Apple's Foray into Fitness
In 2014 over 54 million Americans were paying for a gym membership averaging an attendance of 100 days a year with continued growth (Franchisehelp, 2020). When the Coronavirus pandemic spread, states instituted lock downs and the closing of fitness facilities in many states. To adapt to the changing environment, consumers shifted to workout at homes by purchasing equipment and utilizing apps. Fitness tech was one of the top trends in 2019 and this was prior to the pandemic shutdowns (IHRSA, 2019). Moreover, consumers have shifted spending by transitioning from their usual fitness facility visits to working out from home, and some have no plans to return (Business Wire, 2020).
The pandemic has been brutal for some in the fitness industry with Gold’s Gym, 24 hour fitness, Town Sports International and Flywheel among those to declare bankruptcy in the industry (Evans, 2020). Not all in the industry have suffered, however, with at home providers benefitting from the shutdowns in terms of growth and revenue (Reuters, 2020). Among these has been Peloton. Peloton was uniquely positioned to benefit from the pandemic. Their core product is connected devices (bikes and treadmills), but they had made a strategic decision to increase their streaming services prior to the pandemic. This investment was made in attracting fitness personalities and expanding both user content to include yoga, strength and meditation in addition to their connected equipment.
One of the most well known at home fitness providers is Beachbody, which includes brands like P90X, T-25 and PiYo, with talented fitness personalities, was one of the early entrants in at home fitness and fitness on demand. However, the pricing for the Beachbody is $100 a month to access a full fitness library. Peloton, on the other hand, sells a digital membership of $12.99, which includes the ability to take live streamed classes, as well as access to a library of high production workouts on demand. This shifting marketplace has also attracted a new entrant with Apple introducing their Fitness+ product that will integrate their watch, tv, and health stats by allowing consumers to stream workouts and see real time stats synced from their watch to their device. Users will be able to access this for $9.99, or a complete suite of Apple products for $29.99.
While Peloton CEO, Foley, has said that Apple’s entry into the market legitimizes the market (Thomas, 2020), they also pose a threat for those brands in existence. Peloton may have been the first to market with their connected services and re-creation of a live class and feeling of community, but this is not hard to replicate and Apple has the financial ability to do so, if they desire. The difficulty for Peloton and others is that fitness is their core industry and they are reliant on the ability to grow revenue within this sector. Apple, on the other hand, does not need fitness to be successful, their revenue is from the sale of devices. Fitness+ is a continuation of their entry into production after launching Apple TV. They do not need these streams to be profitable, since any loss incurred is off set by the revenue generated of their core products. Their user reach also makes it feasible to make an investment in producing their own product, and they can pre-load their own apps on devices they sell, providing them an advantage over other businesses.
While they are in the early faces of their product creation, it is still early enough for them to be successful. One of the variables that they need to be aware of is the importance of the personality of the trainer doing the video. With at home workouts, the personality is paramount, and Beachbody and Peloton have an advantage. Once again, Apple has the cash available to make an investment, and in so doing, may exceed the 3 million users that Peloton currently has. Apple may also be utilizing the fitness sector as a way to gain data and legitimize their watch as a health tool. If Apple is able to generate data on users who are both healthy, and unhealthy, they can use that information to customize algorithms to determine a variety of health risks. The watch will then be able to offer alerts, sync with physician practices and enable Apple to use the watch as a means of ushering in an era of connected health care.
Apple may also be testing the waters to determine the long term viability of fitness on demand. Since this sector is not a major revenue source, the risk of entry is low, but the potential for upside growth is large, making it worth the investment. If this sector continues to grow, Apple may look to expand their holding by acquiring other businesses in this sector and creating their own linked network of equipment, watches, programming and data. If, indeed, fitness from home is not a fad, then Apple will be positioned to capitalize on the longer-term growth potential.
Previously successful retail fitness locations have been suffering prior to the pandemic, but if a shift results in a market move, there will be even more closures. Fitness on demand will offer the content, convenience and safety that consumer desire. Even at home, these companies have been able to create a community to replace the socialization that some participants crave. Companies that offer quality programming, with talented personalities will continue to be successful. Apple has the cash, technological know-how and consumer base to successfully profit in the future. Other brands need to understand their threat to entry and establish a risk mitigation strategy to capitalize on their current user base and grow it in the future.
