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April 6, 2010

One-Hoppers

Un-Juicing Ticket Prices

by Neil deMause

Thanks to the Great Recession (official run now over, but still in extended performances), what seemed like a never-ending boom in baseball ticket prices has slowed to a crawl the last couple of years: If you don't live in New York or Boston, there's even a chance you're paying less for tickets now than you were two years ago.

Still, the sports ticket bubble remains undeflated — as an op-ed in yesterday's New York Times notes, over the last two decades, the average Cubs ticket price has risen 265%, more than four times the inflation rate. And the authors, Duke law professor Richard Schmalbeck and Rutgers business professor Jay Soled, identify one reason why:

There are many reasons for the price explosion, but a critical factor has been the ability of businesses to write off tickets as entertainment expenses — essentially a huge, and wholly unnecessary, government subsidy.
These deductions have led to higher ticket prices in two ways. On the demand side, they have fueled competition for scarce seats, with business taxpayers bidding in part with dollars they save through the deductions.
On the supply side, the large number of businesses bidding for expensive seats has driven the expansion of luxury skyboxes and a reduction in overall seats in new ballparks.

This hasn't exactly been a secret — it's an issue I've raised before, and Joanna Cagan and I noted it way back in the first edition of our book. The deductibility of sports tickets has bounced around a bit — it's currently at 50% of the face value of tickets — but it remains a huge incentive for corporations to pay more than they otherwise would for tickets, driving up prices overall — and helping spur teams to demand new stadiums with more luxury seating that they can sell to the artifically inflated corporate market.

Schmalbeck and Soled argue that while it would be ideal to eliminate the business-entertainment deduction for sports tickets entirely, probably a more feasible reform would be to cap the deduction at $50 per seat. That wouldn't end the juicing of ticket prices — teams being able to fill up their seats with partly deductible fannies would still help price me out of the stadium — but it would at least blunt it somewhat. Where's Dennis Kucinich when we need him?

Neil deMause is an author of Baseball Prospectus. 
Click here to see Neil's other articles. You can contact Neil by clicking here

15 comments have been left for this article. (Click to hide comments)

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krissbeth

Ain't no rest for the wicked, it seems.

Apr 06, 2010 14:58 PM
rating: 0
 
Richie

'teams demand new stadia', not "new stadium". Tsk, tsk.

Other than that, bravo! Bravo! But then I'm in favor of the estate tax with a million $$$ deduction, which I guess makes me a commie.

Apr 06, 2010 15:11 PM
rating: 0
 
davelamb

I think the popular term is "Socialist"

Apr 06, 2010 16:33 PM
rating: 2
 
BP staff member Neil deMause
BP staff

Ugh, sorry, typing too fast. Fixed now.

Apr 06, 2010 15:37 PM
 
ccmonter

So that's why I had to dish out $100 for a pair of mediocre tickets to Wrigley field this summer, as I visit the windy city for the first time.

Apr 06, 2010 16:15 PM
rating: 0
 
gluckschmerz

Three good tix to see Tampa at Target Field ran me over $250. Well played Stub Hub...

Apr 06, 2010 19:15 PM
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anderson721

On the list of reasons why I want to get my pitchfork, tar, feathers, etc., this doesn't make the top 10, but as an NYC taxpayer it does get me very PO'd when I think about the fact that I am subsidizing billionaires. How about they start giving Police Officers, Firefighters, Teachers,etc. discounted tickets-and not in the corner of the upper deck, either?
Nice dream , huh?

Apr 06, 2010 17:02 PM
rating: 0
 
SamVan

“I make a lot of money. I got to make a lot of money, so I can juice the guys I got to juice, so I can make a lot of money, so I can juice the guys I got to juice.”
-Racketeer Mendy Menendez explains his business model to PI Philip Marlowe in “The Long Goodbye”

I don’t spend that much time thinking about how baseball teams make their money because I know that it’s just going to make me angry--my team plays in “corporate banditry field,” I’m not quite prepared to hold that against them, even if I should.

