Crain’s Cleveland editors dis ticket taxes, reveal they don’t understand how ticket taxes work

This Cleveland Scene article about the stadium sin tax debate is a week old, but I just noticed something in it that really needs to be commented on:

Crain’s Cleveland Business published an editorial this week officially endorsing the sin tax as well. They insisted their stance had nothing to do with their connections to the business community; nor was the endorsement a snap decision. “It came after thorough consideration of the legal, practical and economic ramifications.”

Crain’s thinks an admissions tax is “not a smart” option because it would “dampen demand, which would defeat the purpose of using the buildings as magnets to attract people downtown.”

Let’s think this one through for a second. The argument that Crain’s is making (here’s the original editorial) is that tacking on an admission tax would raise ticket prices, making it less likely for people to go to games. And because going to games is the raison d’être of sports facilities — and publications like Crain’s pretend that people who don’t go to games just sit on their money and don’t spend it, but we’ll leave that aside for the moment — that would be a bad thing for the city.

Except that’s not how ticket prices work. Because the marginal cost of selling an extra ticket is pretty close to nil (you might have to hire a couple of additional ushers or hot dog vendors if more people are showing up to the game, but that’s a trivial cost per ticket), team owners are pretty much just setting prices based on what the market will bear — in other words, what people are willing to pay to go to a game instead of doing something else that night. So if Cuyahoga County were to apply a $2 per ticket surcharge, say, then the most likely scenario is that the Indians and Browns and Cavs would all cut ticket prices by around $2 to keep maximizing the amount of revenue they get from ticket sales. (Or, more likely, since teams hate to actually cut prices, they’d just hold off on ticket price hikes they otherwise would have implemented.)

It’s this pricing dynamic that is why virtually all economists count ticket taxes as part of a team owner’s contribution to a stadium project, even though it’s technically public tax money: It ultimately comes out of the owner’s pocket. If admission taxes are a legal possibility (some sports leases prohibit them), they’d actually be a great way for Cuyahoga County to live up to its lease commitment to fund upgrades to Cleveland’s sports facilities without hitting up local taxpayers too badly. Yet another important topic we didn’t have time for during the Octoboxathon.

Football fans oddly upset at being asked for more money

Time magazine has an overview of the trend toward personal seat licenses at NFL stadiums, and while there’s not a whole lot new there — fans resent paying them! but many do anyway! — it does include the greatest paragraph in the history of paragraphs:

During a public comment period after the agreement was reached, critics bashed the project as a raw deal for fans and taxpayers. “This is fricking ridiculous, man,” said Jeff Wagner, one of 35 candidates reportedly running for mayor in Minneapolis. Wagner removed his shoes and tossed them on the table before announcing, “You can keep my shoes because basically you are just stealing from the people.”

Just sit and enjoy that one. I think my favorite part is “reportedly.”

Ticket bubble watch: Slate today, Orlando ESPN tomorrow

I haven’t written much about the sports ticket bubble lately (though there’s plenty to comment on, including the Pittsburgh Piratesno-fee week and some impressively low StubHub prices for the New York Liberty). If you’ve been wanting an overview of the lay of the deflating-ticket-price land and what it could mean for the sports industry, check out my new article on the same in Slate.

On a related note, I’ll be on ESPN 1080 in Orlando at 10:05 am tomorrow (Friday), talking about my Nation article and the Slate article. If you’re in Orlando, tune in on your radio; if not, use the streaming doohickey.

Sports bubble watch: Yanks draw another record low

And it’s another record low attendance at the New York Yankees‘ new stadium:

An announced crowd of 40,081 came to the Bronx on Thursday night to watch Yankees-White Sox, setting a new low for attendance at the new Yankee Stadium.

The previous low was an announced crowd of 40,267 on April 5. Capacity at the new Stadium is a little over 52,000.

In case you’re wondering how overall MLB attendance is doing so far this year, it’s down about 2.3% at the moment, in line with the last time I checked, as well as with the per-season average over the last three years. It’s not a crisis just yet, but it is definitely a trend — and a further sign that the sports ticket price bubble is still deflating.

Rays hike some ticket prices 65%

Next time you hear the Tampa Bay Rays complaining about lousy attendance — and you know they will — keep in mind that the Rays just raised prices on 38% of their seats, including one section by a whopping 65%. Complains one original season ticket holder:

“They complain that nobody comes. Then they take an entire section and tick us off,” [Sharon] Greene said. “I understand prices going up (but) I don’t really understand prices going up when the economy is so bad.”

