A ticket tax would be the least bad thing about the godawful Blue Jackets arena bailout

Nationwide Arena, the county-owned home of the Columbus Blue Jackets, is still barely bringing in enough money to pay operating costs, something that has been a problem for years now, ever since the city, county, and state teamed up to bail out the team from its money-losing private arena construction deal. Now, the Franklin County Convention Facilities Authority is proposing a solution: adding a ticket surcharge to build up a surplus to pay for any unexpected repair expenses.

There are probably those among you reading this thinking, “Those bastards! First they take a money-losing arena off the hands of a private sports team, now they’re forcing fans to pay for it with higher ticket prices!” It’s a reasonable enough response, but it’s dead wrong — at least the last part is. Allow me to explain why.

So you’re the head of the ticket sales office for a not-overly-popular NHL team. (Or a super-popular one — it doesn’t matter for our purposes here.) Your job is to figure out how much you can charge for tickets that will make your bosses the most money possible. Selling more tickets doesn’t really cost you anything — you may have to hire a few extra concessions workers for the night, but it’s not like you have to manufacture more hockey — so your calculus is just: How far can I raise prices before fans decide to stay home and watch on TV?

Now, let’s add a ticket tax to the mix — say it’s $2. If you were charging $50 previously for a certain tier of seats, that’s because you figured that $51 would drive enough fans away that it would end up costing you money. So do you now add $2 to that $50, and charge $52 a ticket? Only if you’re an idiot — we just said you’re going to bring in less money if you charge more than $50, remember? So the only solution is to keep charging $50, and eat the $2 ticket tax yourself.

It’s a bit counterintuitive, because it doesn’t work that way in other economic realms — add a 1% sales tax, and stores don’t all cut their list prices by 1%. But those are for good that actually cost something to procure — if you sell one less of them, that’s one less that you have to buy from the wholesaler — and besides, if consumers choose not to shop at your store (or restaurant or whatever), they’ll still have to pay the same tax if they do something else that evening. Unless people are so desperate for hockey that they’ll pay any price to see it, you’d be insane to do the same for tickets — and if the fans are that desperate, you should be raising ticket prices already, with or without a tax.

There is much that is terrible about the Blue Jackets arena deal: Taxpayers essentially took responsibility for the arena’s losses for no damn reason after the team had initially built it with private money, and now it’s left for the city and state to squabble over who’ll pick up the check. But whenever you hear “ticket tax,” remember, that’s a good thing for fans and taxpayers alike — because the peculiar economics of sports venues means that it’s really a stealth way of sticking it to the team owners. Say, is there anything in the Blue Jackets’ lease preventing the facilities authority from setting fees at, say, $20 a ticket to get taxpayers some of their money back…?

6 comments on “A ticket tax would be the least bad thing about the godawful Blue Jackets arena bailout

  1. I don’t think it works that way here either. Unless they drive away enough fans to make it less cost effective, they’re better off making slightly less money at $50 than they are losing it on the ticket tax.

  2. This is largely accurate and it is the least bad way to solve the problem.

    However, the $50/$52 example is a bit simplistic. If it was like the VAT in Europe, baked into the listed price, you’d be spot on. However, presumably the fee would not be included in the price but added in on top of the price like sales tax or things like ticketmaster fees. There’s a ton of research in economic psychology that indicates people who wouldn’t buy the $52 ticket will choose the $50 ticket, choose their seat, etc. and then part with $52 after the fee.

    Why? Two explanations I know of (there are no doubt others). One assumes rational consumers and figures transaction costs. After I’ve invested my time to research the hockey game, figure out how I’m going to get there, select the sightline I want, etc. backing out when I see the higher final price and finding an alternative will cost me time and effort I value more than $2. The second is that consumers are actual irrational, get emotionally invested in completing a purchase and cease to consider their actual economic value–something apparent if you’ve ever seen an auction.

    Anyways, this is why all involved parties are proposing a surcharge rather than just taking it out of the owner’s pocket and cutting out the rigmarole.

    • While I love nothing more than to debate behavioral economics, the fact of the matter is that ticket face values nearly always do include any ticket taxes. So it is like the VAT in Europe, in fact.

      • I didn’t think this was the case so I thought I would check.

        I decided to look into tonight’s Cubs vs. Cardinals game. I found a $78 ticket.

        After I clicked that they added the following lines:

        A 9% City of Chicago & 3% Cook County Amusement Tax per ticket ($9.36 per ticket): $9.36
        Per Ticket Fee ($4.75 per ticket): $4.75
        9% City of Chicago & 3% Cook County Amusement Tax per ticket fee ($0.57 per ticket): $0.57

        That came up to $92.68. Ticketmaster then added a $4 per ticket fee so my $78 ticket actually cost me $96.68 when I went to check out.

        I admit I can’t quite figure out how those percentages align to the numbers. However, that was my 30 second check to make sure my memory hadn’t completely failed me as I distinctly recalled cursing at my computer screen during ticket purchases over the years.

        • Huh – it may differ from city to city then, as I know I’ve never seen surcharges appear like that. (Other than Ticketmaster fees and “service charges,” which are a universal blight.)

          Or, given that I’m currently on the 7 train en route to seeing the Mets play those same Cardinals, maybe the entire website you’re looking at is a scam.

          • Hah. It does look like I confused “next home game” with “tonight’s game.”

            I’m pretty sure I have seen non-included fees/taxes/surcharges in a few cities over the years but I can’t recall which ones had or didn’t have them.