Bringing the Game Back – The Role of Prices
Responding to some of the doomers and gloomers who see the NBA going to hell in a handbasket, Dave Berri argues that the the association will not suffer any long-term consequences from its current officiating/gambling scandal (King has thoughts here and Tom Kirkendall has some thoughts here).
Dave notes his research with Martin Schmidt about attendance following labor strife in professional sports. This research, published in 2004 in the American Economic Review and discussed in their book with Stacey Brook, Wages of Wins, is relevant because we have an event which some say threatened the long-term health of the sport. Schmidt and Berri show that despite the prediction of doom and gloom, attendance comes back to trend quickly after the strife ends. Why? One possibility is through ticket pricing.
According to average ticket price data obtained from the Team Marketing Report Database*, the average real (BY 2005) ticket price in baseball was 6.8% higher in 1994 than in 1993. In 1995, the average baseball club lowered its real ticket prices by 0.1%. Five clubs raised ticket prices and the other 23 lowered their ticket prices. Colorado began play in Coors Field in 1995 and was only in its third year of existence, meaning there was probably still a honeymoon effect going on with the team and the stadium. When we drop Colorado from the calculations, the average ticket price fell by 1.3%.
In 1996, the average real ticket price went up by 2.1%. Thirteen teams lowered their real prices and the other 15 raised their average real price. In 1997, the average real price went up by 6.4% and only 7** teams lowered their average real ticket price. Certainly there are many things that can affect the prices that teams charge, but it appears that part of the reason fans came back after the strike is that the teams set prices to draw them back. Moreover, to the extent that habit persistence explains the demand for baseball, the long-term health of the game after the strike can be partly explained by the pricing decisions of teams immediately after the strike ended.
The current scandal in the NBA, at least what we know now, is isolated and sends few, if any, signals about the overall integrity of officiating. Even so, we’ll be able to see how damaging the NBA thinks the scandal will be on demand by looking at team ticket prices next season.
*For those not familiar with the data, The Team Marketing average ticket price series is a weighted average ticket price calculated using prices per section in each stadium weighted by the number of seats in each section. Canadian prices are given in American dollars. The details of the calculations are given at the Team Marketing website.
**7 teams, not 6 as I originally wrote, lowered ticket prices on average in 1997. I’ve changed the text and the table.