Pricing season tickets

One observation about the crowd when I attended my first game at the Camp Nou (in October 2014, against Ajax in the 2014-15 Champions League) was how people around me all seemed to know each other. There were friendly nods and handshakes, and it was evident that these men and women were familiar with each other. They all arrived and departed independently, though, and there wasn’t much conversation during the game, suggesting they were acquaintances rather than friends.

On my second visit to the Camp Nou (ten days ago, for the 2015-16 Champions League game against Arsenal), I noticed hordes of empty seats. I was in a stand two tiers higher than where I had sat for the Ajax game, and despite that stand being priced at a princely €150, there were plenty of empty seats (my wife sat next to me for the duration of the game despite her assigned seat being one rank and a few files away). It was a cold and rainy day, but not so rainy that €150 be treated as “sunk cost”!

The common feature that explains both these phenomena is the “season ticket”. As the official club website explains,

The complete season ticket gives members the right to attend, always from the same seat, games played at the Camp Nou in official competitions: Spanish League, Champions League, Copa de Rey and UEFA Cup (emphasis added)

The reason people seated around me at the Ajax game were acquainted with each other was because they were season ticket holders, and would watch every game seated in close proximity to one another. And the empty seats for the Arsenal game were a result of season ticket holders, for whom the marginal cost of not attending the game was far less than €150, not attending the game (there is a “free seat” program that lets season ticket holders sell their ticket through official channels, but considering that the decision to not go would have been made in the last minute (given the rain) many season ticket holders may not have exercised this option.

Football clubs (and other performance venues) sell season tickets in order to create a “base load” of demand for their tickets. While these season tickets are sold at a deep discount (relative to what it costs to buy a ticket for each game), the fact that they are sold at once and at the beginning of the season means that the club can be sure of a certain amount of revenue from ticket sales, and can be assured to fill a certain proportion of seats at the stadium in every round.

Season tickets are also important because they help create a sense of loyalty among the fans, and the same fans sitting in the same spaces week after week can bond and help create a better viewing atmosphere at the club. In other words, season tickets seems like a no-brainer. Except that Hull City, which plays in the English Championship, has decided to do away with season tickets starting next season.

The official statements related to this move seem like sanitised PR (refer link above), but the linked article gives away an important piece of information that suggests why this new ticket scheme might have been brought into play:

The club said the Upper Stand would be closed, meaning 1,800 fans must be relocated, but would be opened for high-profile matches

While the club doesn’t want to admit it, the reason it is doing away with season tickets is that attendance at the KC Stadium has been falling, and it appears that there have been lots of empty seats in the stadium.

As I had noted in my earlier piece on pricing Liverpool FC tickets, there are network effects to watching a football game in the stadium. You gain value not only from what happens on the pitch, but also from the atmosphere that fans at the stadium (including you) build up. And while there are many ways in which fans can affect the watching experience of co-fans, it shouldn’t be hard to understand that empty seats do not add to the stadium atmosphere in any way.

The problem with season tickets is that even with programs such as “free seat” (where the season ticket holder can get paid for giving up their seat), the cost for a season ticket holder to not attend a game is extremely low. And when several season ticket holders decide to not attend certain games, it can lead to rather low attendances, and diminished stadium experience for the fans who do end up attending.

This network effect – of fans helping shape experience of fellow fans – makes the sale of football season tickets different from that of long term cargo contracts, for example. You not only seek to assure yourself of revenues by selling season tickets, but also seek to fill a certain portion of the seats for every game through such a program, and help create the experience.

And when your fans are being delinquent (by purchasing season tickets but not attending), your first action would be to increase the price of such season tickets so that only “serious fans” will buy it and the (sunk) cost of not attending a game is higher. It seems Hull City has already gone through one such exercise, and raised its season ticket prices, which hasn’t helped drive overall attendances.

Hence, the club has decided to do away with season tickets altogether. With the new rolling monthly ticket program, fans will purchase if and only if they are confident of attending a certain number of games. On the one hand, this pushes up the cost of not going for a game, and on the other, allows the club to manage its revenues on a larger portion of the tickets.