BusinessWire. (2020). Consumer fitness survey finds post COVID-19, billions in spend will be lost or reallocated in massive industry transformation. https://www.businesswire.com/news/home/20200526005202/en/Consumer-Fitness-Survey-Finds-Post-COVID-19-Billions-in-Spend-Will-Be-Lost-or-Reallocated-in-Massive-Industry-Transformation
Evans, P. (2020, Sept. 15). Spinning out. Front Office Sports. https://frontofficesports.com/spinning-out-flywheel/
Franchisehelp. (2020). Fitness industry analysis 2020: Cost and trends. https://www.franchisehelp.com/industry-reports/fitness-industry-analysis-2020-cost-trends/
IHRSA. (2020). 2019 fitness industry trends shed light on 2020 and beyond. https://www.ihrsa.org/improve-your-club/industry-news/2019-fitness-industry-trends-shed-light-on-2020-beyond/
Reuters. (2020, Sept. 10). Peloton revenue surges as pandemic boosts demand for fitness equipment. New York Post. https://nypost.com/2020/09/10/peloton-revenue-surges-as-pandemic-boosts-demand-for-fitness-equipment/
Thomas, L. (2020, Sept. 15). Peloton CEO on Apple launching workout service: “It’s quite a legitimization of fitness content”. CNBC. https://www.cnbc.com/2020/09/15/peloton-ceo-on-apple-launching-workouts-a-legitimization-of-fitness-content.html
Have a Sales Plan
The ability to make sales of your product or service are vital to your long term operational success. Yet, organizations still struggle with communicating their product and initiating a sale. While many organizations collect plenty of data on their consumers, they struggle to utilize that for a strategic purpose. The cost of attracting a new consumer is higher than retaining an existing consumer, or moving an existing consumer to higher levels of brand attachment. This means every person entering your facility has the potential to be a new customer.
Once contact has been made with a prospect, what plan is in place to acquire them? When utilizing CRM software, it is important to customize the message and have a strategic follow up, which may take several touch points, according to ABC Financial's Aaron Verasammy. Each message should be customized to the prospect depending on their unique needs and interests regarding your product. Unfortunately, while the importance of sales is apparent to the industry, there is a lack of adequate training (Popp, Simmons, & McEvoy, 2017). If larger sport organizations suffer with sales training, how can smaller businesses succeed?
They can start with having a plan of how they collect consumer and prospect information and put that to use. When a potential consumer enters the facility, is there a schedule of events that an associate can reference? Are the staff members prepared to discuss the various programs and offers, or know who to refer these questions to in order to grow the consumer base? Does the business collect contact information and follow up with a customized message discussing the prospect's interests?
If not, why not? Many sales opportunities are lost by capitalizing on the engagement of a captive audience. Once the prospect leaves they may not come back. However, if there is a plan in place to capitalize on their engagement, a new consumer may be realized. This may come as a result of a targeted email thanking them for coming or visiting and providing information specific to their interests. Other options include an invitation and promotional offer for a future visit or program, referral of a friend, hashtag for social media posting if applicable and appropriate. Whatever follow up message is chosen, it is important to have one. If a prospect leaves without a prompt for a future visit they may be gone for good. Don't let that happen to you. Think about how you want to engage your prospects and employees, have a plan, train your team and implement the strategy to attract and grow your client base.
Have a plan
Train your staff
Customize your message to each potential customer
Lose the opportunity
Neglect to train your staff
Hope the prospect will come back on their own
Popp, N., Simmons, J., & McEvoy, C. (2017). Sport ticket sales training: Perceived effectiveness and impact on ticket sales results. Sport Marketing Quarterly, 26, 99-109.
Verasammy, A. (2020). 5 must do's to accelerate growth. Club Industry Master Class Series.
