The Use of the Two-Part Tariff in College Ticket Pricing
I’ve written before that when you look at how college athletic department officials make business decisions, they act a lot like their professional counterparts even though the athletic departments are legally non-profit organizations. But being non-profit in a legal sense doesn’t mean that you, as a decision-maker, can’t have maximum net revenue as an objective. It just restricts how you can distribute the excess revenue.
Daniel Hamermesh has a post at the Freakonomics blog on college ticket pricing that I paste in its entirety below.
Charles Clotfelter of Duke University has a book coming out soon, calledBig-Time Sports in American Universities. He offers examples of a number of schools that have great teams in one major sport (for example, football), and mediocre teams in another (say, basketball). For their mediocre team, the arena is often half-empty, even though the ticket price is quite reasonable. There is excess supply. For the powerhouse team, the ticket price is also reasonable—but at that price there is a huge excess demand for seats.
How to remove the shortage and equilibrate the market? Simple: at one school, the price of a pair of season tickets is $1,000; to be eligible to pay this amount, one must make an annual “charitable gift” of $7,000 to the university. Presumably this contribution is sufficient to equilibrate supply and demand. I find this quite disgusting—but I suppose it is more desirable for the university to earn the revenue than to have speculators profit by purchasing the tickets and then re-selling them at the market price, although I would bet that some season ticket-holders do scalp tickets on games that they can’t attend for personal reasons.
What he’s referring to is the two-part tariff that is so common in business these days. With a two-part tariff, a person pays a flat fee to essentially get the right to buy a product and then has to pay again buy the product. It’s away to obtain higher profits. Sam’s Club uses a two part tariffs and so do professional sports team (only there they are called “personal seat licenses”. These donations Hamermesh writes about are no different, except for the fact that what you are buying is not just the right to buy tickets to one sport, but multiple sports.
When I was a student at Mizzou in the 90′s, the athletic department sold what was called an “All Sports Pass.” The All Sports Pass cost somewhere between $200 and $250 and gave students access to all sporting events except for men’s basketball*, which was the premier sport at Mizzou back then. For men’s basketball, the pass put you into a lottery for reserved seating. If you chose not to particiate in the lottery, then you got nose-bleed section GA seats. If you participated in the lottery, you’d get, depending on your lottery number, your choice of seats with more desirable seats being more expensive, just like in the pros.
Any student who didn’t buy the pass would have to pay the usual student admission price to get into any sporting events, even the non-revenue sports. But students with the passes got into the non-revenue sports’ games for no extra charge. My sense was this was a way to maximize attendance, and thus profits, for the athletic department as a whole.
As far as Hamermesh’s comment that the practice of requiring donations being “disgusting”, I don’t share that feeling probably because I obtain greater satisfaction from sports than Hamermesh (although I don’t personally know Dan) and have willingly bought tickets to college sporting events for almost 20 years now.
Whatever our relative feelings are on sports, amateur status or not, college sporting events have a scarce number of tickets available and those tickets need to be rationed in some way, which Hamermesh seems to reluctantly admit.