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Product Differentiation, the Secondary Ticket Market and the Edmonton Oilers

@RogersPlace


This week saw the Edmonton Oilers begin to visibly ramp up an advertising campaign to ensure that Rogers Place is a guaranteed sellout for Connor McDavid’s sophomore season. It started Thursday with a video demonstration of an in-game experience at the Oilers’ second home for various differentiated ticket packages using actual seating and décor together with a virtual screen that illustrates your vantage point of the ice surface; they call it "virtual venue technology".

I have to admit, this demo really hypnotized me: the bitumen-black seating and loge tables created a lucid mise en scène, and I was lost in a vision of great debauchery while McDavid potted his fifth of the game against Calgary for the fourth time of the 2016-2017 season, leaving Sobeys to regret ever acquiring those damned Score & Win obligations in 2013. I spent a whole day in that virtual fitting room before the Oilers finally released their 64-page ticket guide, and the price points on page 49 supplanted that intoxicating dream with the sobering realization that I would never have one drink at a loge table, let alone set foot in a loge lodge. I guess that I would have to settle for the modest second-tier line of products in the second bowl.

Except that upon settling my eyes on the upper bowl catalogue, I noticed that the second tier of Rogers Place looks very different than that in Rexall Place. That’s because there are 17 different pricing levels for seating in that area and 48 for the entire arena. While I was expecting the Oilers to increase their numbers of corporate boxes, and ticket prices and was aware of the focus the Oilers were claiming to put on "premium" experience, I did not expect to see such a vast array of different ticket types and prices.

Analyzing page 48/49 further fevered the economist in me. Some "premium" services – drinkholders, wider seats, etc. – have been discussed here, but what interested me is that the Oilers are clearly differentiating ostensibly similar products on the basis of qualitative characteristics that people evidently value. While this had been done to a certain degree in the past, most notably with lower sections and sections closer to center ice, the information presented on page 49 suggests that they are taking differentiation a step forward: aisle pairs are worth more than their neighboring comparables and seats where the Oilers attack twice are worth more than where they attack once. The Oilers have noticed that people treat certain seats as different products and are thus treating them as separate products with separate price points. These developments suggest to me that the Oilers are not only basing their pricing system on both fan and facility surveys, but on data from the secondary ticket market. Think Stub Hub, Ebay, tiqiq, etc.

I always had my suspicions that professional sports teams allowed the online secondary ticket market to exist because it would create a new detailed pool of data that they could exploit to extract more consumer surplus from their fans. While this practice has been confirmed in other sports recently, I was surprised that it never caught on in hockey. The other major sports leagues have a majority of their revenues covered by viewing contracts and don’t depend as much on tickets for revenues as the NHL franchises. Given the dependency on ticket revenue, the NHL seems like a great venue to experiment in qualitatively differentiated pricing, and what better place to do it than in Edmonton, where fans are willing to pay to see a lottery team every season?

Not only is secondary ticket data likely helping the Oilers differentiate their product line, it is obviously helping them set an average season ticket price to optimize their revenue stream. With several seasons of secondary sales data available, the Oilers likely have some sample means and medians for every different ticket product that they plan to sell, and I bet that the error bars around these stats are slimmer than a rookie Nugent-Hopkins. This will certainly diminish the large arbitrage gains for scalpers who buy seasons and hope to flip all or some of their seats throughout the season. Thanks to the secondary ticket market, the Oilers know on average what people are willing to pay, and this should extract the economic rents back from the scalper who was merely flipping the tickets for a profit. Heck, I know people who were hoping to perpetually flip seasons until the Oilers made the playoffs again.

And again, this isn’t really new to sports in general: the MLB has been outsourcing how it prices tickets for a few years, mostly to try and capitalize on the fact that not every game is values equally. This makes intuitive sense: people want to see Crosby or the champs or Anderson’s jersey rise towards transcendence more than they want to watch Shane Doan injure another player, so they are willing to pay more to see the Penguins or the Hawks or to get into Anderson night than they are willing to pay to watch Arizona. Whether or not the Oilers plan to employ this game-to-game methodology remains to be seen.

Of course, there may be certain desired qualitatives that they Oilers have yet to identify or put a price on and there is a risk that the pricing of their catalogue results in some distortions or unexpected responses in the secondary ticket market. It will be interesting to see how the secondary market reacts to these developments, and in turn, how the Oilers rework their product lines and prices next season. And this leads me to another vision, albeit more dystopian than the first: one where there are no sections, just 18000+ different pricing points based on decades of data accumulated form the secondary market.

I bet that a lot of people are angry or at least bitter at the price increases. I get that, but I believe that the Oilers are simply attempting to charge what people are willing to pay, and that seems totally reasonable. This is the suffering that us Canadians will have to endure until the sport someday fetches a television contract similar to those of the NBA or NFL. And at least this makes it harder for scalpers to make money off of simply owning a season ticket - the rents of the game belong to the players and to a lesser extent, the owners.

Of course, the Oilers likely have no clue what Edmonton fans are willing to pay once they get into the playoffs, so perhaps they will leave some surplus on the table for you scalpers out there when Connor leads the McDavidians back to the Promised Land.

Note: feel free to fill me in on any inaccuracies or shortcomings. I am mostly just interested in identifying a specific application of product differentiation that ostensibly seems driven by the dawn of big data being available from the secondary ticket market.

The Copper & Blue is a fan community that allows members to post their own thoughts and opinions on the Edmonton Oilers and hockey in general. These posts do not necessarily represent the views of the staff of The Copper & Blue.

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