Predicting Endorsement earnings
We know that athlete endorsers can generate substantial additional revenue from their corporate partnerships, but what determines the magnitude? Most people can name several elite performers in their sport who are also key brand endorsers, but what about others? Is there an increase for playing a certain sport, having more followers or being more popular? In order to determine this, a regression analysis was conducted on the top 100 athlete endorsers of 2019 as named by Opendorse. This website listed 2019 endorsement earnings, sport and number of Twitter followers. Next, athlete popularity was collected from ESPN who ranks the top 100 athletes by popularity. Finally, a model was run looking at earnings as determined by the sport played (with basketball as the reference sport), number of Twitter followers (in Millions) and ESPN rank (1 most popular).
The results indicate that compared to basketball, tennis athlete endorsers receive an additional $11 million, golf receives about $14 million more, while crticket and soccer each receive about $21 million less and fighters receive $11 million less than basketball, with football, baseball and driving showing no difference in endorsement income. For every 1 million increase in Twitter followers, an athlete can expect to receive an $480,000 and as popularity drops, so does the amount they receive, about $200,000 per drop in rank.
Overall, these results provide some evidence that not all sports are equal in terms of attracting endorsement dollars. Some sports command a premium over others. Athletes who are interested in generating additional income should be encouraged to cultivate their social media following as they are rewarded for a larger audience, which makes sense for endorsing companies trying to increase their reach. While this model predicts about 64% of endorsement dollars, there are several other features that are potentially contributing to endorsement dollars that isn’t captured. The more that athletes, their agents, and endorsing companies, understand what impacts endorsement earnings, the better able each is to represent their interests to greatest advantage.
Paying for athlete sponsors
Depending on the sport, athletes can generate substantial additional income as an athletic endorser, sometimes exceeding their contracts (Smith, 2019). Athletes have historically been used as a spokesperson, or endorser, for firms in the past hoping to capitalize on their appeal to their target market. In exchange for their endorsement, athletes would be compensated. Now, it is not unusual to hear that an athlete obtains an equity stake in company they endorse. If an athlete has an ownership stake in a business they partner with they have a vested interest in their performance and are more likely to actively promote the brand. As pointed out in a Sportico article, the use of equity for compensation can be expensive (John WallStreet, 2020).
The equity stake does not have to contain money up front, but as the brand grows and prospers, so does that stake. So, while the company may have cash now to reinvest in operations, or seek additional marketing strategies, the equity can be costly to the current owners over time. Moreover, any equity stake comes with an ownership vote in the future of the company. While perhaps not a threat now, it can pose a challenge if the athlete disagrees with ownership in the future and their is a public rift. Their is also additional risk to a brand in the activities of a sponsor may reflect back on a brand. It is not known how having an athlete owner will reflect on the company if their is a negative behavior attributed to the athlete.
For high profile athletes with a positive rating, the potential for income is apparent, as they stand to generate millions of additional dollars in income (Rascher, Eddy, & Hyun, 2017). These athletes have an interest in maintaining their popularity as it allows them to negotiate for higher endorsement fees. As this cost rises, companies may be averse to paying them cash, and so opt for some mix of equity in exchange for their endorsements.
As this landscape continues to evolve and athletes continue to look beyond their playing careers to build future financial portfolios, the use of equity to pay for endorsements will probably continue to grow. Brands will be faced with trying to determine not just how much an endorsement contract is worth, but how much a piece of the company is.
Rascher, D., Eddy, T., & Hyun, G. (2017). What drives endorsement earnings for superstar athletes? Journal of Applied Sport Management, 9(2).