From a revenue point of view, this is a risky strategy, as the club foregoes assured revenues from season tickets in favour of more volatile monthly ticket revenues, and greater tickets to sell in the open market before every game. However, considering the network effects of watching football in a stadium, what the club is banking on is that this measure will help them fill up their stadium more than before, and that the improved atmosphere that comes out of that can be monetised in the long run.

It’s a bold move by Hull City to improve football attendances. If it works out, it offers a way out for other clubs that are currently unable to fill their stadiums. But you must remember that optimisation here takes place on two axes – revenues and crowds!

Football in the rain

The weather in Barcelona had been excellent for the last couple of weeks. While it wasn’t warm (most days had required me to wear a rather heavy jacket), it was pleasant and sunny, with hardly any rain. For whatever reason, the rain gods had to choose today, when we had tickets to watch Barcelona play Arsenal in the Champions League, to pour down.

I had made a dash to a nearby supermarket to pick up light raincoats earlier this evening. In hindsight, I can attest that Quechua Rain Cut is a brilliant product and does its job. Among the best raincoats I’ve used. Very effective and light, and can be worn over other warm clothes!

Rain meant we had to take the bus to the stadium rather than walk (it’s 2km from home), and rain also meant that bus made painful and slow progress, dropping us near the Camp Nou some 15 minutes before kickoff. And then there was the lack of queueing at security check outside the stadium (made worse by the pouring rain).

Before the game I’d checked if backpacks would be allowed at the stadium and various forums had mentioned in the affirmative. As it turned out, they weren’t allowing them in today, which meant we had to drop my wife’s (fairly expensive) backpack at the gate before we got in. It was just before kickoff that we took our seats.

Rather, I took my assigned seat while my wife randomly occupied the empty seat next to mine, hoping to exchange it with her seat (which was one row in front) when the rightful occupant arrived. As it transpired, the rightful occupant never arrived (perhaps he was a season ticket holder deterred by the rain, else I can’t imagine someone letting go of a €150 ticket. I plan to do a post on season ticket pricing when back from vacation. Context is Hull City revamping their season ticket system. Interestingly the other seat adjacent to mine was also vacant! In fact, there were quite a few empty seats at the stadium).

There was this nice anecdote which can be used in economics classes on externalities – given that it was raining, it meant that people had an incentive to hold up an umbrella while sitting, but that would mean those in the rows behind would be inconvenienced – a negative externality. Usually, nudges and shouts did the trick to lower the umbrellas, but some umbrella men were steadfast.

Anyway, despite being in the third tier of stands, the view of the pitch was top class (apart from the occasional intrusive umbrella) and we soon got adjusted to the drizzle. The players weren’t that well adjusted, though, for they constantly kept slipping on the turf.

Photo taken at half time
Photo taken at half time. The messy hair can be explained by the hood of the raincoat

Interestingly, the noise levels weren’t too high – when Barcelona scored, celebration was rather muted. There were no shouts of Vis?a Catalunya at 17 minutes 14 seconds (this had been rather vociferous the last time I was at the Camp Nou, but that was in the run up to the (later cancelled) secession referendum) – but that could be because that was exactly around the time Neymar scored.

Though there is another possible reason people didn’t celebrate too loudly – I belive people had gotten into certain positions that helped them beat the rain (like I’d pulled my raincoat forward and over my knees to protect my thighs from getting wet), and heavy celebration would disturb these positions. There was the usual drum band behind the south goal, but the crowd was otherwise rather quiet (the away stand directly behind us was an exception, though!).

Anticipating an exodus, we had decided to leave as soon as the clock opposite us struck 42 in the second half. As it happened, Barcelona scored their third goal just as we were about to disappear into the stands. The early exit helped – there was a bus right outside the stadium that would drop us next to home, and we managed to find seats on that.

Oh, and the backpack that we had abruptly discarded near the gate when we went in was still in the exact position where we’d left it, and we gleefully picked it up on our way out. Quite impressive for a city that is known for its high rate of petty crime (which I’ve been victim to. I lost my spare phone on the day I landed last month, between getting off the cab from the airport and getting into my apartment building!)!

