Friday, April 03, 2009

Season's Greetings

The club today announced its season ticket pricing policy for next season.

They are offering two forms of related incentives:

1. A general £50 reduction on 2008/9 prices (except for the cheapest seats in the Lower North, which remain unchanged); and

2. A punishing and 'guaranteed' minimum cost of 23 equivalent match-by-match tickets, to encourage the purchase of a season ticket.

I think the club has a confused view of its support base, and that its policy will not only fail to maximise revenues (its stated aim), but will also fail to maximise attendances (a potential key contributing factor to the team's success).

I have often argued that the seven consecutive years of Premiership football from 2000-2007, may lead the Board to overestimate its core support, if it extrapolates too much from season ticket sales.

When The Valley was sold out for every single Premiership game, a season ticket was almost a pre-requisite for those casual (but still somewhat committed) fans who wished to guarantee a seat at the glamour matches.

By way of example, even after I'd moved to New York on a permament basis, I retained a season ticket in 2005/6 and 2006/7. Once relegation guaranteed a less than full stadium, there was no reason to renew it.

Although my non-commitment was purely a continental issue, it was at this point that the first wave of non-renewals kicked in because match-by-match availability was now assured.

Season ticket sales have held up well in both seasons post-relegation, because it was reasonable to expect the team would be somewhat competitive on both occasions. Moreover the club offered a free Premiership ticket if successful, a smart but ultimately irrelevant ruse.

However with League One football now upon us, and with no equivalent Premiership offer on the table, the next wave of non-renewals will kick in almost regardless. Thus I think the club has tried to get too cute with its pricing, and unnecessarily so.

In my view, the demand function for 2009/10 season tickets will resemble the chart I have constructed above. It assumes for simplification that there is only one single season ticket price, and that the equivalent match-by-match cost is £20 per game, or £460 per season.

Ignoring visiting supporters for the timebeing, the club could probably fill The Valley entirely with Charlton fans if it charged around £80 for a season ticket.

This would probably be too much to entice the merely curious, but low enough to attract all fans from the most casual to the fanatical (whether or not they all turned up is a different matter of course).

However at £80 per ticket, the club's match ticket revenue would be a mere £2.1million for the entire season, compared to more than £8million in 2007/8 from 'ticket income and matchday activities.'

As the price rises from £80 however, demand falls very rapidly (as the casual fans are disincentivised) until it begins to stabilise around £150 at the 12,000 or so mark.

Interestingly in my view, demand then falls only slowly as the price rises, until it approaches the £460 mark at which point there is no financial incentive to renew (although there may be non-financial incentives such as the surety that you will be able to sit with friends etc..).

In short, I would estimate that even in League One, there will be 10,000-12,000 'committed' fans whose price sensitivity is relatively limited until that match-by-match comparative is reached.

At that point, demand obviously falls off very rapidly with only the most well-off committed fans, and those who greatly value the consistency of the same seat, willing to pay more than the match-by-match equivalent.

Thus whilst far from an exact science, the revenue maximisation from season tickets will occur fairly close in my view to the match-by-match equivalent price, and certainly much closer than the £101-£285 savings the club are actually offering.

Little additional incentive is needed (by way of a further discount) to these hardcore fans, because they intend to attend every match anyway. In economist speak, they are price inelastic.

Yet strangely, the club has sought to effectively 'punish' the less committed (but nonetheless important) fans, in order to provide an extremely flaky 'incentive' to the committed fans, who frankly didn't need much incentive anyway!

And most absurdly, by setting a 'guaranteed' minimum price for match-by-match tickets, the club has left itself virtually no flexibility to run clever ad hoc marketing promotions, which would improve attendances and might lift the atmosphere.

Why did the club even need to even mention what match-by-match prices would be? A season ticket and 23 individual match tickets are different products.

In my example above therefore, fans would have to estimate the likely cost of the equivalent match-by-match tickets and make a value judgment, but the club has no long-term incentive to screw its most loyal customers.

The club could have guaranteed merely that 23 individual matchday tickets, would be no less than a season ticket for the equivalent seat.

Even more drastically, they would have been far better served in my view, if they'd merely announced the prices of season tickets and left it at that. No need for fanfare or marketing spin - this is the price, take it or leave it.

Either would have been a reasonable compromise; after all why should hardcore fans resent some occasional discount ticket promotions if they boost the crowd and atmosphere?

My guess is that season ticket renewals will come in roughly as expected, but it will quickly become apparent that matchday sales are poor.

The club may thus have to consider retrospectively reneging on its discount guarantee, with an inevitable backlash from season ticket holders.

I would imagine the club felt obliged to make a 'statement' about how much it understands the fans' pain (financial and footballing), and wants to ease its burden.