Smith, N. (2019, June 17). 13 athletes who make more money endorsing products than playing sports. Business Insider. Retrieved from https://www.businessinsider.com/athletes-endorsements-nba-golf-tennis-2019-6
Sportico. (2020). Start-ups, challenger brands leaning on equity-for-endorsement deals, despite soft market. Retrieved from https://view.email.sportico.com/?qs=a7e127b8dd8af188e5ed7117fc6bda871e1beb8f88758bf397e3bd0afb2ba8298ab7d347dee925944f4afda5b010a214ca050ef5f7761b1f9a00793476f784ce570e6b08dabf65cf
Entrepreneurship can be bring large rewards, both financial and personal, but it is not for the faint of heart. Roughly 20% of businesses do not survive their first year, 50% do not make it past five years and only 33% survive to ten years. The major reasons why businesses fail is that it does not solve a consumer need, lack of capital, the wrong management team, competition and pricing (Otar, 2018). Prior to starting a business it is vital that the founder craft a thorough, well-thought out and well detailed business plan, especially in light of common failures. Once a founder has created their plan, they are left with how to fund it. Unfortunately, the access to capital early on is difficult; the founder can rely on credit cards, cash savings and collateralized loans on their assets, or seek money from friends and family (Morrissette, 2007). For businesses that demonstrate strong growth potential, venture capital firms are also available. However, another option exists in the form of Angel investors, or micro funding.
An angel investor is someone who puts up their capital, in the form of debt of equity, to invest in the business of someone that is not a friend of a family member (Shane, 2012). Angel investors can serve a vital need in the business community by providing debt or equity financing to small businesses looking to start. Like all investors, angels want to see a return on their investment (Sudek, 2006-2007), however, they also demonstrate more altruistic reasons for investing, such as generating psyching income in the form of helping to create growth and jobs in their local community (Morrissette, 2007) or by having a desire to coach and mentor a young entrepreneur and have the ability to help a young business grow (Edelman, Manolova, & Brush, 2017). Aside from proving capital, Angel investors also generally have a desire to work in the businesses that they fund by investing their own time and expertise into the business, in addition to their money (Shane, 2012). This allows founders to essentially access partners who want to work alongside them to help them succeed.
While Angel investors may differ in their motivations, they tend to want to invest in businesses where the founder(s) is passionate and trustworthy, they have faith in the management team and there is an exit strategy (Sudek, 2006-2007). Angel investors may also choose to form a syndicate of a portal to pool their funds together, but each investors still makes their own individual decision on whether or not to provide capital to a business. This means that the personality of the founder(s) is extremely important (Sudek, Mitteness, & Baucus, 2008), with those being perceived as conscientious and tough more likely to obtain funding (Murnieks, Sudek, & Wiltbanks, 2015). The amount of funding also varies, from the low thousands to several hundred thousand (Shane, 2012). They also tend to have a 4-6 year investment horizon in which to see a return (Sudek, 2006-2007). Once an Angel investor listens to a pitch from the founder, they have to make a decision on whether or not to perform due diligence (further evaluation) and invest (Sudek, Mitteness, & Baucus, 2008). Since most angel investors do not use as formal an evaluation process as a venture capital firm does, this can be a prime opportunity for investors to pitch their idea when they are still the early stage of launching their business. Gender differences also exist, with few female founders seeking outside Angel capital, as little as 5% (Florin, Dino, & Huvaj, 2013).
For entrepreneurs looking to start a business, thoughtfulness of the product and access to capital are vitally important to sustainability. Angel investing can be a great way to seek additional capital. Many Angel investment deals are fairly simple, either an equity stake for capital or a loan, but they can get more complex and mirror venture capital type structure of convertible preferred shares for companies that exhibit high growth and early exit potential (Shane, 2005). Either way, the benefits to the founder are many; not only are they able to access capital when they need it, but they are also accessing expertise, desire for success and a connected network that can be used for further growth. They may be hard to find, depending on the location, but an Angel investor may be just what entrepreneurs need to help their business succeed.
Edelman, L. F., Manolova, T. S., Brush, C. G. (2017). Angel investing: A literature review. Foundations and Trends in Entrepreneurship, 13(4-5).
Florin, J., Dino, R. & Huvaj, M. N. (2013). Research on angel investing: A multilevel framework for an emerging domain of inquiry. Venture Capital, 15(1), 1-27.
Morrissette, S. G. (2007, Summer). A profile of angel investors. The Journal of Private Equity, 52-66.
Murnieks, C. Y., Sudek, R., & Wiltbank, R. (2015). The role of personality in angel investing. Entrepreneurship and Innovation, 16(1), 19-31.