Now, it’s only one season ticket holder complaining, which makes for a pretty weak trend piece, and I’m sure Rays execs have been perusing StubHub for a sense of what the market will bear like other teams have. (And, it’s worth noting, some Tampa Bay tickets will go down in price this year.) Still, Greene has a point: The Florida economy in particular remains dismal, we’re rapidly heading toward deflation, and the Rays’ “successful” 2010 season notwithstanding, they’re going to need to sell tickets next year for a team with no Carl Crawford or Carlos Pena. With that in mind, they might want to pay attention to Greene’s closing comment when asked if she’d consider cheaper seats elsewhere:

“My other seats are right here on the couch.”

Sports bubble watch: NFL fans would rather watch on TV

It’s not just the New York Giants and Jets: Attendance is down across the NFL, with average game attendance projected to fall to its lowest level since 1998.

While the media have been quick to blame easy access to big-screen TVs, there’s another factor that just might be at work here: The average price of an NFL ticket is now $252. With prices like that — and economic figures like these — you might expect increasing numbers of fans to stay home even if the alternative were listening to the game broadcast on their crystal radio sets.

With sellouts diminishing, Senator Sherrod Brown (D-Ohio) has asked the NFL to reconsider its rules blacking out games with unsold tickets, but so far his plea has fallen on deaf ears. Instead, the NFL has focused on making going to a game more like watching on TV. Only with an extra $252 price tag. Sign me up!

Tax-deductible seats and the juicing of ticket prices

Just noticed the op-ed in yesterday’s New York Times arguing that the tax deductibility of luxury boxes has ruined baseball:

Over the last two decades, the average ticket price for a Chicago Cubs game has increased 265 percent, more than four times the inflation rate. Add in parking, concessions and souvenirs, and a family trip to one of this week’s opening day games could easily cost a few hundred dollars.

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.

It’s an issue I’ve raised before, and Joanna 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.

The op-ed authors, Duke law professor Richard Schmalbeck and Rutgers business professor Jay 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, but it would at least blunt it somewhat.

Effect of new baseball stadiums on winning: zilch

Jeff Lubbers at Baseball Daily Digest takes a look today at the on-field effects of moving into new stadiums for baseball teams. In their first year at a new home, he finds, starting with Camden Yards in 1992, teams have spent an extra 15.3% on payroll over the previous year, as they availed themselves of heightened revenues to bulk up their talent on the field. (The Minnesota Twins, notes Lubbers, are already at work on that this offseason, acquiring Jim Thome, Orlando Hudson, and J.J. Hardy, though those were mostly at bargain prices.)

And the impact of all this new talent? Writes Lubbers:

Excluding the 2009 Twins of all the teams in the above table their collective record in the last season of their old homes was 1,421-1,430 for a winning percentage of .498. Their collective record in the first season of their new homes was 1,394-1,405 for a winning percentage of … .498.

While that’s a pretty effective debunking of the “stadiums will bring a winner!” myth, there are a couple of ways I’d love to see this study improved. First off, it generally takes more than one year to turn a franchise around; when I did a similar study a few years back for the Baseball Prospectus book Baseball Between the Numbers, I used win percentages for the five years before and after moving to a new stadium, and found that a new home was worth on average about 5.5 wins a year — still a relatively small payoff, but measurably positive. It’d also be good to see how much that 15.3% payroll hike compares to the baseline increase in player salaries, which until recently were rising substantially year to year even for teams without new homes. [CORRECTION: Lubbers does note that the average annual payroll hike for all teams is 7.49% — I missed it somehow on first read.]

Finally, one number I’d love to see added: Change in average ticket prices at new stadiums. Again from BBtN, 11 of the top 14 single-season ticket price hikes between 1991 and 2004 came with teams moving into new digs, topped by the astounding 103% single-season rise in average prices when the Detroit Tigers moved from Tiger Stadium to Comerica Park. New stadiums make players richer, even if they don’t make their teams (much) better; but fans are paying through the nose for the privilege of watching their pricier teams play .498 ball.