 

Revenue management at Liverpool Football Club

Liverpool Football Club, of which I’ve been a fan for nearly eleven years now, is in the midst of a storm with fans protesting against high ticket prices. The butt of the fans’ ire has been the new £77 ticket that will be introduced next season. Though there will be few tickets that will be sold at that price, the existence of the price point has been enough to provoke the fans, many of whom walked out in the 77th minute of the home draw against Sunderland last weekend.

For a stadium that routinely sells out its tickets, an increase in ticket prices should be a no-brainer – it is poor revenue management if either people are scrambling for tickets or if there are empty seats. The problem here has been the way the price increase has been handled and communicated to the fans, and also what the club is optimising for.

At the outset, it must be understood that from a pure watching point of view, being in a stadium is inferior to being in front of a television. In the latter case, you not only have the best view of the action at all points in time, but also replays of important events and (occasionally) expert commentary to help you understand the game. From this point of view, the reason people want to watch a game at the ground is for reasons other than just watching – to put it simply, they go for “the experience”.

Now the thing with stadium experience is that it is a function of the other people at the stadium. In other words, it displays network effects – your experience at the stadium is a function of who else is in the stadium along with you.

This can be complex to model – for this could involve modelling every possible interaction between every pair of spectators at the ground. For example, if your sworn nemesis is at the ground a few seats away from you, you are unlikely to enjoy the game much.

However, given the rather large number of spectators, these individual interactions can be ignored, and only aggregate interactions considered. In other words, we can look at the interaction term between each spectator (who wants to watch the game at the ground) and the “rest of the crowd” (we assume idiosyncrasies like your sworn enemy’s presence as getting averaged out).

Now we have different ways in which a particular spectator can influence the rest of the crowd – in the most trivial case, he just quietly takes his seat, watches the game and leaves without uttering a word, in which case he adds zero value. In another case, he could be a hooligan and be a pain to everyone around him, adding negative value. A third spectator could be a possible cheerleader getting people around him to contribute positively, organising Mexican waves and generally keeping everyone entertained. There can be several other such categories.

The question is what the stadium is aiming to optimise for – the trivial case would be to optimise for revenue from a particular game, but that might come at the cost of stadium “atmosphere”. Stadium atmosphere is important not only to galvanise the team but also to enthuse spectators and get them to want to come for the next game, too. These two objectives (revenue and atmosphere) are never perfectly correlated (in fact their correlation might be negative), and the challenge for the club is to price in a way that the chosen linear combination of these objectives is maximised.

Fundamental principles of pricing in two-sided markets (here it’s a multisided market) say that the price to be charged to a participant should be a negative function of the value he adds to the rest of the event (to the “rest of the crowd” in this case).

A spectator who adds value to the crowd by this metric should be given a discount, while one who subtracts value (by either being a hooligan or a prude) should be charged a premium. The challenge here is that it may not be possible to discriminate at the spectator level – other proxies might have to be used for price discrimination.

One way to do this could be to model the value added by a spectator class as a function of the historic revenues from that class – with some clever modelling it might be possible to come up with credible values for this one, and then taking this value into account while adjusting the prices.

Coming back to Liverpool, the problem seems to be that the ticket price increase (no doubt given by an intention to further maximise revenue takings) has badly hit fans who were otherwise adding positive value to the stadium atmosphere. With such fans potentially getting priced out (in favour of fans who are willing to pay more, but not necessarily adding as much value to the ground), they are trying to send a message to the club that their value (toward the stadium atmosphere) is being underestimated, and thus they need greater discounts. The stadium walkouts are a vehicle to get across this point.

Maximising for per-game revenue need not be sustainable in the long term – an element of “atmosphere” has to be added, too. It seems like the current worthies at Liverpool Football Club have failed to take this into account, resulting in the current unsavoury negotiations.

Now that I’ve moved to Barcelona, Liverpool FC need not look too far – I’ve done a fair bit of work on pricing and revenue management, and on two-sided markets, and can help them understand and analyse the kind of value added by different kinds of spectators, and how this can translate to actual revenues and atmosphere. So go ahead and hire me!