Otar, C. (2018, October 25). What percentage of small businesses fail: And how you can avoid being one of them. Forbes. Retrieved from https://www.forbes.com/sites/forbesfinancecouncil/2018/10/25/what-percentage-of-small-businesses-fail-and-how-can-you-avoid-being-one-of-them/#3db3161843b5
Shane, S. (2005). Angel investing: A report prepared for the Federal Reserve Banks of Atlanta, Cleveland, Kansas City, Philadelphia and Richmond. Retrieved from https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1142687
Shane, S. (2012). The importance of angel investing in financing the growth of entrepreneurial ventures. Quarterly Journal of Finance, 2(2), 1-42.
Sudek, R. (2006-2007). Angel investment criteria. Journal of Small Business Strategy, 17(2), 89-103.
Sudek, R., Mitteness, C. R., & Baucus, M. S. (2008, August). Betting on the horse or on the jockey: The impact of expertise on angel investing. In Academy of Management Proceeding, 2008(1), 1-6. Briarcliff Manor, NY 10510: Academy of Management.
While working out in the gym, it is common to hear those working out dispensing “expert” advice to anyone that will listen. Two common pieces of misinformation is strength training for younger athletes and “muscle confusion.”
It is not uncommon to hear that adolescents should not lift weights as this will either cause them become “muscle bound” or cause injury to their growth plates. Gaining muscle size requires the release of hormones that are not yet present in adolescents, so rather than viewing weight training as a body building exercise, it should be viewed as part of a general fitness and conditioning program. The inclusion of strength training at a younger level allows for neuromuscular recruitment and training that translates to increases in speed and power in a sport setting. Additionally, strength training can support joint stability and improve movement quality as a result of this neuromuscular control. The concern for epiphyseal (growth plate) injuries are unfounded, as strength training does not cause excessive stress to these areas. However, the American Academy of Pediatrics does recommend that maximal lifts be avoided. This type of lifting can place additional strain on the body of anyone and younger athletes need to develop proper lifting mechanics in the absence of maximal effort lifts. Strength training plays a vital role in the development of neuromuscular coordination, strength and endurance, with minimal risk of injury. As such, its utilization should be encouraged, rather than discouraged with outdated misinformation. Children interested in gaining strength should focus their efforts on developing strength in movement patterns (squatting, lunging, hinging, horizontal pressing/pulling, vertical pressing/pulling) in a progressive manner rather than isolating specific muscles under supervision from qualified personnel.
Muscle confusion has become mainstream in pop culture as a way to get people active and moving in a variety of ways that stimulate the body in a variety of manners and causing “confusion”. The term that is being replaced is adaptation. The goal of an exercise is to progressively improve (whether that is strength, size, speed or endurance) and to positively adapt to the load that is being placed on the body. Thinking of improvement as an equation Positive Adaptation = Load + rest + nutrition allows the body the chance to recover. Rest is both adequate sleep and not overloading the same muscle group or energy system too frequently. Overloading can lead to mal-adaption in terms of burnout, fatigue, stress fractures, strains, etc. Unfortunately, the body is not “confused” by what is being performed, it merely reacts (either in a positive or a negative way). What is being lost in this nomenclature is where exercise goals come into play. Effective exercise is based upon establishing and achieving goals, which requires progressive overload and positive adaptation to achieve success. By and large, adding in several workout methods together without a long term goal coupled with lack of sleep, extraneous life stress and poor nutrition leads to mal-adaptation and possibly injury. Rather than trying to confuse the body, we should be encouraging people to get active in a variety of ways that stimulates positive change. Intense exercise in any form without adequate recovery and nutritional strategies is not a recipe for long term success. Intentional exercise to stimulate an appropriate response is a healthier approach to exercise.
While many people want to help others and dispense their wisdom to all who will listen, it is important to understand what is being said and that, in some cases, regardless of the intent, the message is inaccurate, and potentially, deleterious. If you are ever unsure about your exercise or safety, it is always recommended to seek assistance from a trained, certified and/or licensed professional who specializes in health and fitness.
