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RAPTORS: THE GAME OF DYNAMIC PRICING

Introduction

The ticketing industry for sports, and more specifically the NBA, had been simple in the past with

differential pricing. Differential pricing is based on the concept of price discrimination, which is a widely

used strategy adopted when a market is comprised of segments that have different demand

characteristics.1 Sales was slowly declining as consumer demand decreased for some less popular teams

and executives from teams across the NBA began trying to come up with ways to fill this declining profit.

This was when dynamic pricing was introduced. Many teams in the United States began adopting the

concept and it left Raptors with the issue of whether they should jump on the bandwagon or continue with

their current pricing strategies.

Beth Robertson, Senior Vice President of Ticket Sales & Service, was sitting at her desk on a Summer

afternoon thinking about how she could increase ticket sales. Due to the Raptors team‘s lackluster

performance in the past few years, the team had to come up with a pricing strategy to fill the financial

gap.

A History of the NBA

The NBA (National Basketball League) was officially born on August 3rd 1949 with the merge of the

BAA (Basketball Association of America) and National Basketball League (NBL) after a 3-year ongoing

battle to satisfy both the players and the fans. Prior to the merge, the BAA was established in large cities,

often holding their games in major arenas such as the Boston Garden and NYC‘s Madison Square

Garden. On the other hand, the NBL only existed in small Midwestern cities, holding games in small

local gymnasiums. From 1948-1949, the BAA had already begun to attract some of the country‘s best

basketball players, where four NBL franchises (Fort Wayne, Indianapolis, Minneapolis, and Rochester)

moved to the BAA and brought along their star players with them.

Representatives from the BAA and NBL met at the Empire State Building in NYC on the day of August

3rd, 1949 to finalize the merger. The head of the BAA since inception, Maurice Podoloff, was elected the

head of the newly founded NBA. The NBA was now made up of 17 teams, which represented both large

and small cities across America. However, during the 1950s, the number of teams along with the amount

1 http://cortoleo.free.fr/Euromed/ISM/Managing%20Leisure.pdf

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of fan support began to decrease, and by the 1954-1955, only eight teams remained. To get back on track,

that same year, the NBA transformed the game by creating the 24-second clock, which made the game

faster-paced and more fun to watch. This new strategy worked, as fans returned to watch the games. The

NBA expanded throughout the 1960s and 1970s to what it is today, in which the league includes 30

franchises and attracts players and millions of fans from around the world.

Ticket Pricing History

To go along with the fact that the LA Lakers remains one of the most successful teams, it is no surprise

that tickets to a Lakers game remain the priciest in the league, with the average cost of a Lakers ticket at

$89.24 in 2007, up 4.5% from the previous year. This marked the 6th straight year that the Lakers have

topped the list with the highest NBA ticket price.2

On average, NBA ticket prices have usually hovered around the $50 mark, but there have always been

over a million tickets each season for $10 or less. Some teams even offer tickets for as low as $5.

In November of 2009, the average ticket price for an NBA game fell for the first time in 8 years due to the

weak economy. During this season, the average price fell 2.8% to $48.90, which made it the biggest drop

in the history of the league, and the first decline since the 2001-2002 season. During this season of ticket

pricing decrease, 14 teams had price declines, 13 kept them unchanged, and only 3 teams had increased

prices. Once again, the LA Lakers had the highest ticket price average at $93.25, with the Boston Celtics

in second at $68.55.3

Current Pricing Strategies

Variable Pricing

Many teams in the NBA have implemented variable pricing in order to better reflect the value of each

game, recognizing that not all games are created equally. The ticket prices for each game are assigned

based on the value and demand of each game, which is influenced by various factors including

opponent‘s quality, day of the week the game is played, etc. For example, the same seat for a Saturday

night game against the LA Lakers would be worth much more than a Monday night game against

Minnesota. However, for many years, teams would have priced these two games at the exact same price, a

2 http://www.sportsbusinessdaily.com/Daily/Issues/2007/11/Issue-41/The-Back-Of-The-Book/NBA-Average-Ticket-Prices-Up-

36-This-Year-Fan-Cost-Index-Up-26.aspx 3 http://www.reuters.com/article/2009/11/02/nba-tickets-idUSN0236620620091102

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price too low for the Lakers and far too high for Minnesota. With variable pricing, the whole concept is to

price accordingly to what the demand for each particular game is.

