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Owners want $31 million hard cap

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Old
11-10-2003, 08:09 AM
  #76
txpd
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Outstanding post. I couldn't agree with this more. professional sports as a business has priced itself out of the pocket of most dad's that want to take their kids to a game. $300 for 3 NFL tickets. Sports are priced and sold as marketing tools for business. As expenses to be written off. How much were decent playoff hockey seats last year?
$300 for a pair per game? $1200 for all 4 home games to a single series?
How many regular folks can spend equal to their house payment for tickets to an opening round playoff series. To sit in the lower bowl for a hockey game you need to make 6 figures yourself. Did anyone notice the empty seats at Camden Yards/Baltimore this year? if tickets sales are down 18% for the Baltimore Orioles and the Indy 500 was not sold out, where do you think the NHL falls into that? Its the weakest link.
NO TV Money to keep them afloat. If a star hockey player thinks he is worth more than a star NFL player, the revenue and the ratings don't back him up. If this means that the good players will go to the Russian elite league...let them go and bankrupt those guys.

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11-12-2003, 09:59 AM
  #77
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Quote:
Originally Posted by Smail
^

This ain't totally true... If ticket prices would be based solely on the market value (the targeted market), then you wouldn't see so many empty seats.

Empty seats = for that price point, the offer is higher than the demand. However, teams can't reduce substantially their ticket prices because of their payroll (which is what, 80-90% of all costs?). In other words, the salaries do have an impact on ticket prices.

Nonsense. Prices are based upon the demand that will maximize profit. Monopolies don't price to make demand = supply. They price based upon where their profits are greatest.

Teams that don't reduce their ticket prices despite empty seats do so because they believe doing so would result in less revenue. Their payroll has nothing to do with it. Payroll is independent of revenue. Smart owners don't chase costs, they maximize revenues.

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Old
11-15-2003, 08:53 AM
  #78
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Quote:
Originally Posted by BigDaddyMeatWhistle
Nonsense. Prices are based upon the demand that will maximize profit. Monopolies don't price to make demand = supply. They price based upon where their profits are greatest.

Teams that don't reduce their ticket prices despite empty seats do so because they believe doing so would result in less revenue. Their payroll has nothing to do with it. Payroll is independent of revenue. Smart owners don't chase costs, they maximize revenues.
Actually in today's world, the best way to make profits is to cut costs. Increasing revenues works when there's available revenue in your industry or when your industry is growing, otherwise it's not always something possible. To increase revenues further, the productivity in North America would have to increase at a faster rate or else the inflation, but then again the costs would rise with higher inflation, thus negating the increase in revenue.

Also, I said exactly that the offer doesn't have to meet demand, which is exactly part of the problem. In a monopoly where you have an arena with "x" number of seats, you will maximise your profit when you will fill the arena. When you don't fill the arena this means that the demand is weak and you're more dependant on team performances. If your arena is filled, then chances are you will be able to get a sustained amount of people in the stand even if the team performs badly on the ice.

Since you can't change your pricing for your tickets during mid-season (you can offer promotions, but you still need to respect your season ticket holders), this exacerbates the problem.

Hockey teams are monopolies for the hockey market. However, since hockey is far from being an essential service, they still are in competition with other kind of entertainments. On the entertainment market, it is close to being perfect competition. Hence, even if you have a monopoly on the hockey market, you still need to consider that hockey fans can switch to other entertainment markets...

You're the management of a team. You have all the market data you need to take a decision (after several studies). You have an arena containing 18,000 seats. Your fixed costs are $20M/year. Your variable costs (essentially your payroll costs) is at say $40M. Last year you performed in the average of the teams (.500). Excluding ticket sales, you have revenues of $25M. According to the market studies you have done, your revenues other than ticket sales are currently stretched to the maximum. Based on your studies, you have the choice of these price points: (yeah concession sales and other stuff is not considered, but this is just to keep the example simple)

Average ticket price - Season ticket holders - Ticket sales if play for .400 - .450 - .500 - .550 -.600
1. 30$ - 14000 - 22000 - 23000 - 25000 - 27000 - 30000
2. 35$ - 12000 - 20000 - 21000 - 23000 - 25000 - 27000
3. 40$ - 10000 - 18000 - 19000 - 21000 - 23000 - 26000
4. 45$ - 9000 - 15000 - 16000 - 18000 - 19000 - 22000
5. 50$ - 8000 - 13000 - 14000 - 16000 - 18000 - 20000
6. 55$ - 7000 - 10000 - 11000 - 13000 - 15000 - 18000
7. 60$ - 6000 - 8000 - 10000 - 12000 - 14000 - 16000
8. 65$ - 5500 - 7000 - 8000 - 9000 - 10000 - 12000

These predictions are based on your current lineup/style of play/etc. You also know that the TV ratings and sponsorship deals (which are included in your $25M) are dependant on how many people attends your games. IE: A sponsor will be willing to invest more if your fill your arena than if it's 3/4 full and tv ratings usually reflect the whole demand point which will be based on the quality of the team and the price point for articles related to the hockey team. The team will earn an additional net revenue (after expenses) of $2M per playoff game.