American Academy of Pediatrics. (2001). Strength training by children and adolescents. Pediatrics, 107(6), 1470-1472.
American Academy of Pediatrics. (2008). Strength training by children and adolescents. Pediatrics, 121, 835-840.
Faigenbaum, A. D. (2000). Strength training for children and adolescents. Clinics in Sports Medicine, 19(4), 593-619.
Sands, W. A., Wurth, J. J., & Hewit, J. K. (2012). The National Strength & Conditioning Association’s (NSCA) Basics of Strength and Conditioning Manual.
Caffeine for performance
Caffeine has been shown to improve endurance performance but does it have an effect on VO2 max? VO2 max refers to the amount of oxygen that can be utilized during exercise and is a way of measuring aerobic fitness.
Since caffeine has a physiological effect on endurance performance it is not likely that it would impact VO2 max. To test its effect, the researchers had 9 cyclists perform three intervals and measured their cycling time to exhaustion, peak power, VO2 max and RPE (rate of perceived exertion) for 3 conditions: no caffeine control, Placebo perceived as caffeine and caffeine.
The results indicate that there is a difference in cycling time to exhaustion for the placebo and caffeine compared to the control, as well as increased power and RPE. There was no difference in VO2 max and their did not appear to be a difference between the placebo or caffeine.
Brietzke, C., Asano, R. Y., De Russi De Lima, F., ..., Pires, F.O. (2017). Caffeine effects on VO2 max test outcomes investigated by a placebo perceived as caffeine design. Nutritional Health, 23(4).
Nike’s Billion Dollar Shoe
On February 20, 2019, Duke Men’s Basketball was competing against UNC Chapel Hill when start forward, Zion Williamson, planted his left foot and punctured a hole in the side of his shoe. This is one of the highest watched games, even exhibiting the attendance of former President, Barack Obama, and is watched by millions on television. The resulting shoe rupture left Zion on the court holding his knee, which was hurt in the process.
The resulting media response demonstrated the impact that the news outlets attributed the shoe damage to the parent company, Nike. Many of the responses discussed how Nike’s stock price was taking a hit in the pre-market trading, dipping as much $1.72 prior to the opening bell on February 21. While the media was discussing the negative business impact of the shoe, it also presented an opportunity to exam the statistical significance of the shoe using an event study.
Markets are thought to be efficient in stock price, meaning that the known information about a company is reflected in the share price (Fama, 1998). If this is the case, then what should lead to changes in price are new information (Coates & Humphreys, 2008). However, it has also been observed that negative media news has a predictable pattern on share price causing a drop on the day of the news, but the price rising to pre-fall price over the next few days (Tetlock, 2007). The Nike shoe provided an example to examine if this was indeed the case.
Prior to the game, Nike closed trading at $84.84 per share and opened the following day at $83.57, a decrease of $1.27 or 1.5%, which resulted in a decrease in market cap of approximately $2Billion! Over the course of the day, Nike’s share rose and it closed on 2/20/19 at $83.95 and opened the following day at $84.20. Its closing price on the afternoon of $84.76 was close to the pre-shoe incident, thus supporting a short term drop in price that regained its level over the resulting few days. The statistical analysis predicted a percent price decrease on 2/20 of 1.32%, which did not achieve statistical significance (p 0.199). Thus, this price decrease, while having a market cap loss of $2Billion was not an unusual occurrence for Nike’s stock.
Coates, D. & Humphreys, B. (2008). The effect of on-field success on stock prices: Evidence from Nippon Professional Baseball. International Association of Sport Economists. Working Paper Series, Paper number 08-05.
Fama, E. F. (1998). Market efficiency, long-term returns, and behavioral finance. Journal of Financial Economics, 49, 283-306.
Tetlock, P. C. (2007). Giving content to investor sentiment: The role of media in the stock market. The Journal of Finance, 52(3), 1139-1168.