The variable pricing of these tickets apply to both single and group tickets. In terms of single tickets, the

cheapest ticket that could be purchased is $12.50 (price floor), which is in the upper bowl section. In the

lower bowl section, the minimum price is at $47. Of course, due to the factors mentioned above, ticket

prices in other areas also varied. However, the single price for each of these tickets never goes below the

minimum price that was initially charged. Even if there is no demand at the minimum cost, the Raptors

would let the seat go rather than charge a lower price in hopes that people would purchase it at the lower

price.

In terms of the group tickets (10+ people), there is only one group price difference between the cost of a

single tickets versus the cost if you purchase a group of tickets. For example, a single ticket in the lower

bowl section that sells for $47 could be purchased for $35 each if purchased as a group.

For the fans, they will need to figure out which variables they value more in order to maximize their

dollars spent on an NBA game. Most people generally prefer to enjoy entertainment on Friday and

Saturday nights due to work and school commitments. However, some people who do not have children

or don‘t mind staying out late on weeknights, might prefer to go to a game on Sunday-Thursday

nights. Besides the day of the week, many fans prefer a matchup between two outstanding teams, over a

couple of games against mediocre opponents. Premiere teams and teams consisting of some of the

NBA‘s best star players generally put on a more exciting show, thus demand for those games are

higher. Finally, seat location is generally the most elastic variable in ticket pricing, whether it be an NBA

game, an NHL game, or even a concert. The seating area in which consumers value the most is extremely

crucial to getting the most out of their money spent.4

Season Tickets

Each NBA team also offers special season tickets, which offer different benefits to the consumer

depending on the team. Season tickets are generally beneficial to those who are completely dedicated to

their team, and like to go to every single game. In order to become season ticket holders, customers must

put down a down payment, usually around $500 depending on the team. The season tickets then include a

ticket to each game that team is playing that season (81 games in total, including home games and non-

home games). The down payment is then subtracted from the total season price. For example, if a

4 http://espn.go.com/blog/truehoop/post/_/id/19278/not-all-games-are-created-equal

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customer wants to purchase premium lower box tickets for the season, and it‘s $40 for each game, the

total cost would be $3240 for all 81 games, minus the $500 down payment. Of course, the costs depend

on the seating the customer chooses, but once chosen, the seat will be the same all season long for that

customer.

Season tickets offer members many benefits, the primary one being a substantial amount of savings,

usually between $5-$100 on each single game. Members also have access to backstage tours, freebies,

presales to extra tickets before they go on sale to the public, invites to special events, the chance to

participate in contests, etc. Ticket holders may also sell their tickets above face value to other fans, if they

are unable to make it to a certain game.

Raptors: How the Team Came to Be

The Toronto Raptors were established in 1993 as part of the NBA‘s expansion into Canada, for a record

expansion fee of $125 million. A nationwide ―Name Game‖ contest was held to help name the team and

develop their colours and logo. The final selection—Toronto Raptors—was influenced by the then-

popular movie Jurassic Park and the team's colours included bright red, purple, black, and silver.

"Naismith" silver was chosen as an ode to Canadian James Naismith, the inventor of basketball.

Along with the Vancouver Grizzlies, they played their first game in 1995. Before the inaugural season

began, sales of Raptors merchandise ranked seventh in the league, marking a successful return of

professional basketball in Canada.

The value of the Raptors franchise has risen over the years. Initially bought for US$125 million, the value

of the franchise doubled from US$148 million in 2000 to $297 million in 2004 with the continued

popularity of the team. This amount grew again from $315 million in 2006 to $373 million in 2007, and

$400 million in 2008, before declining to $386 million in 2009.

The fanbase for the Raptors, however, has been consistent throughout their history. When they made the

playoffs in their 2000, 2001, 2002 seasons, the Raptors set NBA attendance records across all their

games. During the 2006–07 regular season, an average of 18,258 fans attended each game (13th in the

league), which represents 92.2% of the Air Canada Centre's seating capacity. Following the success of the

this season, Toronto became one of the league leaders in season ticket sales for the following 2007–08

season. On game days, the Raptors offer a variety of entertainment options to their fans including the

Raptor mascot, the Raptors Dance Pak, and the 4 Korners Raptors Soundcrew that appear during pre-

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game, time-outs, and intervals. Giveaways are sometimes bundled with tickets to encourage attendance.

As part of a promotion made by the Raptor's official pizza sponsor, whenever Toronto scores more than

100 points in a home game, win or loss, fans can redeem their ticket for a cheese or pepperoni pizza slice

at standalone Pizza Pizza locations throughout Ontario after the game.

Like most expansion teams, the Raptors struggled in their early years, but after the acquisition of Vince

Carter through a draft day trade in 1998, the team set league attendance records and made the NBA

Playoffs in 2000, 2001, and 2002. Carter was instrumental in leading the team to a franchise high 47 wins

and their first playoff series win in 2001, where they advanced to the Eastern Conference Semifinals.

