September 30, 2010

Offseason frenzy drives NBA box office

The article “Offseason frenzy drives NBA box-office” details how offseason ticket sales have increased significantly from last season’s numbers. NBA teams have sold about 40% more full season tickets; additionally 21 teams have sold over 1,000 new full season tickets, compared to just 11 teams achieving this number last season.

According to Chris Granger, senior vice president of team marketing and business operations for the NBA, the increase in ticket sales is explained by “player movement creating a number of story lines and teams adding more sellers…” In other words, he believes that the media coverage of big name trades/controversies, and increase salesman ship has contributed to an increase in demand.

I agree with this to a point, because I do believe that there is more buzz surrounding league transactions, and that in general, casual basketball fans are more interested in the NBA because of this. The addition of more salesmen has also led to an increase in quantity of tickets sold.

Considering there has been no significant change in the supply of tickets (available seating) it is safe to assume that there has been no shift in the supply curve. The logical answer to the increase in the quantity of ticket sold is a shift in the demand curve. I believe that the cause of this shift is a change in consumer taste; with increased publicity, increased salesmen in the market and more intriguing plot lines, basketball fans and casual sports fans in general have shifted their interests towards the NBA, relative to other sports.

The only issue I have with this is that while quantity demanded has increased, the equilibrium price appears to have stayed constant. This market behavior is not consistent with economic theory; if demand shifts outward, and supply remains constant, both price and quantity should increase.

I believe that the current ticket prices may actually be below true market equilibrium prices. I feel that part of the reason is because of such an abysmal economy, but another possible explanation is that the NBA ticket market may actually be emerging, or in the process of become a non-clearing market. One peculiar statistic in this article that I feel supports this notion is that last year, the NBA actually lost $370 million collectively. While this is not typically the intended outcome of a non-clearing market, it may be a sign that the NBA is in the process of developing one.

The advantage to a non-clearing market for the NBA is that there will be a subsequent shortage of tickets, creating more hype, and a spill-over effect in television viewership and basketball popularity. Considering the current economic context, as America emerges from this economic downturn and consumer discretionary income increases in the near future, the NBA could be poised to reap substantial financial benefits. The increased popularity and demand that is being fostered right now can be capitalized upon as consumers will be more willing to pay higher prices in general, because of the outward shift in demand that was not previously reflected in ticket prices. While this scenario I have described is not exactly consistent with a true non-clearing market, I do feel it has many parallels, and the outcome has similar benefits.

1 comment:

Larry Eubanks said...

I'm not sure what you mean by a "non-clearing market." And, I suspect the idea may not be very relevant to understanding you topic.

I do think you pointed to an important conceptual idea which is that real economic activity (the market) is emergent, not static as in our models.

Suppliers of tickets for NBA games face considerable uncertainty about demand for their product because, especially when they sell season tickets, the demand is not right now but after a significant period of time into the future.

And, I don't know if the teams of interest increased season tickets prices or single game prices. Perhaps they did, and perhaps they have seen the increase in demand they expected; or perhaps the increase is greater than expected.

In any case, I don't think the market for tickets to NBA games does not clear, even if the NBA teams were surprised by their season tickets sales. There is a "secondary market," where I would say the market clears. I know some people see this as a different market, but given the uncertain future, as well as the choices of the NBA teams who originally supply tickets to games, I suggest it is best to see all of this is one market. And, it is a market that is emergent, and what specifically emerges is dependent on what buyers and sellers each know up to game time, which is when the uncertainty ultimately resolves.