If anyone has some Excel time handy and is interested in running such a study, you can find all the raw data needed at Rod Fort’s site. Or I might give it a shot myself over the weekend, if no one beats me to it.

Sports bubble watch: Jets slash (some) prices

Another New York sports team is following the Yankees‘ lead in slashing ticket prices, but only for the middle class of seats — though, given the prices being discussed, maybe “the upper-upper-middle class” would be a better way of putting it. (Stadium seating pretty much bottoms out these days at the real middle class.) The New York Jets have announced they’re cutting prices for seats in the Mezzanine Club at their new stadium opening next year, from $400-$500 down to $195-$395. The Mezzanine Club is the middle deck on either side of the field, amounting to about 7,000 of the new stadium’s 80,000 seats.

“The jump from $120 a ticket or $150 a ticket to $400 just put it out of reach for a lot of people who did want to experience the clubs,” Jets VP Matt Higgins told AP. “We came to the conclusion that these prices are really 2007 prices in a 2009 world.”

Bleacher Report, though, notes that you still have to shell out a seat license fee — of between $5,000 and $25,000 per ticket — for the rights to even buy the tickets. Given the trouble the team has had finding buyers for their PSLs — buyers who weren’t just bidding as a publicity stunt, anyway — it’ll be interesting to see if half-price tickets with a $5,000 down payment are any more 2009.

ESPN buys $1200 Yankee tickets so you don’t have to

If you’ve been wondering what those crazy-expensive field-level seats are like at Fake Yankee Stadium, ESPN writer Wright Thompson dropped $1200 so he could tell you firsthand. His verdict: It’s great to watch the game from up close, hot dogs go great with a $200 bottle of French wine, and cops are nicer to you when they think you’re rich people.

Thompson comes up with a novel theory for the outrageous Yankees ticket prices, saying it’s thanks to Wall Street brokers who in recent years became willing to pay just about anything for good tickets, since they were using them as deductible entertainment expenses (Thompson calls them “bribes”) to sweet-talk other brokers into conducting deals. But after a bunch of equity traders were caught with free hotel rooms, hookers, and a midget — it’s always the midget that gets the headlines — the SEC cracked down, with potentiall huge consequences for the Yankees:

To get out front of the SEC, many firms have instituted their own internal controls requiring gifts worth more than $100 to be reported. A computer program has been purchased by more than 200 companies that, for the first time, allows statistics to be kept on ticket use, including how much business each one brings in.

So … just as companies were trying to limit extravagant spending, the Yankees came out with the most extravagant tickets in the history of sports, designed in part for a group of people who could no longer buy them. “They killed the golden goose,” a former Bear Stearns guy says. “When the new prices came out, everybody said, ‘Are you kidding? We can’t even give these to clients.'” …

Yankees games went from something small to something like a trip to the Masters. One buy-sider told me: “I’ve been offered really good seats a couple of times, but I haven’t taken tickets from a broker in the new stadium. I’d feel like I owed the guy.”

Meanwhile, Thompson wonders if all the sky-high ticket pricing could risk turning off those who are there for the game, not for the derivatives. He cites ESPN pollster Rich Luker as saying the sports industry is in “harvest mode,” and could be in danger of alienating its fan base for good:

A recent poll discovered an unsettling trend emerging for the first time. American families whose household income is $75,000 or less now have zero dollars of discretionary income. According to Luker, that means about 75 percent of the country can never responsibly afford to go to a live professional sporting event. Franchises want them to be fans, to buy the gear and pull for their teams and watch the telecasts the leagues are paid billions for. But they don’t need them to come to their stadiums. There are, right now, plenty of rich people who love games. The prices reflect that. The reason sporting events cost so much now, Luker’s research shows, is because they are designed to be affordable only to those making $150,000 or more a year.

Luker’s stats show, continues Thompson: “For the first time, the largest number of sports fans aren’t 12- to 17-year-old boys. The baby boomers are the group that shows the greatest increase in a love of sports, and they’ll be dying soon.”

All in all, a fascinating read, though I’m not entirely sure about all its conclusions. (My own research points to the massive surge in wealth towards the richest Americans since the Reagan tax cuts for the top income brackets — the increase in in the number of “rich people who love games,” in other words — as most to blame for rising ticket prices.) And it’s fun to hear about such perks as about the bottomless pile of Twizzlers available to high rollers, without having to plunk down $1200 to visit it.