After Carter left, Chris Bosh emerged as the team leader and new face of the Raptors franchise. As Chris

Bosh recently left to join LeBron James and Dwyane Wade with the Miami Heat, the Raptors again found

themselves starting from scratch as they did when they had lost Damon Stoudamire and Vince Carter who

each had become the face on the franchise.

Maple Leafs Sports & Entertainment (MLSE)

The Raptors team is owned by Maple Leafs Sports & Entertainment which is a private professional sports

company based in Toronto. Among its properties are the Toronto Maple Leafs hockey team of the NHL,

Toronto FC team of Major League soccer, and Toronto Marlies of the American Hockey League, in

addition to Toronto Raptors. MLSE is also involved in property management, including the ownership of

the Air Canada Centre, Maple Leaf Square and operates the BMO Field and Ricoh Coliseum, which are

both owned by the City of Toronto. MLSE also owns and manages sports television channels that include

Leafs TV, NBA TV Canada and GolTV Canada.5

The company was founded as Maple Leaf Gardens Ltd. (MLGL) in 1927 after Conn Smythe organized a

group of investors to purchase Toronto‘s premier hockey franchise, renaming it to the Maple Leafs.

Supermarket tycoon Steve Stavro led a group to buy the Maple Leafs from the estate of late Harold

Ballard in 1991 and Larry Tanenbaum became a partner in 1996 with a 20% stake in MLGL. It then

purchased Toronto Raptors and the Air Canada Centre in 1998, at which the company adopted its

presented name of MLSE. Stavro sold his stake to CTVglobemedia in 2003, and the Ontario Teachers‘

Pension Plan (OTPP) assumed controlling interest based on equity under the new ownership structure.

On December 9, 2011, OTPP sold its majority stake in MLSE to Bell Canada and Rogers

Communications (joint holding companies) at a value estimated to be $1.32 billion. Currently, MLSE

5 http://www.cbj.ca/business_news/canadian_business_news/130511_forbes_mlse_worth_2_25b.html

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ownership is divided as follows 75% to Rogers and Bell (50/50 split) and 25% to Kilmer Sports (holding

company of Larry Tanenbaum). MLSE has reported an enterprise value of $2.24 billion USD as of 2011.6

Product Offerings

The Toronto Raptors offer a wide variety of ticketing options, including the following:

Season Seats: Season seats are offered at low prices of up to 37% savings over regular game ticket prices.

In addition, customers get priority access to additional single game tickets and discounts on Centre Sports

merchandise, plus an opportunity to attend pre-game Meet and Greet events with the team management.

Single Game Tickets: single tickets can be individually chosen from a chart provided on the Raptors‘

website for the date of the game the customer would like to attend. Single game tickets pricing is subject

to change based on available inventory, opponent and game day.

Group Tickets: Groups of 10 or more are eligible to book this ticket option to enjoy a special schedule and

discounts off of regular game prices. Prices go as low as $13.50 per person and include additional benefits

such as:

- One on one service from a personal group sales representative

- Fundraising opportunities for the customer‘s organization or charity

- Toronto Raptors personalized promotional materials to help advertise a group event

- Group name in lights on Air Canada Centre scoreboard

- A complimentary pair of lower bowl tickets offered for every 50 tickets purchased

Fan Experience Package: the fan experience is a group ticket package targeted towards basketball

fanatics. This package offers benefits based on the overall experience rather than price discounts, and

includes some of the following features depending on minimum purchase:

- Pre-Game at Real Sports Bar & Grill with a minimum 10 Group Ticket purchase.

- Court of Dreams: with a minimum $5000-$8000 Group Ticket purchase, the group‘s team can

play a game on the Raptors court on game day before or after the Toronto Raptors.

- Half-time High Five: with a minimum $2000-$2500 Group Ticket purchase, the group can high

five the Toronto Raptors players as they enter the court after half-time.

6 http://www.theglobeandmail.com/report-on-business/bell-rogers-now-official-owners-of-mlse/article4493958/

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- Post Game Event: with a minimum $10,000 Group Ticket purchase, the group can host their own

1 hour event in the arena after the game.

- Half-time Mini-Game: with a minimum $3000-$3500 Group Ticket purchase, the group can play

a mini-game on the Raptors Court at half time in front of the Raptors crowd.