April 11th, 2018
Ticket pricing for events
One of the main sources of revenue for sports or events is ticket pricing. As such, it has gotten a lot of interest from professionals and researchers alike in order to determine the best way to maximize the price of tickets. What is unique about sports and entertainment though, is that they do not rely on only one source of revenue, but have several ancillary revenues streams once on premises, such as parking, concessions and merchandise. While tickets are important, maximizing ticket revenue may decrease spending in these other areas and decrease total revenue.
There are three main ways that managers can price their tickets; cost based, variable of rmulti-tier and demand or dynamic based, but many will utilize a combination of these methods. When pricing, one the most important to things to keep in mind is the willingness to pay of the consumer. This concept sets the maximum amount that a consumer will pay to attend the event. This concept is how pricing has changed to accommodate different consumer's different price sensitivities. Offering a ticket to a consumer based on their willingness to pay can capture a larger total revenue than offering a ticket for the same price. The hotel, airline and tourism business has been doing this for years. They have adopted dynamic ticket as a way to generate the maximum amount of revenue by offering different prices to different consumers, and sport and entertainment has followed suit. Now, it is common to see prices fluctuate depending on the demand for the event.
Cost based ticket pricing is based on setting the price for a ticket in response to the total cost of running the event, plus whatever profit is required. Every seat in the house is therefore priced at the same rate. This helps the company to guarantee an income, assuming they sell out, and make easier budget decisions since there are no unknown costs or revenues. The downside is that if the cost is below the consumer's willingness to pay for that ticket then money may be left on the table, so to say.
Variable or multi-tier tries is based on pricing tickets depending on external factors that may impact demand, such as seat quality, quality of the opponent or performer, day of the week, etc. While it is still priced long before the event, it is attempting to create different price points for consumers will different willingness to pay levels. This is why seats that are considered premium have a different price attached to them. Offering the same product (entertainment) at different rates allows the venue to capture revenue from these different price points, which increases total revenue.
The final way to price tickets is dynamically. In this scenario the tickets are all priced based on demand for that event. It can then fluctuate up or down depending on how the market is responding. In general, dynamic pricing increases revenue by an average of 14%. In true dynamic pricing, the market (potential consumers) set the price based on their demand for the product. This means that highly coveted events can sell for very high prices, while less attractive events will be sold for less.
In sport, however, there is an added concern, the fact that season tickets are also sold. Many organizations are loathe to price tickets below the price of their season ticket holders, therefore devaluing the season ticket. Many will then attempt to set a price floor that is equal to the per game price for the season ticket. This means that the cost of the ticket from the venue is set a minimum, but that does not mean that alternative ticket sources (StubHub, etc) have that same constraint.
The secondary ticket market where consumers can buy and sell tickets from a third party not the venue itself has applied pressure on the sport and entertainment venues to adopt to different methods of prices in order to compete. Ironically, they are competing against themselves since, in essence, the tickets are to their own shows. But, purchases made by third party, secondary sources, may not include a relationship with the venue, so they may be losing out on potential income from ticket sales. They will still make money at the venue assuming that the purchaser will spend money once inside the venue.
Two ways that venues are attempting to handle this is to have their own ticketing marketplace, where consumers can buy and resell tickets directly through the venue. They accomplish this by partnering with a ticketing company that can handle the trading back and forth. The benefits to the venue are that it captures the revenue from incremental selling, as well as the initial purchase. It is a way to compete with the third party markets that do not contribute a percentage of the sale back to the venue. This has been a major problem in the tourism industry when consumers purchase hotels and flights through alternative methods instead of directly through the hotel or airline. The other method that the venues have started to implement is to systematically decrease the price of the ticket over time. This allows consumers the ability to purchase a ticket at the price they are willing to pay for it. The longer they wait, the cheaper it may become, but once the venue is sold out there are no more tickets.
