Falcons make more money by lowering food prices, also make less money by lowering food prices

I have griped here about the New York Times’ Ken Belson on so many occasions, usually right after he’s written a long article drawing sweeping conclusions that aren’t actually quite justified by the facts of what he’s describing. Today, Belson is back with a report on concessions prices at the new Atlanta Falcons stadium, and let’s see if he has improved any:

In Atlanta, Concessions Prices Go Down and Revenue Goes Up

Wow, that would be an impressive feat! How did they manage this?

Despite a 50 percent decrease in prices for food and nonalcoholic drinks compared to prices in the Georgia Dome, the amount spent per fan increased by 16 percent, Blank’s sports company, AMB Sports and Entertainment, said on Thursday.

The results suggest that fans will consume more if prices are kept at more reasonable levels, with potentially no effects on the team’s bottom line.

That … is not how math works. Even if fans spend more overall on cheaper food, actual team revenue from concessions depends on what’s left over after you pay for all that additional food — so if you bring in 16% more in cash but spend, say, 30% more on buying frozen hot dogs, that’s not “no effects on the team’s bottom line.” So how did this gambit actually work out in terms of net revenue?

Belson doesn’t actually say, but fortunately Bloomberg has the full story:

[Fans] bought more food — sales were up 53 percent — and each fan spent, on average, 16 percent more on concessions. It wasn’t enough to offset the drop in prices, though. The team made less on concessions in 2017 than it did the year before, according Steve Cannon, chief executive officer of AMB Group, the company through which Blank owns the team.

Okay, then! So Belson’s article really should have been headlined “Falcons Cut Food Prices by Half, But Make It Up in Volume.’

To be fair: Belson doesn’t explicitly say that the Falcons are profiting on the food price cuts (though he implies that they could), and even the headline could mean “gross revenue goes up” and not “net revenue (i.e., profit) goes up,” though that’s not how normal humans tend to read that word. Still, it’s all very misleading, especially when Bloomberg shows how to get it right.

Why is this all important, aside from getting to poke fun at the Paper of Record yet again? Because the true numbers hint at the reason why concession prices — and ticket prices, and everything prices — at sporting events are so crazy high: Yes, you can make more fans happy by setting prices lower, but in the early 21st-century economy, you make more money by selling fewer seats/pulled pork sandwiches to fewer people than by selling more of them to more people.

Props to the Falcons management for not choosing to do it that way — given Cannon’s quote to Bloomberg that “sure, we could shake out a few more dollars of margin under the old model, but we believe that the direction we’ve taken, given all the other positive benefits, is the bigger revenue play, period,” it sounds like they figure this is a necessary loss leader to keep people interested in live football, especially with fans increasingly choosing to watch on TV or not at all. Or maybe they figure fans will spend more willingly on pricey tickets this way, as I predicted when they announced the food pricing scheme back in 2016. Either way, it’s a move that’s worth not oversimplifying if we want to understand how sports teams try to extract maximum dollars from our pockets, and that’s what we’re here to do every day, right?


5 comments on “Falcons make more money by lowering food prices, also make less money by lowering food prices

  1. Usually revenue means gross and income means net, so I give Belson and the Failing New York Times a pass.

    I thought Rovell and ESPN were especially misleading on the Falcons concessions story. Their headline just said “make more money”, and nowhere in the article did it mention that net income from concessions was down.

  2. Falcons are taking a page out of the wildly successful and profitable First Citiwide Change Bank:

    http://www.nbc.com/saturday-night-live/video/first-citywide-change-bank/n9701?snl=1

    “How do we make money? Volume.”

    Not a bad ploy. I wonder how it would work for baseball…more breaks to grab more food more frequently? Versus hockey…no one leaves their seat until the end of the period.

  3. I agree with everything you said here. Also, Belson has a lengthy history of failing or just not bothering to understand the points he is paid to try and make.

    That said, I do understand what the improperly presented underlying message is… it’s something automakers do and something the local golf club I used to volunteer to help manage has tried to do…. find the point of maximum revenue.

    Yes, it sucks if you end up selling trucks/hamburgers/Ladas at below cost. And eventually, it will put you out of business if you keep doing it.

    However, the price threshold at which you produce maximum revenue can be more important than unit cost/profit in industries where large up front sunk costs are required (not so much with hamburgers, but car manufacturing, mining and seasonal enterprises like local golf courses, yes).

    It would be great if the unit cost for each round of golf at my local non profit golf course was $10 less than we sell them for. However, we have to put most of the money required to operate the course out early in the year, and don’t know how many rounds will be played on it, what the weather will be or how early the snow will come.

    Once those costs are sunk, it’s really all about generating as much revenue as possible. If that means making only $1 profit per round but selling 7800 rounds instead of holding out for $4 profit/round and selling 1700, well, it’s not that hard to see what the proper course of action is.

    Once automakers have filled their excess inventory parking lots, they need to sell vehicles. Capital is tied up and space is limited. They don’t sell them at a loss, but they often do sell them for significantly below their desired profit margin per unit.

  4. Bad math here. “Bring in %16 more but spend 30% more”. Those percentages aren’t from the same source.
    Food cost ratio percentages for the stadium run in 5%-10% range and gross sales are, well, gross sales. Therefore, lowering prices by 50% only changes the food cost percentages to 10%-20% of sales. A 16% increase in gross revenue (holding other costs fixed) would yield a 6% boost the net income.

    • I said, “say” 30% more — I didn’t mean to suggest that’s the actual number.

      The Bloomberg article makes clear that that 16% increase in spending wasn’t enough to offset the drop in prices. You know, where it says, “It wasn’t enough to offset the drop in prices, though.”