Guys Night Out: available in packages of 2 or 4, Miller Genuine Draft Guys Night Out is offered to

encourage groups of males to attend Friday night home games. For as low as $24 per person, this package

includes:

- A Raptors/Miller Genuine Draft (MGD) t-shirt

- A premium sandwich and 24oz pop

- Access to a pre-game MGD sampling event

- Post-game line bypass at Real Sports Bar and Grill

- Meet and Greet with the Raptors Dance Pak

- A chance to win an autographed Toronto Raptors Jersey and the chance for one group to watch

the pre-game shoot-a-round from courtside

Distribution Channels

When purchasing Raptors tickets and other products or services, there are a number of channels that the

sports team can distribute through to their customers. The two main channels are: direct to customer

(online or in-person through the venue) or through distributors or resellers. Raptors provides a

comprehensive online ticketing system through their official site, raptors.com, and allows customers to

purchase their tickets by paying by credit card. The ticketing system allows customers to choose which

seat location and game they prefer by presenting the various tickets prices for each. Game tickets can also

be purchased at the venue Air Canada Centre, at the office box. This channel gives MLSE the chance to

demonstrate customer service and also create a more involved experience for fans.

Since OTPP sold its stakes in MLSE to Rogers Communications and Bell Canada in late 2011, the two

companies now hold 75% ownership of all teams and venues under MLSE.7 This has allowed Rogers to

introduce ticketing experiences such as Rogers Wireless Box Office that gives Rogers customers a

discount on popular concerts or games held at the ACC. Rogers Wireless Box Office customers also

receive a different experience when entering the venue, such as shortened queues and customized service.

7 http://www.newswire.ca/en/story/892971/bell-acquires-ownership-position-in-maple-leaf-sports-and-

entertainment-mlse

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The second channel of which Raptors tickets can be purchased is through distributors or resellers. These

include online ticketing services such as Ticketmaster or Ticketweb. Customers who purchase from these

resellers typically pay a number of fees on top of the ticket‘s face value: service charges, building facility

charges, processing charges and shipping charges. Ticketmaster has been criticized for having excessive

fees, overcharging customers with a lack of transparency in their pricing structure. The online ticketing

system on the Raptors official site is redirected to Ticketmaster, so all tickets purchased ―direct-to-

customer‖ are also through Ticketmaster. Ticketweb is a subsidiary of Ticketmaster, but is an alternative

to purchase tickets with lower fees.

Several unofficial ways customers can purchase tickets is through underground black market channels

such as scalpers or online sites that sell Raptors tickets at a discount. Scalpers are often seen on the day of

the game, hours prior to it starting, where they begin selling tickets at a high discount. Scalpers are

defined as licensed resellers who determine the price of the ticket themselves, often reselling the tickets

for less than face value depending on demand. Although the scalping industry is live and well, it is

actually prohibited in Ontario to resell tickets above face value by the Ticket Speculation Act and is

punishable by a fine of $5,000 for an individual and $50,000 for a corporation.8 Even though this is true,

tickets are often sold on online community sites such as Kijiji.

Market Segmentation

The demographic data collected of Toronto Raptors fans reveals their target market of a young adult to

middle age male in the age range of 18-34 years. This man is in the high-income bracket of about

$109,000 or comes from a wealthier household. The data also indicates that there is an 81% chance he

was born in Canada. Even considering the multiculturalism of the city of Toronto, it is the Canadian-born

individuals that come out to these games and demonstrate the most loyalty and support to their home

teams.

Psychographic characteristics can then be generalized to indicate the lifestyle of their target male. This

man is always up-to-date on sports by reading about it in the paper, watching TV at home, or talking to

co-workers and peers. He is a passionate basketball fan above all and loves the live experience of a game.

He goes to a game for entertainment to enjoy it with friends or with colleagues/clients after work. This

man is a Torontonian and has watched the Raptors growing up. He wants to go to as many games as

possible and is likely to purchase season seats.

8 http://www.e-laws.gov.on.ca/html/statutes/english/elaws_statutes_90t07_e.htm

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Exhibit 1 – Demographic Data (Toronto Raptors 2011)9

Consumer Behaviour

The target demographic has high motivation, ability and opportunity to purchase Raptors tickets because

of the following ideas: single supplier, financial ability and ease of purchase. MLSE, who controls

Raptors, is the only company that supplies Raptors games tickets (excluding black market purchases)

either through Ticketmaster or other certified distributors. In terms of consumer behavior, Raptors fans

have a high motivation to purchase tickets from MLSE because it is the only source of which they can.

Being a sports fan or even just a casual game attendee, the target market is passionate about the game and

therefore has high motivation to purchase these tickets due to an emotional attachment to the team. They

are also motivated by the opponent that Raptors play; for example if the opposing player is a popular team

(Miami Heat), motivation will increase. Ability is high as well since most tickets are affordable and

within a reasonable price range. Consumers also have the opportunity to purchase tickets as they are

easily available online and the purchasing process is fairly easy to navigate.

