the start of the 2001-02 season stayed the same until last year. However in the last two years, the Nuggets have increased ticket prices by a combined 19.8 percent, 15.6 percent this year alone. As dangerous as it may be for a team to offer substantially lower ticket prices, it’s even more treacherous to dramatically increase ticket prices in a short period.

“While we understand that no one likes a price increase, it was necessary in order to keep the Nuggets competitive with the rest of the NBA,” the team said in a press release on its Web site. “The Nuggets have proven in recent years that the money they make is going back into the product on the floor in an effort to lift the club to new heights. The organization’s goal is to give fans a much better-than-average product at an average price.”

The Nuggets have made the playoffs three straight years, the team better make the playoffs this year and they better go deeper in the playoffs, than the three consecutive, first round playoff loses the team suffered the last three years. Teams who demand close to 20 percent more for their ticket prices in two years had better deliver on the court.

Ticket pricing is a lot like walking a tightrope. It’s a delicate balancing act. One slip and you had better have a safety net to break your fall.

For Sports Business News this is Howard Bloom. Sources cited in this Insider Report: The Charlotte Observer, The Orlando Sentinel and the Oregonian

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