But companies writing off their seats—it’s kind of beautiful. Because the very taxpayer who is subsidizing the corporate ticket is the same guy who now can’t afford to take his family to the game, due to the inflated ticket prices, which inflation is caused by a write off that is essentially paid for by the taxpayer… and then, in between the innings, the corporate types can all chat about how to rise prices and lower wages. Marvelous.

Apr 06, 2010 17:33 PM
rating: 0
 
ScottyB

I live in NY, but travel a lot. I get $12 OF seats at places like SF, but have to shell out $40 for worse seats at Citifield.

Apr 06, 2010 19:08 PM
rating: 0
 
Mr. Cthulhu

I can't imagine the "subsidy" being that great. Half the ticket isn't being paid for, but half of the effective tax rate on that expense is being "subsidized". So, if we assume a 30% tax rate, they are saving 15% off the ticket price. That is more than the average fan, but it doesn't seem nearly enough to drive a 265% increase.

I'm not familiar with the American tax system (I am an accountant, but Canadian), but I assume the expense also has to be for business purposes. At the very least the company would have to be bringing client's, or potential client's to the games on a regular basis. Anyways, if anyone has a little more insight on the American tax system, I would appreciate the feedback (ok, I am actually getting excited to discuss taxes).

Apr 06, 2010 19:53 PM
rating: 2
 
rockrobster

All they have to do is bring someone to the game who is a *potential* customer. Which means, in effect, just about anyone.

Apr 06, 2010 22:39 PM
rating: 0
 
hyprvypr

While this article surely identifies part of the reason for ticket hikes, it basically boils down to people still going to games and paying the accordingly increasing prices. I stopped going to ball games three years ago because of ticket prices and our befuddled general manager was wasting the money. Frankly, unless ticket prices are quite low($15-25 range tops), I'd much rather watch the game on a 1080p tivo big screen and enjoy it for pennies on the dollar. No traffic, no parking, no cramped seats next to the big smelly guy who keeps ordering more beer, etc.

Basically, the prices are going up because people appear to be willing to accept the prices. Stop going. Ultimately the people determine the prices of tickets.

Apr 06, 2010 20:22 PM
rating: 1
 
kjgilber

"If you don't live in New York or Boston, there's even a chance you're paying less for tickets now than you were two years ago."

Retail prices may not have dropped in NY or Boston, but I am definitely seeing more reasonable prices for Sox tickets on Stub Hub that I have the past few years. I just purchased four infield grandstand tickets for a game in late April for face value, something I have never been able to do in the past.

Apr 07, 2010 06:58 AM
rating: 0
 
jnossal

Just curious, any idea exactly what percentage of tickets sold are written off as a business expense? I think you'd have to exclude luxury boxes and the highest-priced box seats that the average fan isn't going to buy anyway. I'm just finding it hard to believe that corporate sales are really driving up the price of the tickets all that much. Our Canadian accountant (above) has the numbers pretty much nailed I believe.

Having enjoyed corporate seating on a number of occasions myself, I can tell you two things. First, season tickets are often one of the first expenditures to get cut when times get tough, deadening the impact of corporate-driven ticket prices during a recession. Second, business buyers may negotiate lower ticket prices, either because they are long-term supporters of the club, sponsors of the team in some way (advertiser or supplier) or simply buy enough seats to get a discount. So unless you have actual revenue data, tickets for business purposes may be selling for less than you'd think from the posted prices.

Apr 07, 2010 11:17 AM
rating: 1
 
Brian24

In my corporate experience, I'd say that high-level executives want to be able to go and sit in the expensive seats but don't want to pay for it. So they have their corporation buy the ticket, and they go through the motions of inviting some customer so it's all on the up-and-up.

The corporate tax benefit just allows them to hand-wave the expense if anybody ever questions it. "Oh, it's a tax write-off." You'd be amazed how few people bother thinking it through at the level of detail The Situation does above.

Apr 07, 2010 15:57 PM
rating: 0
 
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