Springfield Nor'Easters Ticket Pricing Strategy Analysis

Identification of Issues

The Springfield Nor'Easters are a new minor league baseball team based in Springfield, MA. They are one and a half years away from opening night and are working to finalize their business model and pricing structure. There are a number of factors the team must take into account when setting ticket prices. The team must consider whether it wants to emphasize season ticket sales or individual ticket sales. The size of the local market and how much of that market the team can capture must also be considered. Competition is another factor, as is the split between gate revenues and concession revenues. The optimal solution will be the one that delivers the highest total revenue, not simply the highest gate revenue. The more the team charges at the gate, the fewer customers it will attract, and the lower concession sales will be. This points to a theory that the optimal ticketing structure is the highest possible price that will still ensure a sellout every night. A complicating factor is that some season ticket holders will not attend every game, reducing concession opportunities on those nights.

Without gate or concession revenues, the team's budget shortfall is approximately $1 million (see Exhibit A). The ticket policy needs to put the team in a position to earn that amount. The team has 38 home games and 3,600 total tickets per game, for a maximum possible season attendance of 136,800. The breakeven point is therefore $7.36 per person in combined gate and concession revenue, assuming full attendance. At the most basic level, the team needs to assess whether it can achieve full attendance and earn that amount. If not, the Nor'Easters must consider folding operations.

SWOT Analysis

A SWOT analysis helps illuminate the fundamentals of the market and the team's competitive position. The team's core strength lies in the popularity of baseball. According to a local survey, 38% of residents identified as baseball fans, with 28% having attended a game in the past year. Given the distance to Boston, that 28% figure is encouraging — those who are fans are dedicated. The team is also likely to have low ticket prices and plays only during summer months when Springfield's weather is mild and pleasant.

There are two key weaknesses. First, the team is new and is starting from scratch in building its brand. Second, Single-A ball presents a challenge because the players are largely unknown to fans and will change every year. This makes it harder for the club to build lasting relationships with fans, since those relationships will be based on the club and the sport rather than on individual stars. Furthermore, the team does not yet know which major league affiliate it will have. Fan interest will be significantly higher if the Boston Red Sox are the affiliate than if a team from outside the region is sending players to Springfield.

There are several good opportunities, however. There is little competition in the market. The local minor league hockey team may be leaving, and regardless, its season does not overlap with baseball. The main competition comes from other forms of entertainment — ranging from television to outdoor family events in the region. Some minor league clubs derive a substantial portion of their revenue from concessions, raising the possibility of dual revenue streams for the Nor'Easters. The team may also be able to sell radio broadcast rights as a means of building the brand and generating modest additional revenue.

There are also notable threats. One key threat is the state of the economy. Attending baseball games is a discretionary expense, and Springfield appears to have a relatively stagnant economy and population. A correlation between local economic indicators — such as unemployment, consumer spending, and the percentage of residents below the poverty line — and demand for tickets should be expected. Other threats stem from the team's partners. Failure to secure a major league affiliate would likely doom the club. The team could also face financial pressure from the college if parking revenues fall short, or from a decline in sponsorship funding. The financial model should therefore assume no sponsorship dollars and be built around earning a profit without them.

Financial and Market Analysis

The first consideration in the financial analysis is the total market size. Springfield is a small city in central Massachusetts. According to the U.S. Census Bureau, the urban population is 155,000 and the metro area has approximately 700,000 people. If the city had only 55,000 residents, the total market would not be large enough — every man, woman, and child would need to attend three games to meet capacity, which is not realistic. However, these population figures do not represent the full addressable market. It can be assumed that residents below the poverty line will be unable to afford family nights at a baseball game, reducing the effective city market to approximately 116,250. Children cannot be discounted, though. While they are not the purchasers of the product, they are expected to comprise a significant portion of end users. The fact that Springfield has the highest percentage of children in the state is encouraging, as families are a core target market.

An analysis of the survey results is critical to developing the ticket pricing matrix. The underlying assumption is that the survey results can be taken at face value. There were 651 respondents, and they roughly tracked the city's demographics, with slightly more families and slightly fewer respondents below the poverty line than the general population. In general, the survey results can be considered statistically valid. However, the pricing matrix that is ultimately adopted should be subjected to sensitivity analysis to ensure that it remains profitable even if actual sales fall short of projections.

One important finding is that 2% of respondents indicated they might buy a season ticket — equivalent to approximately 2,325 people from the target market. This suggests the team could have a healthy season ticket base. Additionally, 45,337 people indicated they might attend at least one game. On these broad strokes alone, there appears to be a viable market for Single-A baseball in Springfield, provided price points are reasonable.

In the survey, the concession revenue question was not asked in relation to ticket prices or the size of the ticket package. As a result, estimated concession sales per ticket should be treated conservatively. Season ticket holders are likely to spend less per game, particularly if ticket prices are at the high end, which could depress concession revenues. The expected margin on concessions is 39%. A weighted average of gross concession spending per ticket can be calculated as: (11% × $4) + (45% × $6) + (36% × $11) = $7.10, which equates to $2.77 net. Since the breakeven point is $7.36 per ticket assuming a sold-out season, ticket prices must average at least $4.59 for the team to break even. That constraint is especially important when setting season ticket prices.

Demand appears sufficient — 2,325 people in Springfield or approximately 10,500 in the metro area could be interested in season tickets — suggesting strong enough demand to support a capacity season at reasonable prices. For the purposes of this analysis, grandstand and bleacher tickets will be assumed to cost the same. Although consumers are willing to pay slightly more for a grandstand seat, very few are willing to pay more than 10% more, indicating little meaningful preference between the two options. The small size of the stadium — which ensures good sight lines from all seats — may contribute to this relative indifference.