Challenges in the Industry

The Air Canada Centre has a seating capacity of 19,300. Realistic demand forecasts do not account for

each seat to be occupied since there are 2-3 games per week. To predict ticket demand for a single game,

they must consider the day of the week, the teams playing, holidays, and any celebrity appearances. Prior

year sales data will also help in building a more accurate demand forecast.

In order to maintain ticket demand and retain customers, Toronto Raptors uses promotional initiatives and

value packages to get customers to the live game. It is also possible to use attending celebrities to attract a

larger and more diverse crowd.

Revenue maximization is a major concern of the Toronto Raptors, however they will not cut the price of a

9 http://www.coremedia.ca/raptors/demographics

Gender: 63% Male / 37% Female

Age: Average age: 36 years

18-34: 52%

35-49: 34%

50-64: 15%

Occupation: 61% MOPES*

Average Household Income: $109k

Children at Home: 47%

Born in Canada: 81%

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ticket so low in order to fill up seats. Even if 100% of seats are not filled, they already make incredible

revenues from low-bowl seating, concessions stands, and alcoholic beverages.

NBA ticket sales for the Toronto Raptors are an exception in the ticket sales industry. Travel agencies,

movie theatres, sports, and music ticket sales all face challenges in ensuring the proper allocation of their

tickets and pricing.

Future Pricing Strategies

Beth Robertson continued to study the numbers in front of her—based on what she gathered from the

industry and how it operated, what would be the best next steps for the Raptors? How could she get ticket

sales to increase again without upsetting existing customers?

Dynamic pricing was a serious consideration at this point, but there were many factors Robertson needed

to consider before she could think about implementing the new pricing concept. She knew many other

NBA teams had adopted the complex strategy and that it was met with much success, but would the

Raptors market be fit for this? Raptors ticket sales would not increase on their own and Robertson had to

act fast to resolve this issue.

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ANALYSIS: IMPLEMENTING DYNAMIC PRICING

Problem Definition

We are currently midway through the 2010-2011 NBA season and the Toronto Raptors continue to face a

decline in their game attendance and consequently, ticket sales. The Raptors have slipped to 17th in

average attendance, and are drawing 1,350 less fans per game than the last season. Having once been

known to raise ticket prices in failed attempts to recover costs and lost revenues, the Raptors are now

moving towards a new value-focused direction to appeal to a wider market. The Raptors have recognized

that they must look after their most loyal basketball fans, ―the season ticketholders‖, while also creating

value for single ticket purchasers. The Raptors need to make a change and fight their way up the ranks to

become league leaders in ticket sellouts once again.

Introducing Dynamic Pricing

For the past few years, Raptors tickets have been averaging a selling point of 16,527 tickets per game,

which was about 83.4% as the Air Canada Centre can accommodate a full house of 19,800 seats.

Although this statistic seems quite high, the Raptors team has been able to sell out its games every night a

couple years back—MLSE wanted this profit back. The management team initially tried a solution to

lower the price of the Lower Bowl tickets by 5-30% and the Upper Bowl tickets by 10-15%. They

believed that by lowering the price it would attract more consumers to their games and help regain the

loss profit, but this solution did not work out so well and it was quickly abandoned. Thus, in May 2011,

dynamic pricing was introduced.

Dynamic pricing, or time-based pricing, is when the pricing of a certain product or service is dependent

on the time when the product is provided or the commodity delivered. This pricing methodology is based

on the concept of the constant change in the balance of supply and demand on the industry during a

specific period of time. Dynamic pricing has been traditionally used in a number of different industries

such as airline ticketing and hotel room pricing. Airlines implement a strategy called yield management

that places restrictions on discounted tickets to differentiate them from the full-priced tickets. Airline

tickets are also time-based due to the product similarity to basketball game tickets—they are both

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perishable commodities. Many professional sports have recently adopted dynamic pricing into their

ticketing methods, such as Major League Baseball and some clubs in the Football League.

The management team at Raptors first considered dynamic pricing by the example of the Boston Celtics

team who recently adopted the method and saw their revenue rise by 20%. Celtics used the pricing and

data analytics services of Stratbridge and Raptors followed in their footsteps to also work with this

company. Now Raptors is able to shift from a cost-based system to a value-based system with dynamic

pricing and is able to go below their floor price.