Watching the Clasico in a bar

No, this post doesn’t have to do with the current El Clasico between Real Madrid and FC Barcelona. When I’d watched the previous Clasico on March 22nd I’d formed a blog post in my head but I never got down to writing it (combination of travel and NED and enjoying my holiday) so I thought this is a good time to put it down.

On that occasion I was in Barcelona and briefly toyed with the idea of going to watch the game at the Camp Nou. That idea was quickly shelved given that tickets were going for about €500 each. Then there was hope that the game would be telecast on local TV (like the Barcelona-Ajax game I had watched at the Camp Nou was), but that wasn’t to be. The only option was to watch it at a pub.

While there were several bouts of NED due to which I had decided I won’t see that game, when Maxime, my wife’s flatmate, went out, I couldn’t help but join him. The first task was to find a suitable pub, especially given that it was a Sunday.

There is an interesting hierarchy of local businesses in Barcelona. Most Spanish-run supermarkets, for example, are closed on that day, though the Pakistani-run places (which are interestingly plentiful in the city) are open 24×7. A large number of Spanish-run bars are closed on Sundays, too, while the Chinese bars (again plentiful) are open all day.

Given that it was the Clasico and it was not broadcast on terrestrial television, there was no surprise that bars were full. Seating-only bars were thus out of question. And some of the standing-allowed places were choc-a-bloc. Finally it was this Chinese bar near the Entença station that Maxime and I went to.

The place was full, like most other bars in Barcelona that night, but there was some standing room with a view of one of the televisions. A sign at the entrance greeted us saying that each person was expected to order at least one beer for €2 (normal price for a beer in such a bar is €1,80). Estrella thus Dammed, it was time for the game.

I don’t remember much of that game, but the atmosphere in the bar was far from the kind I’d seen elsewhere. The crowd was partisan, of course, with anyone who wanted to support Real Madrid doing so silently (remember that this is a politically charged fixture, especially given renewed calls for Catalan secession). Loud cheers accompanied the Barcelona goals. The Madrid goal was met with silence, as you might expect (and people stepping out for a smoke). People stepping in and out created another problem – it was a rather cold spring evening, and every time the door opened it let in rather cold wind and disturbed the thermal balance of the bar!

There were a couple of other noteworthy sidelines on the evening. The first was how hard the bar staff worked. Expecting it to be a big night, they had pressed in extra staff, with possibly the entire family of the people who ran the bar involved. Children who looked as young as ten or twelve hurriedly ferried dishes from the kitchen to the tables (there were a few tables, which I’m assuming were pre-booked). Service was overall top notch, with our €2 beers arriving within two minutes despite the massive crowd at the bar. Considering that some bars were shut (given it was a Sunday), it was incredible how hard this one worked to make most of a good Barcelona night.

 

And then there were these guys at the slot machines. Like most other cheap bars in Europe, this one too had a couple of slot machines and they were all occupied, by people who couldn’t care less about what was going on around them, and whose only worry in life was to bet against the house. It could have been yet another night at the bar for them, except that the beer cost them twenty cents extra.

PS: I got distracted by the Manchester City – Liverpool game and hence took much longer to finish this post. I started writing it as soon as El Clasico started.

The many spectacles of Jurgen Klopp

I haven’t been a big fan of my last  two pairs of spectacles. The last one, especially, was chosen carefully after a rather long search across several stores. Yet, within a week or two of purchase, I knew it wasn’t a great choice. Somehow it didn’t look as good on me as I imagined it would. And it’s been hardly four months since I bought it, but I’m already looking for a new pair.

While there are several people whose spectacle frames I’ve much admired, no one comes close to new Liverpool F.C. manager Jurgen Klopp. Not realising that he has several pairs of spectacles, I’ve tweeted on many occasions that I want “Jurgen Klopp spectacle frames”. And then somehow forgotten it when at the optician’s.

With Klopp scheduled to be unveiled as the new Liverpool F.C. manager today (he signed his contract yesterday), the Guardian has put out a nice graphic called “the many faces of Jurgen Klopp”. As far as I’m concerned, though, I don’t care about the faces at all. All I care about are the spectacles! Each one better than the other.