Knowing all that, what's the best option? Even though setting ticket prices at a lower price would insure that the team earns stable income no matter how well (or bad) the team plays, the team will make a loss setting their tickets at 30$, 35$ or 40$. (but if the payroll was lower this could be a valid alternative) They could make a profit setting their ticket prices at 40$ if the team plays at least three playoff games. However, if the team makes the playoffs, it also means they would play for .500 or more. In that case (playing for .500), then the team should put their ticket prices at least at 45$, since they will get higher revenues. If you think the team should improve over the previous year and play for .550, then you're better off setting your ticket price at 60$, since profit will be maximised at that point.

In the long term though, setting your ticket prices over 45$ might be harmful, since you won't fill your arena and your other revenue sources could then decrease.

As you can see, the situations that maximise profit are riskier as the payroll increases, simply because you need to maximise ticket sales revenues which can be harmful to your other revenue sources and which can turn ugly quickly (since a non-performance on ice for one reason or another will harm your sales in a hard way).

The other thing with the estimated sales is that it is for a stable demand. Since the demand curve in hockey can move easily from left to right and right to left, a shift in demand will alter all these numbers and impact profitability greatly. Hence, if you want to make sure your team is going to stay healthy financially in regards of a shifting demand, you should pick a price point where the demand is higher for a said performance than the maximum capacity your arena can hold. In that situation, 35$ or 40$ might be the best "long term" price point but since it doesn't cover the payroll you need to risk on a more rewarding short term price point. You could also cut the payroll in order to be profitable at such a price point, but cutting down the payroll could shift demand curve to the left, which would be the equivalent of moving the data at one price point lower. Then cutting the payroll is only profitable if you can cut more $ than the loss of revenue a lower demand curve would give you.

All in all, since the payroll is a significant charge in hockey operation, IT MUST be considered when deciding on a ticket price point. Payroll will influence the demand, which in turn will influence the price point you're going to pick as well. As well, payroll will influence your profitability point, hence will influence the risk you're going to take to make profits.

At this time in the NHL, all teams in order to be able to break even are gambling on short term price points where they make profits if the team performs over .500 and gets a few playoff games while not filling out all their seats (thus not maximising television and sponsorship revenues in the long term as well as probably affecting the long term demand curve to the left as well since the elasticity of the demand and offer curves increase with time). This is due to the current payroll and this was NOT the situation ten years ago when the old CBA was negociated.

Try again with the "payroll doesn't influence ticket prices" theory...

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Old
11-15-2003, 07:47 PM
  #79
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There is little or no relationship between payroll and team performance.

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Old
11-16-2003, 02:26 PM
  #80
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Smail's very impressive, yes. I take it you are an economist, eh?

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Old
11-26-2003, 03:59 AM
  #81
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A softcap would be a joke imo as it is in any league around the league I mean look at the NBA soft cap didn't really do much there. I say A hard cap has to be placed in order for it to be truly effective and to be honest I can't see it going any lower then 35 mill and the age of ufa will be lowered to around 27 - 28 years old. Teams like Edmonton, Calgary, Buffalo, Pittsburgh ,etc would be able to play on an even playing ground here with the rest of the NHL and IMO would make for a much better product on the ICE as teams like the ones I noted above will be able to keep the young players they develop instead of having to trade them off when they start turning into good players.

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Old
11-26-2003, 04:18 AM
  #82
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Quote:
Originally Posted by Joey24
A softcap would be a joke imo as it is in any league around the league I mean look at the NBA soft cap didn't really do much there.
It didn't?

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Old
11-26-2003, 04:20 AM
  #83
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Quote:
Originally Posted by execwrite
There is little or no relationship between payroll and team performance.
Exec, Please back up that statement.

Thanks.

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Old
11-26-2003, 04:31 AM
  #84
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Quote:
Originally Posted by Joey24
A softcap would be a joke imo as it is in any league around the league I mean look at the NBA soft cap didn't really do much there.
Then why did Sacramento have to move Keon Clark for peanuts?

Also, in the NBA when trades are made the salaries have be within 15% of each other. This is to prevent teams from getting a truckload of stiffs when they dump a star player.

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Old
11-26-2003, 05:29 AM
  #85
txpd
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Quote:
Originally Posted by execwrite
There is little or no relationship between payroll and team performance.
Going back to 1994 when the Rangers won the Cup there have been ten Cups up for grabs and 10 cups won by top of the scale payroll teams.
Rangers, New Jersey, Colorado, Detroit, Detroit, Dallas, New Jersey, Colorado, Detroit, & New Jersey. New Jersey, who had the 6th payroll last year is the lowest payroll team of all of the current CBA cup winners.
They bring up another related issue. That is teams that can't afford to compete on the ice with talent have resorted to strategy. That means the proliferation of defense first systems like NJ's trap. There in lies hockey's two major problems. top dollar teams are killing competition buy pricing talent beyond the reach of most NHL teams and the other teams only hope of winning comes from forcing a style of play that is killing the entertainment value of the game.

Too often its fans of those few privelidged teams with budgets to buy up all the top talent available that are those that complain about the trapping, bulls^%t style of hockey that teams like NJ, Anaheim, & Minnesota play. When the NHL finds a way to establish rules that will force the trap and other defense first systems out of the NHL, they will be throwing the advantage back to the talented teams and by doing so make the salary cap even more important if there is going to be any sort of competition in the NHL.

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