New Owner Thoughts Part 1: Ticket Slashing

More exciting than the news of Will Smith joining the ownership group was news that tickets prices for single-game tickets would be “slashed”. The transcript of the comments, via Kate Fagan, here:

"The Sixers announced lower single-game ticket prices for the upcoming season. Over 8,800 seats will be significantly reduced for single-game tickets during the 2011-12 season. The new single-game structure results in 51 percent of seating being recuded. Certain lower-level seats that were $54 last season will be $29 this upcoming season.“We are committed to providing our fans with the most entertaining in-game experience in the NBA, and also one of the most affordable,” Aron said. “At the Sixers, we want to be on the side of the fan, so in these tough economic times when family budgets are strained, we decided to dramatically lower ticket prices.”"

I suppose it’s noble of the new owners to provide these ticket cuts to this long-suffering fan base. But of course, that’s not how NBA owners operate as we know them. And I’m 100% certain that there’s more than trying to get on the collective fan’s good side in consideration of this decision – they are trying to improve the customer experience and ultimately make a profit. But you knew that. So how, then, does this help make the Sixers a profit? Let me tell a little story, and you’ll see.

The team’s previous owner, Comcast Spectacor (a subsidiary* of cable-giant Comcast), sold the team but kept the arena and its other main tenant, the Flyers, to themselves. The agreement, as mentioned in various news articles, was for full ownership in exchange for $280 million, $50 million less than the value Forbes had attributed to the franchise. So obviously Comcast wanted to sell, presumably because the team wasn’t making them any money and they no longer needed it (hint: here). In the agreement, the Sixers became “long-term tenants” of the arena, meaning that the team won’t be leaving town, thankfully, in the near future. Unlike the television deal for the Sixers, which Comcast also negotiated before selling, the tenancy agreement was something that Harris and Company^ could negotiate in the sale process. The Sixers will become the tenants of the arena, much like a musician would when performing in concert. From my knowledge of these agreements, the Sixers will pay for the rights to use the arena and receive a significant amount (possibly even all, but I doubt that) of ticket revenue as their proceeds.

*I’m going to assume that a lot of you don’t care for the business-like language, so I’ll do my best to limit it. Anyway, a subsidiary is a company that operates on it’s own but is owned by another company (which is usually referred to as a parent).

^If anyone has a better idea what to call the ownership group, I’m all ears.

And that’s the key – while the team previously may have had other incentives to not drastically reduce prices (what they are, I honestly don’t know, but they kept them up for a reason), this ownership group will not have that luxury. They NEED to sell tickets to gain revenue. Currently, their revenue streams include merchandising (well, maybe not at the current moment, but when the lockout ends), their TV deal, the NBA’s national TV deal, and ticket revenue. Previously, as I have written before, the Sixers make more on their television deals than they do on their ticket revenue – not the NBA standard, which has ticket revenue leading the way. For the new ownership group to profit, and they clearly intend to do so, they will need to sell tickets, even at reduced prices. The show will go on, no matter if there are 12,000 or 20,000 people. But 20,000 people, even if nearly 8,000 of the seats have been discounted, is still better than 12,000. This part of the reasoning is actually pretty simple – if the price cut can increase attendance to the point where they make more money than before, then it’s an overall increase in profit. It’s the same reasoning behind why airlines offer discounts – the plane is leaving no matter how many people are on it, so to cover the costs (which are mostly fixed) they must do their best to fill up the plane.

Note that the price cuts affected only single-game ticket sales – season ticket deposits, which are guaranteed revenue streams (in the case of a season), did not change in price. The team already has this revenue sealed – their job is to add as much revenue as possible on top of that. This change should do the trick, while also adding to the customer experience, which also needs to improve drastically.

The Sixers, in my opinion, have struggled to provide value to its fans over the past few years. As you might have been able to find out personally, going to Sixers games, or any sporting activities in general, is not a cheap endeavor. Parking can be as much as $20 at the stadiums, and this group didn’t buy the parking lots. They don’t control concessions either, and I can vouch for their lack of, um, deliciousness. So there are two things they can do to provide value: dropping ticket prices (making it more economical in the only way they can) and improving the product itself. Cutting ticket prices will improve the experience much more quickly, while improving the product takes much more time and effort.

The process of improving the on-court product may not begin for a while. But this is a nice start for the ownership group.

More thoughts coming tomorrow.