However I suspect it overestimates how much in the current circumstances it can realistically do, to sway those wavering fans that it is most focused upon.

Most had probably already made their mind up, absent an enormous discount that would never have realistically been forthcoming (and wasn't).

The club is misguided therefore to fall into this trap and disincentivise some of those same fans from attending match-by-match.

Price discrimination is a fact of life, and particularly prevalent in the service industry. When the time/place aspect of a product is relevant (flights, movies, hotels etc..), then the idea of fixed or inflexible prices is perverse.

The average cost of a matchday adult ticket for League One football will be guaranteed between £17 and £25.

There's always considerable debate about whether football tickets are 'overpriced'. Given that every stadium in the Championship is at least half full (Southampton is lowest at 51.4% of capacity), and that half are at least 75% full, then one might reasonably argue they are only moderately overpriced.

Given that the marginal cost of admitting an additional fan is essentially zero, any pricing policy is flawed if a stadium is less than full. However short of having a "Tickets for £1" promotion 30 minutes before kick-off, this is perhaps unavoidable for most clubs.

I have friends who pay over a grand for a Premiership season ticket, or over £50 per game. Because they pay for it in a lump sum, it hits their credit card and they don't pay it too much attention.

However they typically agree that if they were required to give a turnstile operator fifty sovs in cash, to watch their team play Stoke or Hull, they would pause for a second, turn straight around and head back to the pub.

But for them it's a cost worth paying, for a guaranteed seat to watch the dozen or so games they'd always want to see. When these clubs clamour for bigger stadiums, I wonder if they really understand this dynamic (Charlton clearly didn't....we once wanted to go to 40,000).

Those ambitions are thankfully in the past, but we will still expect fans to pay perhaps £25 at the gate, to watch their team play Hartlepool United on a wet Tuesday night. And all to provide a supposed incentive to hardcore fans who didn't even need one.

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Footnote: the price of £49 for all Under-11s, and £75 for Under-18s is undoubtedly an outstanding offer, and one for which the club should unconditionally be applauded. Looks like my sons will have to become Charlton fans after all (poor souls).

7 Comments:

At 5:55 AM, Blogger Wyn Grant said...

This is an excellent piece of analysis and a penetrating critique of policy. However, I think that both season ticket and match day sales will be affected by (i) whether there is a change of manager - this is clearly an important factor for many fans and (ii) what early results are like. If we make a good start, I expect quite good season ticket sales in September. I also think that if we were in the frame for promotion towards the end of the season, this would boost walk up sales. I would also expect more walk up sales for, say, Millwall or Leeds (if they are both in the division). One area where we will be hit is away ticket sales, although there may be some novelty value for fans of smaller clubs who want to inspect the carcass of a Premiership club. I am going to buy a season ticket, but expect to go to very few matches. This is irrational in terms of rational choice economics but not in terms of the new behavioural economics.

 
At 8:34 AM, Blogger Dave said...

I was looking forward to this post and haven't been disappointed! I can't believe they will fix match-by-match ticket prices come-what-may. If they do it will cost us dearly. The apparent ruse of charging £25 per game in the Lower North to justify the same price for away fans is despicable if this turns out to be the case and is incredibly short-sighted. How long will it be before we get clubs charging our fans £25 to visit in a tit-for-tat? What goes around....

 
At 9:17 AM, Blogger Kings Hill Addick said...

Dave,

Football League rules enforce the same price for home and away fans with the same type of view. This other clubs can only charge us extra if their own fans are paying it.

The lower North is now effectively a season ticket only stand. No one would choose to pay £25 to sit there, but as Wyn has said we will probably have a fair number of away fans paying it fir one season.

 
At 9:25 AM, Blogger mikewoodhouse said...

One way that this apparently unnecessary incentivisation of the hard-code might be that maximising season ticket purchases pulls the revenue forward to pre-season. The cash position may be more parlous than we think...

 
At 10:09 AM, Blogger Kings Hill Addick said...

NYA,

When I calculated the total cost of my seat in 2007/08 it became apparent that I had received no financial incentive to buy a season ticket than to pay on a match by match basis. In fact I believe that I actually paid more due to incentives that were used to keep the fans coming after our form collapsed.

This was after I'd committed to paying for the ticket before the end of April 2007. Thus I'd paid a full thirteen months before we played Coventry in the last home game of the season. The value of the free season ticket clearly cannot be ignored, but the fact that it was offered again for this season was an insult.

In light of this situation the club promised last summer that that there would be no possibility that a match by match purchase would be cheaper than a season ticket. It didn't take into account the number of season ticket holders that haven't turned up even though they'd paid. Thus thousands of season ticket holders have paid more than they need to have done yet again.

