Last modified: Friday, April 3, 2009
Study: More ticket "options" would benefit March Madness fans
Options-based ticketing for sports tourneys would curb scalping, boost fan participation and increase profits
FOR IMMEDIATE RELEASE
April 3, 2009
BLOOMINGTON, Ind. -- The NCAA and athletic leagues should scrap the public lottery ticketing process for one that offers fans the chance to buy ticket "options" that could be exercised once participating tournament teams are known.
Such a system, which fans indicate they consider fair and easy to understand, would yield big benefits for consumers and leagues alike, according to a new study from the Indiana University Kelley School of Business and the University of North Carolina at Chapel Hill's Kenan-Flagler Business School.
Options-based ticketing -- in which consumers purchase the right to buy a ticket, but not the obligation to do so -- would increase participation by as much as 35 percent among fans who previously avoided the ticketing process.
In the case of the Final Four, the NCAA would increase profitability by capturing greater fan demand that would translate into a higher premium paid for tickets. Further, fans and the organization would benefit from a reduction in scalping, because the option system would have built-in controls to reduce scalper activity.
"Compared with traditional advanced sales, an options-based system is much more suitable for events in which there is a high level of uncertainty, such as the Final Four," said Preethika Sainam, assistant professor of marketing at the Kelley School. "Options would offer greater ticketing flexibility, which fans value and are willing to pay for, while yielding more efficiency and greater profits for sports leagues."
To test the viability of the options approach, the study surveyed 151 undergraduate students, who overwhelmingly indicated that they would buy such an option for a Final Four game. Ninety percent said the concept of consumer options was "easy to understand," and 88 percent believed it constituted a fair pricing mechanism, even if their favorite team did not reach the Final Four and they chose not to exercise the option.
Giving fans more options
As the system works now, major sports leagues sell tickets through public lotteries that require fans to purchase tickets far in advance of championship games, long before participating teams are finalized. In contrast, an options-based ticketing model would establish both an option price and final exercise price, representing the remaining face value of the ticket. This is similar to commonly used financial options in the stock markets or real options in manufacturing.
Once the final teams are known, fans who purchased an option can choose to exercise it within a certain window of time. If they choose not to do so, it would expire and the league would retain the option fee, which surveyed fans indicated they considered a fair "holding" fee to retain the right to make a decision once the tourney teams are known.
The league would sell only as many options as the number of seats in the stadium to avoid a surplus and, because the option would not be tied to a particular team, it would not automatically expire if that team were eliminated early in the tournament.
Because fans must exercise their option before a pre-determined cutoff date, the league would know in advance and retain control of how many seats it could possibly resell, therefore drastically reducing the number of scalpers who could buy up the tickets.
Other applications for consumer options
According to Sainam, this concept of "consumer options" has other potential applications, such as the ability to purchase options for flights, hotel reservations or even consumer products.
For example, consumers who want to protect themselves against the risk of sold-out flights to Florida could buy a flight ticket option that reserves seats on a particular flight for a particular travel date. This option would expire on a pre-set expiration date ahead of the travel date, and the consumer could choose to not exercise the option if, for instance, inclement weather is predicted. Further, the airline could vary the option price depending on the consumers' need for flexibility, such as a lower option price set to expire one week ahead of travel or a higher one just three days before.
"Any market in which uncertainty is a significant factor in consumer decisions would likely see similar benefits from implementing an options-based pricing model," Sainam said.
The study, "Consumer Options: Theory and an Empirical Application to a Sports Market," was written by Sainam with marketing professors Sridhar Balasubramanian and Barry Bayus of University of North Carolina's Kenan-Flagler Business School. The research is forthcoming in the Journal of Marketing Research, and is available for download at https://ssrn.com/abstract=1341763.