So I present to you, “the many spectacles of Jurgen Klopp”. Watch off!

And while at it, tell me where I can procure such spectacle frames – most stores in Bangalore don’t stock good big matte-finished frames. And don’t tell me LensKart or some such online seller – buying a pair of spectacles is like buying a pair of shoes – you need to feel them, try them on and feel comfortable in them before buying.

What did Brendan in? Priors? The schedule? Or the cups?

So Brendan Rodgers has been sacked as Liverpool manager, after what seems like an indifferent start to the season. The club is in tenth position with 12 points after 8 games, with commentators noting that “at the same stage last season” the club had 13 points from 8 games.

Yet, the notion of “same stage last season” is wrong, as I’d explained in this post I’d written two years back (during Liverpool’s last title chase), since the fixture list changes year on year. As I’ve explained in that post, a better way to compare a club’s performance is to compare its performance this season to corresponding fixtures from last season.

Looking at this season from such a lens (and ignoring games against promoted teams Bournemouth and Norwich), this is what Liverpool’s season so far looks like:

Fixture This season Last season Difference
Stoke away Win Loss +3
Arsenal away Draw Loss +1
West Ham home Loss Win -3
Manchester United Away Loss Loss 0
Aston Villa home Win Loss +3
Everton away Draw Draw 0

In other words, compared to similar fixtures last season, Liverpool is on a +4 (winning two games and drawing one among last season’s losses, and losing one of last season’s wins). In fact, if we look at the fixture schedule, apart from the games against promoted sides (which Liverpool didn’t do wonderfully in, scraping through with an offside goal against Bournemouth and drawing with Norwich), Liverpool have had a pretty tough start to the season in terms of fixtures.

So the question is what led to Brendan Rodgers’ dismissal last night? Surely it can’t be the draw at Everton, for that has become a “standard result” of late? Maybe the fact that Liverpool didn’t win allowed the management to make the announcement last evening, but surely the decision had been made earlier?

The first possibility is that the priors had been stacked against Rodgers. Considering the indifferent performance last season in both the league (except for one brilliant spell) and the cups, and the sacking of Rodgers’ assistants, it’s likely that the benefit of the doubt before the season began was against Rodgers, and only a spectacular performance could have turned it around.

The other possibility is indifferent performances in the cups, with 1-1 home draws against FC Sion and Carlisle United being the absolute low points, in fixtures that one would have expected Liverpool to win easily (albeit with weakened sides). While Liverpool is yet to exit any cup, indifferent performances so far meant that there hasn’t been much improvement in the squad since last season.

Leaving aside a “bad prior” at the beginning of the season and cup performances (no pun intended), there’s no other reason to sack Rodgers. As my analysis above shows, his performance in the league hasn’t been particularly bad in terms of results, with only the defeat to West Ham and possibly the draw to Norwich being bad. If Fenway Sports Group (the owners of Liverpool FC) have indeed sacked Rodgers on his league performance, it simply means that they don’t fully get the “Moneyball” philosophy that they supposedly follow, and could do with some quant consulting.

And if they’re reading this, they should know who to approach for such consulting services!

Testing the counterfactual: footballers eating pizza edition

Five German under-21 footballers, including Liverpool midfielder Emre Çan, went out for pizza before their U-21 European Championship semifinal against Portugal, in which they got walloped 5-0.

Following the wallop, these players have been pilloried for going out before an important knockout game, for not having taken it seriously enough.

To understand whether people are right or not in pillorying these players, and whether the players were wrong in going out for pizza before a game, we need to test the counterfactual (we had done this here once before with Moeen Ali’s wristbands).

What if Germany had won the game against Portugal? Had they won it, would people have still noticed that these players were out on the eve  of the game (it was public information. One of them posted it to Instagram) ? Would players have still been accused of not taking the game seriously enough?

Note that I’m not defending the German players here. I’m only questioning the timing of the attack – on the back of defeat, which to me seems to be a case of correlation (players go out for pizza; lose game) being mistaken for causation (pizza caused loss, approximately).