Thus I believe (and I said so in various places) that the season ticket needed to be priced to reflect the upfront benefit to the club. I compared it to a train ticket. If you buy a year in advance you receive a substantial discount. For example, a weekly train ticket from West Malling (Kings Hill) to London is £77. An annual ticket is £3,080. Thus if you pay weekly you pay 30% more. I couldn’t find the daily price, but I’m guessing it would work out more expensive again. Clearly you would not need every week (holidays etc.) but you do receive an incentive. The current season ticket offerings (mine is in the East Stand) mean that the 'pay as you go' is 35.2% higher.

Thus I think the relationship is correct. It is important here to distinguish between hard core support and willingness to pay upfront when you can clearly get a seat where you want it for most games and probably all of them. Thus you could start next season (as I think I will) by paying as you go with the intention of buying that season ticket if things look good, or not going if they carry on as they have done. If by Christmas we are in the bottom three I will quite possibly write off the season and not go again.

Thus assuming the relationship between the two is correct you have to look at the individual prices. I agree with you that the match by match tickets are way too high. Even if the team play well (relative to the division) and we are at the top of the league £17 is a lot to pay for third division football, and there will be a limited number of tickets available at those prices. Clearly the intention is to charge some fans up to £50 for a one off cat 'A' game, so there will be some scope for some reductions.

The potential risk to the club is, thus, that the form is so dire that the appetite for £25 to watch rubbish will not be there. The freedom that comes with not having a season ticket allows your budget to be allocated in different areas. The club must know that the odd new ground will be tempting nest season. We are all under pressure to not attend games for one reason or another. Family, money, work all limit the amount of time you can spend chasing what is essentially a hobby. Thus if a season ticket is not bought I might choose to go to Orient away rather than Orient at home, especially if the price is lower.

With that in mind I believe the club knew it needed to price the ‘pay as you go’ at what seems so high that as many as possible will renew their season tickets. Sadly I fear that the end result will be that (rather like the Premier League seasons) we will have almost exclusively season ticket holding fans next season. I think there will not be all that many of then either. Unless the team start on fire next season I can see almost no demand for a third division football match at £25.

On that basis I think we could see hundreds of current season ticket holders spend their Saturday afternoons doing something else. It is a known fact that it is much harder to get fans back than to keep them.

I do hope I’m wrong about this, but I fear that we could be about to lose a substantial proportion of the main source of income for next season, and that we may never get them all back. The long term effects of this could be that escaping the third division (with promotion) becomes an impossible dream.

 
At 12:34 PM, Anonymous newyorkaddick said...

Wyn, with regard to a possible spike in season ticket sales in September, to quote that other great Valley performer (The Who), I think fans "Won't get fooled again." We made decent starts in the last two seasons then faded badly.

KHA, I think the train analogy is a good one but I think the reason the discount versus daily tickets is so high, is that the buyers of daily tickets almost by definition have more flexibility than the season-ticket holding commuters. Thus the train company is keen to incentivise them to take less crowded off-peak trains (or disincentivise them to take packed peak trains).

Although as you say in 2007/8 it'd have been cheaper to have bought 23 matchday tickets, the season ticket gave you the certainty of both cost and availability. Had the team maintained its early-season form, some later games would have sold out and at high walk-up prices.

I guess my main point is that the club is using the equivalent cost of 23 matchday tickets as an incentive to buy a season ticket, but that ultimately it's an 'apples versus oranges' comparison (sounds like a real ding-dong fruit local derby that one).

 
At 2:48 AM, Anonymous Anonymous said...

A good piece of work NYA. What's missing for me is a quantification of the missed opportunities to which you refer.

What would have been good to see would have been a comparison of income and attendance between your pricing and the club's pricing. Accepted that you would have had to estimate the club's assumptions, but indeed that is what you must have done to reach your conclusions.

Has the decision, in your view, cost the club £m's, £'000's or a bag of beans?

My view is that the pricing is not far off the right mark. As you rightly say there will be a hardcore of around 10/12,000 who will renew at or around last year's price. There will be very few people in the marginal category this time around so I don't think the season ticket uptake is particularly price sensitive.

I honestly don't believe that there are going to be too many people who are going to do the sums on season ticket verses match by match prices.

I think the key driver is loyalty/habit not small (or even medium) price changes. In other words, providing the price is about the same as last year then you are either going or you are not because that's what you do on Saturdays.

The £50 reduction and the junior prices will pick up a few of the marginals and does reflect a drop in the overall product offering for next season.

My gut feel of any missed opptunity benefits, well probably not more than a big bag of bean!

 

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