The concept of dynamic pricing is nothing new to the travel industry. Airlines and hotels have used the economic model of supply and demand for decades to set prices for seats and rooms.
Yes, we have all been there before: needing to fly on short notice, we are forced to pay airfare that could be double what the person sitting beside us paid because they booked their trip months in advance. But fluctuating pricing based on supply and demand isn’t limited to the travel industry.
Sports leagues, including the NHL, have been employing it for years. And the practice is growing. But while most fans will fret over having to pay extra to see the more desirable games, dynamic pricing also creates opportunities to “get a deal” when less popular teams come to town.
>Dynamic Pricing vs. Variable Pricing
The individual ticket-pricing strategies currently used by most sports teams are variable pricing and dynamic pricing models. With variable pricing, teams use data from past game experiences to price their seats. Variables such as the month of the season, the day of the week and the opponent determine the price of seats for a game, with fans paying more for marquee matchups, especially during high-demand dates. Variable ticket prices are announced in advance, usually at the start of the season, and do not change once released.
Dynamic pricing, in contrast, is more fluid in reacting to changes in the variables that affect ticket demand.
According to Rodney Paul, a sports economist at Syracuse University, “Dynamic ticket pricing offers a different model for consumers who are purchasing tickets. Instead of announcing fixed ticket prices of distinct price points for different games and having those prices persist throughout the selling period, dynamic ticket pricing allows for supply and demand to alter the prices in real time.
“These market-generated prices for tickets fluctuate throughout the season, up until game time, based upon the level of demand and the number of tickets remaining. Prices will rise and fall based upon various factors in the marketplace.”
>Dynamic Pricing Adoption
Dynamic pricing emerged as a strategy by pro sports teams to combat the market dominated by scalpers and increase ticket revenues by capturing their profits. Many teams are now following the policy of withholding some tickets in advance of specific games. Technology and online-ticket platforms allow fans to purchase these seats, even after the game has started.
Major League Baseball was the first North American professional sports league to adopt dynamic pricing, when the San Francisco Giants implemented the strategy at the start of the 2009 season. In the fall of that year, the Dallas Stars became the first NHL team to use dynamic pricing.
Following the Stars’ lead, several other NHL teams implemented similar programs in the ensuing years. Now, according to some estimates, as many as half the teams are using these types of pricing strategies.
>Why Dynamic Pricing is Critical to NHL TeamS’ Bottom Lines
The NHL is highly dependent upon game-day revenues. That differs from the three other major North American pro sports leagues that depend on TV broadcast rights as their primary revenue driver. For example, CBS Sports estimates that the NFL’s total revenues were close to $14 billion in 2006, with broadcast rights contributing about 50 percent of that total.
By comparison, NHL revenues, according to NHL.com, are estimated to have totalled $4.54 billion for the 2017-18 season. The broadcast rights with NBC and Rogers contributed $636 million, or 14 percent, while sponsorship deals made up 12.3 percent at $559.5 million. Revenue from ticket sales, concessions and merchandise sales were $3.34 billion – or a whopping 73.7 percent of the league’s total revenue.
That is why dynamic pricing is critical to the financial health of the NHL. According to Paul, “The advantage of a dynamic pricing strategy over a variable pricing strategy is that dynamic pricing allows for a considerable upside in terms of revenue generation. If a team is playing particularly well, a playoff race is intensifying, or if opponents become more interesting due to their success or a rivalry grows, prices can move to reflect actual demand at the time of the game, rather than the perceived level of interest, based upon pre-season expectations.”
Effective pricing is possible thanks to teams collecting ticket-purchasing data and analyzing that data through algorithm-based software applications that determine the best market prices for tickets.
Dynamic pricing also allows for price reductions when market conditions justify a discount. “If things turn sour for a particular team, dynamic pricing allows for decreases in ticket prices to a level where fans will still purchase admission to the game,” Paul said.
Rather than having unsold tickets for a game against an uncompetitive opponent, occasional fans will choose to buy affordable low-priced tickets and generate concession and merchandise revenues that would otherwise not exist. “The use of dynamic pricing allows for a maximization of revenues throughout the season based upon factors which may not be obvious when ticket prices are first released to the public (as in variable pricing strategies),” Paul said.
>The Importance of the Opponent
In a 2017 study conducted by Paul entitled An Exploration of Dynamic Pricing in the National Hockey League, he concluded that the quality of the opponent was the variable that had the greatest impact on dynamic ticket prices. His theory rings true by looking at the most expensive NHL games for the 2018-19 season, via the ticketIQ blog. Their data is based on the average secondary market price of tickets sold, as individual team ticket revenue is not made public by NHL teams.
Not surprisingly, Toronto Maple Leafs home games dominated the top-10 list for secondary ticket market prices, especially when the visiting team was the Montreal Canadiens or Pittsburgh Penguins (the Sidney Crosby factor). Ticket prices were, on average, in the $400 (U.S.) range for Penguins games and ran as high as $581 for the Habs. While there are many variables that come into play for all the games in the top 10, the one consistent is that the visiting team is a rival or a club with a large following (see below).
To quote Warren Buffett, “Price is what you pay, value is what you get.” Many NHL fans see the value in “paying up” to watch the best and most popular teams and players in the league, and they are willing to pay for expensive tickets to do so. Dynamic pricing provides that opportunity while bolstering NHL team revenues.