Stratbridge

Stratbridge was chosen to work with Raptors due to its reputation and experience. Raptors saw the

success it had with the Celtics and wanted the same revenue with its tickets. Stratbridge has a licensing

fee of $30,000 and each club or team receives the same functionality. Stratbridge hosts the program, but it

gives access to team employees to view specific data for individual sections of the arena. By selecting a

seat in the program, they can see how much money it went for, whether it was sold as a group or

individual ticket, and whether the same spot remained empty for several games in a row. This valuable

analytical data is what allows the team managers to observe the process of dynamic pricing and use the

feedback to further develop their marketing or ticketing strategies. StratTix is the program that captures

all the data that is needed so that management can gauge the performance of its sales reps, pinpointing

parts of the arena that are selling slowly.10

Although Stratbridge is the chosen partner, there are other major providers of dynamic pricing within the

sports industry. The major player and competitor of Stratbridge is Qcue who is currently the market

leader in this space. Today their roster includes 30+ teams across MLB, MLS, NHL and NBA. They have

been able to raise $2 million in funding since their inception and their clients have seen increases in

revenue by an average of roughly 30% in high demand situations, and approximately 5-10% in low

demand situations.11

Evidently, dynamic pricing has become somewhat of a trend in the future of

ticketing pricing in sports and it is only logical that this be the next step for Raptors.

How Does Dynamic Pricing Work?

Currently, Raptors divides their entire arena into two parts: the Upper Bowl and the Lower Bowl. The

lowest advertised price for any ticket for these two sections is $49.00 and $12.50, respectively—these can

10 http://www.stratbridge.com/ http://money.cnn.com/magazines/fsb/fsb_archive/2006/12/01/8395130/index.htm 11 http://www.forbes.com/sites/prishe/2012/01/06/dynamic-pricing-the-future-of-ticket-pricing-in-sports/

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be considered the price floors. The price ceiling is therefore dependent on the following factors:

inventory, opponent, type of game and day of the week. If there is less inventory left, the price of the

tickets will be higher because this means the demand for the tickets are generally higher for that specific

game at that given time. This could be due to factors such as the opponent, which is measured by

popularity and performance. The star quality of the basketball players, regardless of the team‘s overall

performance, also affects the ‗opponent‘ factor, placing the team higher in demand. For example, when

Jeremy Lin was in Toronto for a game, the demand for tickets rose incredibly high due to his celebrity

status, but this was not a direct correlation to the performance of New York Knicks. The type of game

also affects the demand of the ticket since pre-season will be in much lower demand than tickets for a

playoff game. The day of the week also has an effect as weekend games are more popular than weekday

games.

With Raptors, the idea dynamic pricing allows the team to price their tickets below the original price

floors to attract more consumers because they can regain the profit margin through displacement. Other

tickets that are charge at a higher price at another period of time (i.e. a few days before the game) works

to balance out the profit. Displacement is losing revenue in one unit and gaining it back in another. If you

buy a game ticket months in advance, the tickets will be cheaper than nearer the date of the event.

The fluctuation in pricing also creates ―stimulation‖ for the customer. This means that dynamic pricing

creates incentive for the potential consumer to purchase tickets at an earlier time for the cheaper price. It

allows Raptors to fill their seats earlier in advance and guarantee a profit from an earlier point in time.

This also gives the team an opportunity to price the remaining tickets at a higher price since inventory has

now decreased. In this case, arbitrage opportunity is eliminated (or minimized) due to this and the

customer value is being considered.

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Pre-Dynamic Pricing (Single Tickets) – Floor

Exhibit 2 – Pre-Dynamic Pricing

Let’s say, Ceil= $60 for both. (Generally, the lower bowl Ceil is higher)

Therefore, Total Revenue per customer= 60-12.5+X= $47.5 + X in Upper Bowl.

Total Revenue per customer= 60-49+X= $11 + X in Lower Bowl.

Now, let’s say Ceil = $60 for lower bowl and $12 for upper bowl (LESS ATTRACTIVE GAME)

Therefore, Total Revenue per customer= $0 in Upper Bowl. (Since no seats were sold, even though there

was a profit margin of $ X-0.5

Total Revenue per customer= 60-49+X= $11 + X in Lower Bowl.

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Hence, revenue from the upper bowl is lost due to the fixed cost/margin policy. The revenue from Lower

bowl will also be lost if the “value” of that seat, for that particular game in the consumer’s mind is below

$49.

Post-Dynamic Pricing (Single Tickets) – Floor

Exhibit 3 – Post-Dynamic Pricing

Let’s say, Ceil= $60 for both. (Generally, the lower bowl Ceil is higher)

Therefore, Total Revenue per customer= 60-12.5+X= $47.5 + X in Upper Bowl.

