In the Chicagoland area, there is a joke that keeps making the rounds on social media. While the MLB tackles with the idea of expanding protective netting to prevent tragedies such as when, earlier this year, a foul ball at a Yankees game hit a young girl in the head, Cubs fans have been taking a dig at White Sox fans by saying “The White Sox don’t need to expand the netting, because you can’t hurt an empty seat!”
As a White Sox fan, my first reaction is to fight back. To respond with some ignorant comment about how Cubs fans only go to the games to get drunk, make fun of the band-wagoners, or just talk smack about how objectively terrible Wrigley Field is compared to other ball parks. Then I think about it, and I admit to myself- they’re right.
I’ve been to many Sox games in my life, and almost all of them have had a large number of empty seats. A few years ago the Sox introduced what’s called “Dynamic Pricing”, or changing the price of tickets, up or down, depending on the demand for that game. The goal of this concept is to use analytical data to determine the best price to maximize attendance, and most importantly, income.
This is where the North-siders’ argument comes in. “If dynamic pricing worked correctly, every game would sell out”, which is then followed by some negative comment about Jerry Reinsdorf, the owner. It is a knee-jerk reaction, and most people would just stop there. Look deeper, however, and you realize that there is a definite reason why dynamic pricing works, and the empty seats are proof.
In a perfect world, the White Sox would be able to read every fan’s mind, determine the maximum price they would be willing to pay, and charge each fan that price, maximizing both attendance and revenue. Since that prospect is impossible, the next best thing would be to theorize the price to charge for tickets based upon collective data rather than on an individual basis. With an average attendance of 20,626 for the 2017 season1, and a capacity of over 40,0002, if the objective of dynamic pricing was to increase attendance, it would be failing. Instead, there is another objective front and center: maximizing profit.
When it comes to demand for tickets, the demand curve is not a straight line like the ones shown in introductory economics courses. Some people will try to go to as many games as possible, with little regard to the price of the tickets, some people will go to some games, as long as the price is right for the value of the seat, some people will go to a game only if it is cheap enough and there is nothing else better to do, and some people wouldn’t want to go even if it was free. The balance to price tickets expensive enough to turn a profit, price low enough to draw a crowd, but not so low that people view it as an inferior product is a difficult feat.
Where dynamic pricing comes in is that this demand curve, while it may follow the same general directional changes, can shift in or out depending on the opponent, day, time, weather, and many other factors. The White Sox, taking into account as many factors as they can, picks a price that they believe will maximize the amount of money they will make. For a time, a slightly lower price translate to a large jump in the quantity of tickets sold, however, towards the end of the curve, where the line starts getting steeper tells them that they will make to make larger cuts to the price to get smaller changes in the quantity of tickets sold. They are trying to identify the exact point where the price multiplied by quantity of tickets sold is the largest. It makes sense when you think about it like this: the cheapest tickets available at the box office last year were $5.00 upper corner seats for select Sunday games. If they lowered that price to $4.00, they would have to attract 25% more fans just to break even on ticket revenue.
To show this visually, I created an image that shows the above demand curve at three different price levels. Revenue is just the area of the rectangle that is created when you pick a price, go across to the curve, and then down to the quantity. The bigger the rectangle, the more revenue generated.
The beauty of dynamic pricing lies not in its ability to maximize attendance, but in its ability to maximize profit.
A great example of dynamic pricing in action was July 19 of this year when the White Sox played the Dodgers. The debut for the number one prospect in baseball, Yoan Moncada, was announced few days prior to the game, and instantly prices shot up. Fans complained about the rise in price, however, from a business standpoint, when a demand altering event occurs, a different profit maximization equilibrium also is created. By using dynamic pricing, the White Sox capitalized on this event and no doubt increased the profitability of that game.
At the end of the day, baseball is a business, and the object of business is to make as much money as possible. Sold out games and deafening crowds are fun, and empty seats may make fans feel embarrassed or rivals poke fun. By using dynamic pricing, the White Sox can maximize profit in an environment where demand for tickets is more finicky than their northern neighbors. Maximizing profit means there is more money for payroll, and a higher payroll translates to retaining talent and winning championships. Besides, true fans are okay with a half empty ballpark. A part of the identity of a White Sox fan is the chip on their shoulder that comes from from being the neglected southern sibling. As they say in the South Side Irish song, “When it comes to baseball-we have two favorite clubs, The Go-Go White Sox and whoever plays the Cubs!” The rivalry survives, and I enjoy participating in it. That said, people can make fun of the crowd size as much as they want. As a White Sox fan, I’m proud that dynamic pricing ensures financial success for the foreseeable future.
1Source: 2017 MLB Attendance. (n.d.). Retrieved October 30, 2017, from http://www.espn.com/mlb/attendance
2Source: Guaranteed Rate Field Information – History. (n.d.). Retrieved October 30, 2017, from http://chicago.whitesox.mlb.com/cws/ballpark/information/index.jsp?content=history