The Idea:Boost revenues — and profits — from sporting event ticket sales by offering options for seats at playoff games.
When playoff season approaches, sports fans who love the game itself can buy playoff tickets assured that they’ll get what they paid for — a great match. Fans who only want tickets if their favorite team makes it to the final have a more difficult decision to make: if they wait to see if their team makes the cut, they risk missing out on playoff tickets — which are often sold months in advance or snatched up very quickly. If they buy early, they may be stuck with a ticket for a playoff game that they are not interested in attending. What’s a loyal fan to do?
One answer may be to buy options. If a college football team is a Rose Bowl contender, for example, fans can buy an option that guarantees the chance to buy a ticket if their team makes the bowl, effectively reserving a seat for a price. If the team doesn’t make it, fans have only paid for the option rather than the full cost of a seat at the game. Professor Robert L. Phillips, doctoral candidates Santiago Balseiro and Caner Gocmen, and Guillermo Gallego of Columbia University analyze ways of offering options to maximize revenue in sports tournaments where the final two teams are unknown. They show how tournament organizers can increase profits while giving fans the benefit of a guaranteed seat should their team make it to the final.
Event organizers, promoters
You can use this research to set ticket prices and availability for advance tickets and ticket options for tournament-style sporting events. By carefully optimizing prices using a technique called dynamic programming in conjunction with offering options, organizers can increase their profits. The researchers show that this method can increase revenues up to 20 percent at no additional cost to the organizers.
The researchers show that options are particularly effective when potential demand is greater than the capacity of the stadium — as is often the case in important final games such as the Superbowl or the World Cup final. They also show that options are most effective when most fans are highly loyal to their own team. In playoffs in which group or bracket winners are pitted against each other in a final — such as the World Series or the Superbowl, the ability to sell multiple options for the same seat is a powerful potential source of revenue.
Under an options scheme, event organizers offer both advance tickets — most likely snatched up by fans of the game itself who do not care which teams are playing in the final — and options for all playoff contender teams, effectively segmenting customers among fans of the game and fans of particular teams. Since only two teams go to the final, most of the options will not be exercised, avoiding the danger of overbooking — and fans rest assured that if their team is a final contender, they’ve got a seat at the game.
Robert L. Phillips is Professor of Professional Practice in the Decision, Risk, and Operations Division at Columbia Business School and director of the Center for Pricing and Revenue Management, a partnership between Columbia Business School and the Fu Foundation School of Engineering and Applied Science at Columbia University.
Working Paper Series: No. 2011–1,
Publication type: Working paper