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Supply and Demand 1, Gary Bettman 0

2012 August 31
by Skip Sauer

This one’s too good to pass up.  At Yahoo’s Puck Daddy blog, Greg Wyshynski reminds us that back in 2004, NHL Commissioner Gary Bettman opined that player salary restraints imposed in the “new economic system” would result in lower ticket prices.  Of course, this view willfully ignores an elementary economics principle, as many of our readers know.  Ticket prices are determined by the demand for attendance and the marginal cost of putting a fanny in the seat.  But player salaries are fixed costs in this market, and do not influence the marginal cost of attendance for teams.  Since the marginal cost of attendance is negligible, ticket prices are effectively 100% determined by demand.  Lowering player salaries in the NHL through the “new economic system” should thus have no impact on ticket prices.

As Wyshynski reports, message boards preserve Bettman’s comments from 2004 on this topic.

The Bettman Ticket Price Promise tracks back to the 2004 All-Star game in Minnesota and his “State of the NHL” address, whose transcript has been preserved on several message boards including NJDevs.com right here.

It was a typically wide-ranging conversation, with the CBA negotiations taking the spotlight. But there was a special focus on the impact of a work stoppage on the fans and ticket prices:

Q. Are you prepared to make any sort of assurance to fans that if there is cost certainty, if you achieve your goals in the C.B.A., that there will be some cost certainty in terms of ticket prices, as well? In a lot of cities, it’s more supply and demand than it is revenues.

COMMISSIONER BETTMAN: I’m going to answer your question, but I’m really glad we are not getting bogged down on collective bargaining on All Star Weekend.

Every market is different. Every club’s ticket pricing structure is different. We’ve actually had some teams that have recently lowered ticket prices. I believe that our current economic system has been inflationary, not only with respect to our expenses, but with respect to ticket prices, as well. And I do believe there is a direct link.

With the right economic system we can take the pressure off of ticket prices, and I believe with the right economic system, many, if not most of our teams, will actually lower ticket prices. I believe we owe it to our fans to have affordable ticket prices…….

Q. Just picking up on the ticket prices point, an economics professor would probably say that ticket prices should be based on what a market can support and the yield; not on expenses. Can you comment on that and why it is then that teams would lower their ticket prices if salaries went down?

COMMISSIONER BETTMAN: Economics professors generally teach classes of theory in school. They don’t operate businesses and they don’t operate sports franchises. I’ve been in professional sports for 24 years, and I’m telling you, there’s a direct link between what happens in an inflationary environment where teams are losing money and what they feel compelled to charge for tickets. I have absolutely no doubt there is that link. And that’s from real-world experience and not based on abstract theory.

This will now get me in trouble with lots of economics professors in North America, but so be it.

Hah Hah!  We’re having a laugh, Gary.  Too bad this nonsense will taint your credibility in the current negotiations.

Luke DeCock reports that average ticket prices rose 25% in the five years following the lockout.  That’s just a simple average, and it would be a great project for econ and sports students to conduct a thorough statistical analysis.  But the basic point remains:  player costs down, ticket prices up.  Supply and Demand 1, Gary Bettman 0.

 

 

3 Responses
  1. Phil G permalink
    August 31, 2012

    Great title

  2. September 2, 2012

    Not to sound like a Bettman apologist, but might there may be a little more truth to his thinking than for what you’re giving him credit. Bettman’s approach seems to resemble cost-based pricing, wherein a company determines the cost of making & delivering a good/service, marks it up a little, and sells it to the public at that price.

    There are many flaws with this, of course. For one, cost-based pricing doesn’t make sense in the spectator sport industry. We have super high fixed costs and negligible variable costs. Cost-based would make more sense in the world of manufacturing, though the second major flaw applies there too…

    If the market will bear a higher price, that is the price that will be charged. This is where Skip’s supply and demand argument comes into play. The NHL (monopoly) has limited supply, and thus teams can have higher ticket prices to capture consumers’ demand.

    There are plenty of other things wrong with the Commissioner’s comments. But perhaps he was thinking in terms of cost-based pricing, and he’s actually just that misinformed. More likely, he was using a legitimate (albeit inefficient) method of pricing products as a way to get the public on his side.

  3. Steve permalink
    September 2, 2012

    Meh.

    The problem with Gary Bettman is that he feels a big part of his job is public relations and he’s just not very good at it.

    Nevertheless, seems kinda pointless to rub this in his face when it’s likely that nobody took his comments seriously in the first place.

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