Total Revenue per customer= 60-49+X= $11 + X in Lower Bowl.

Now, let’s say Ceil = $60 for lower bowl and $12 for upper bowl (LESS ATTRACTIVE GAME)

Therefore, Total Revenue per customer= 12-C = $ 12-C in Upper Bowl.

Total Revenue per customer= 60-49+X= $11 + X in Lower Bowl.

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Now, Raptors can have the additional revenue from upper bowl/Lower bowl tickets in Low demanded

games. The revenue on those seats will generally be lower than their previous standard minimum

margin, but since there is no marginal cost of that seat, why not sell it for “ (12-C) “ rather than earning

$0.

As for the Ceiling, It is variable as its completely dependent on variables such as Inventory, Opponent,

Day of the week, Type of game, etc. However, traditionally, Raptors used to forecast this for the whole

season and make the pricing chart for the entire season. Now after dynamic pricing, the values in that

pricing chart can change every week, looking at the current condition of those factors, specially inventory.

Group Tickets – Game Tiering

The second part to dynamic pricing is group tickets, which is priced through a concept called game

tiering. Raptors have introduced five different tiers of tickets: Best Value, Value, Premium, Premium

Plus, and Super Premium tickets. Each game that is played is ranked into one of these five categories

based on the factors that determine the price in variable pricing (opponent, inventory, type of game, day

of week, etc). For example, a game versus the LA Lakers on a Saturday night would be considered a

Super Premium game, whereas a game versus Utah Jazz on a Monday night would fall under the Best

Value tier. The best value for someone who does not have much interest or follow basketball would be

the Best Value game. On the other hand, diehard basketball fans would prefer the Super Premium

tickets.

In terms of group pricing under the game tiering strategy, there are now five separate price differences

between single and group prices (one for each of the five tiers). In terms of the Best Value tickets, a single

ticket in the Side Prime area would be $198.25, but if purchased as a group, it would be $154. This

presents a savings of $44.25 for each ticket. However, if we look at the Super Premium tickets, a single

ticket in the same Side Prime area would cost $367.25, and a group ticket would be $353. In terms of the

Super Premium tickets, the savings is only $14.25. With each tier that the games increase from the Best

Value tickets, the savings decrease. Therefore, customers obtain the greatest amount of savings with the

Best Value tickets and the lowest amount of savings with the Super Premium tickets.

This makes sense because customers who go for Best Value tickets may not necessarily be the biggest

basketball fans, and perhaps only go for the experience once in awhile. They do not get the same

enjoyment from a heated game versus the Lakers as a diehard fan would. Therefore, these customers

would prefer the cheapest ticket they can get. On the other hand, those who go for Super Premium tickets

(diehard fans) do not mind paying more because they actually value the basketball game much more, and

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want the best they can get. The little cost savings here does not faze them because they are still willing to

pay the same price, as they are loyal basketball fans.

Advantages & Disadvantages

Advantages

By executing dynamic pricing, the Raptors will be able to offer their fans more value with price flexibility

and seating choice to enjoy Raptors games live at the Air Canada Centre. Dynamic ticket pricing models

will allow for optimal ticket prices to be calculated and revenues to be projected to achieve the best

financial result per game. Ticket pricing technologies have advanced to the point where it has become

logistically more efficient to implement dynamic pricing in sports.

The buzz of dynamic pricing will attract new customers and allow casual fans to compare ―dynamic

priced tickets‖ to previous ticket prices. Overall, there will be greater perceived value and customers will

experience a similar psychological effect caused by reference pricing. In this case, they have set

expectations of how expensive a seat at a game is historically, but with dynamic pricing a ticket is now

worth the price and within their budget. NBA ticketing will not move towards ―clearance sale‖ pricing in

order to preserve the loyalty and value of season ticketholders. Therefore, a price floor is set, never

allowing single-game fans to pay less.

In addition, dynamic pricing has been tested and tried with other teams in the NBA with indications that

there is greater fan acceptance of real-time pricing in sports. This pricing strategy is particularly attractive

for the business side as MLSE will be able to capitalize on the most popular games, boosting the revenue

maximization goals. Alternatively, dynamic pricing also allows for sports organizations to lower the

prices of hard-to-sell tickets – usually being low ranked games. In this case, MLSE will be catering to

casual fans that are looking to come to experience the live atmosphere of a single game at the best price.

Ultimately, dynamic pricing provides single-ticket customers with the ability to take advantage of early or

late ticket prices set by demand, but not at the expense of upsetting loyal season ticketholders.