The impact of ticket prices has made it so that venues can see incremental increases in their revenues that then go toward supporting their bottom line. Sport and entertainment also benefits from the fact that the ticket price is fairly inelastic, meaning that as price increases, demand and attendance does not change much (at least not at the higher competitive levels). This also makes it easier for the venue to capture the maximum amount of revenue from the ticket sales. However, managers also need to be aware of how their consumers spend money in aggregate at their venue. If a higher price leads to fewer in venue purchases this may actually lead to a net decrease in revenue generated. The ultimate goal is to generate the maximum amount of revenue per person, not necessarily the maximum amount per ticket. Understanding how they spend on all the other purchase options helps managers make the most informed decision regarding pricing and attendance. Care must also be demonstrated not to price a core group of consumers out of the venue, however. Ticket sales and venue visits should also be viewed across the whole calendar year and not on a per event basis. Paying high price tags for every event may cause consumers to stop coming or change their purchase habits. Families may also not be able to afford incremental price increases for more than a few events, so if families are the core of your consumer base, it is necessary to see how they react and respond to changes in prices.
Drayer, J., Shapiro, S. & Lee, S. (2012). Dynamic ticket pricing in sport: An agenda for research and practice. Sport Marketing Quarterly, 21, 184-194.
Kaplan, D. (2015, October 25). Dynamic ticket pricing makes successful debut in the NFL. Sport Business Journal. www.sportsbusinessdaily.com/Journal/Issues/2015/10/26/Leagues-and-Governing-Bodies/NFL-dynamic.aspx
Young, J. (2017, December 3). Dynamic ticket pricing use takes off, and teams hope it'll lure fans back into sports stadiums. CNBC. www.cnbc.com/2017/12/01/dynamic-ticket-pricing-use-takes-off-and-teams-hope-itll-lure-fans-back-into-sports-stadiums.html
Concussions have been in the news for the past few years, and with good reason; mild traumatic brain injuries can impair cognitive function, social behavior, concentration and if not treated, set up for second impact syndrome. The treatment for any suspected head injury is to see a physician.
If you have seen the news, you may have also seen the results of a study out of Boston University where the researchers evaluate the brains of former football players for a substance known as tau. This substance is more prevalent in individuals that have impaired cognitive and neurological function and is termed Chronic Traumatic Encephalopathy (CTE). The findings in the study of 177 players at varying levels of football participation highlight a few things: of athletes that played in the NFL, 99% have signs of CTE, while only 21% of those that played at the high school level had CTE. Before jumping to the conclusion that playing in the NFL leads to CTE we need to understand the data a little bit more.
First, a diagnosis of CTE can only be done post mortem once the individual has died and their brain has been donated for study. This is termed a convenience sample; the individuals that had their brains donated were probably displaying some cognitive impairment late in their life that led their loved ones to donate their brains. While this is really helpful for researching purposes, it provides a hurdle when drawing comparisons.
Second, there is no comparison group. Typically, researchers match their study group with another, demographically similar group, to determine what differences exist. In this case, there is not a comparison group. So, what is the prevalence of CTE in the general population that did not play football at any level? We don’t know that answer yet.
Third, does this relationship signal causation? It is concerning that 99% of the NFL brains showed signs of CTE, but does that mean that football was the cause? It is too early to tell, but this study is interesting in that it starts to gather data on brains in former athletes. As the data base continues to be populated we can start to identify relationships of CTE and sports, not only in football, but in other sports (contact as well as noncontact), as well. For instance, what is the prevalence of CTE in athletes diagnosed with multiple concussions compared with those that have no concussion history? What is the rate of CTE in hockey, soccer, gymnastics, etc. The more information we have, the better prepared we are to make changes.
Personally, I am interested in learning if rule changes have an effect both on injury rates and long term health. If athletes learn proper technique, get stronger, have limited opportunity for concussions then we should see a reduction in both those areas. While data collection for CTE is still in its infancy, it is too early to draw conclusions regarding the safety of certain sports, including football. As more and more information is gathered we can then accurately identify relationships and make recommendations regarding safe play. Until then, emphasize technique, play safe, have fun and make a decision to play that is based on your personal likes, history, family and medical input.
Mez, J., et. al. (2017). Clinicopathological evaluation of chronic traumatic encephalopathy in players of American football. Journal of American Medical Association, 318(4); 360-370.
Rabinovici, G. (2017). Advances and gaps in understanding chronic traumatic encephalopathy. Journal of American Medical Association, 318(4); 338-340.
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