Disadvantages

Dynamic pricing has key drawbacks that sports organizations must be careful with. First, we must

consider that there will be a likely software fee and revenue sharing component between the sports

organization and the software provider. Although dynamic pricing will require specialized expertise and

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technology at a cost, the benefits are likely to exceed these costs. Next, we look at the accuracy of

dynamic pricing models. Although technology may forecast ticket sales with pricing, there are too many

uncontrollable factors with demand as the primary determinant of price.

At one point in time, a ticket price may be set based on a mid-ranked opponent on a Friday night game. A

customer may look at this game and purchase tickets in advance since this game is likely to increase in

price. However, uncontrollable factors such as weather conditions may result in a drop of the ticket price.

It is both the early purchasers and MLSE who face the negative drawbacks in this case. To manage

potential cognitive dissonance of post-purchase concerns, the customer must receive some additional

benefit for having bought ticket earlier at a higher price, compared to the last minute prices. This can be

done by simply providing a ―free pizza‖ voucher, or having marketing material convincing the customer

that their need has been satisfied to ensure ticket repurchase.

Lastly, it is always important ensure the satisfaction of loyal fans and not undercut the value of their

season-ticket seats. Although it may be tempting to price low to fill up seats, the value propositions must

be clearly defined for both the ―casual, single ticket fan‖ and the ―loyal, season ticketholder‖ with their

ticket prices reflective of this value. Considering the fact that MtirLSE has no control over the ticket

prices in the black market, it is important to highlight the potential competitiveness between authorized

ticket sellers and black market ticket sellers. By already offering significant savings for certain games,

this may ultimately diminish the value of dynamic pricing if scalpers are able to sell these tickets for even

less.

Major Considerations

Consequential Issues

There are few major considerations dynamic pricing brings to the Raptors team such as revenue

maximization, demand forecasts, customer retention & satisfaction, and syncing with the NBA game

scheduling. These conditions are necessary for dynamic pricing to succeed and maintain this success for

future games. One of the huge advantages dynamic pricing is the ability to maximize revenue in the given

situation. When the price of one ticket is lowered, the profit that is lost from that one ticket is regained by

selling another ticket at a higher price.

Dynamic pricing succeeds in maximizing revenue by using the data generated from accurate demand

forecasts that help price each individual ticket for each individual game. The major consideration for this

is the accuracy of the demand forecasts that the entire concept is based upon. It is arguable that the

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consumer demand fluctuates so often and in such an unpredictable way that it cannot be depended upon to

predict future price tickets. Raptors use the company Stratbridge to generate these forecasts, using

intricate methods to gauge consumer demand. There is also the issue of outliers where a specific day, due

to external events, causes the demand to significantly decrease. These cases are unpredictable events

because the company cannot take into account every future event that will affect consumer demand. Due

to this, the degree of accuracy can be questioned.

Another consideration is the idea of customer retention and satisfaction. Since dynamic pricing causes the

ticket price to change depending on perceived consumer demand for that particular day, one customer

could have purchased the same ticket for a higher price than the next customer. This could cause severe

post-purchase dissonance as customers realize they could have paid a lower price for the same ticket. To

justify this, dynamic pricing does what airlines typically do and enact restrictions for tickets that are

―discounted‖.

Pricing Issues

Direct problems can also arise with the implementation of dynamic pricing instead of just what its

consequences could be after it is implemented. The two major issues are: displacement and share shift.

Displacement occurs when the too many of the lower priced, discounted tickets and too few of the

premium tickets are not. This could occur due to an inaccuracy in the prediction of consumer demand and

cause the lost profit to be lost forever. The game tickets are like perishable commodities, where once the

game ends, the seats are then rendered worthless.

Share shift is another traditional problem with dynamic pricing, where once tickets are priced higher than

competitors due to demand, the company will lose market share to its competitors. In this specific case,

the specific product Raptors offers cannot be purchased anywhere else since all games are managed by

MLSE. Therefore, this issue does not reply to the Raptors‘ pricing model. Even if it does, it would only

be indirectly, where Raptors loses market share to other sports events such as the Maples Leafs or Argos

games.

Conclusions

The NBA industry has been slowly adopting the concept of dynamic pricing across its teams as more and

more companies that own these basketball teams see the added value of implementing this system.

Dynamic pricing is recommended for the Raptors team because since the early 2000‘s, the basketball

team has suffered a decrease in percentage of tickets sold each game. This was largely in part due to the

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lackluster performance of the players within the Raptors team and their inability, time and time again, to

make it to the Playoffs.

Seeing the success Celtics had after implementing dynamic pricing, Raptors thought of doing the same

and based on the considerations and factors listed above, Raptors has a good chance of increasing its

revenue with dynamic pricing.