January 19, 2007

Attendance Demand.

Attendance is about as complicated as they come. I’m not sure I can tackle this with the limited data available and only partial information of the market forces. Attendance primarily depends on the demand for: “going to hockey games”, price of tickets, and population. I should quickly mention there was a change in how attendance was reported in 2000-2001 as such I had to add a $10 increase to the stated value and increase attendance by 200. [Many of the factors involved are complicated and I lack the information or time to look at them all in detail]. Normalizing ticket prices is trivial as there are nice simple CPI calculators (~2.5%/year) that do a great job and it appears that before the lockout the optimal average was about $55. In order to look at demand I had to also normalize attendance. Now there is no CPI for attendance, looking at the years where prices were stable I was able to estimate attendance growth to approximately 2.5% per year. Now the American Population grows at around 1%, so it’s somewhere in that range. I found a 2% growth rate for New York, which probably accurately measures most cities and so I used 2% natural growth rate for attendance, changing this number slightly has large effects on the results. I’m not sure how important ticket sales are in terms of the hockey business, but 16000*$55*41*30 = $1.1B or half of league revenue. If you use all the above data you get a graph that looks like:

Now the regression on price for the pre-lockout years looks like:

[ Attendance = 22574 – 142 * Price ]

Or each dollar increase/decrease in prices costs the organization about 142 people. If you maximize that Attendance*Price you get $80, that certainly wouldn’t be popular and would only increase ticket revenue by about $100M (10%). Or a price increase of 50% would increase revenue by 10%; of course less revenue would be received from consumables and merchandise as well. So I can’t really say whether it would be beneficial without understand all aspects of their revenue. That being said raising ticket prices by a dollar would increase ticket revenue by about $7,000*1230 = $9M.

Some may note that it appears that price of tickets is increasing every year; this is to be expected as population increases:

[ Optimal price: 22574*(1+population growth rate)year/284 = Price ]

In other words prices should grow as fast as population. If not, there’s something else going on.

However the real question that everyone probably cares about is: what was the cost of the lockout in terms of attendance? So I did a quick regression on Price, and whether or not the information came after the lockout:

[ Attendance = 22622 – 143*Price - 1486 Lockout ]

Basically the lockout cost the NHL about 1500 people per game; of course it doesn’t look that way as attendance averages have increased. The past two years of attendance increases have been the result of lower ticket prices and population increases. This costs the NHL about $100M per year until it regains that 1500 loss (if never then you can discount [at 2%] $100M to infinity for a net cost of $5B). The GMs probably believe that the benefits of the new CBA exceeded the costs. Such as the immediate $400M dollar saving in salaries (guess) and possible future saving caused by the cap.

In conclusion I did all this to show that while the NHL is very proud of its attendance figures it’s actually nothing to be proud of. They’ve lost a significant amount of fans and this can be seen by the lower ticket prices. I’m not sure if the future is predicting that the NHL recovers these lost fans (attendance increases faster than population until it reaches it’s old trajectory), however there aren’t really any good signs that is happening at this point. Maybe the 2006-2007 figures will improve as we get closer to the playoffs. But don't panic, Betman isn't even as Colorado see s 12/23 home games not sell out.


David Johnson said...

It would be interesting to look at a subset of teams to see how they look. Subsets I might look at are:

The 6 Canadian teams: Has there been am impact in Canada too?

Long time U.S. hockey cities: Kings, Blackhawks, Red Wings, Rangers, Islanders, Devils, Bruins, Flyers, Sabres, Penguins, Blues.

If these markets are being affected then the lockout has really affected the hard core fan base, not just the new and unestablished hockey markets.

JavaGeek said...

To study individual teams you need a known relationship between winning and attendance (which appears to be a delayed effect of about 1-2year) as well as everything else.

Teams that are at capacity (or very close) can't be studied well, which includes all Canadian teams. Of course since 1/3 of teams always sell out every game (or very close) then the costs associated with the other 2/3 are increased:
1500*3/2 = 2250

Studying New York teams would be complicated (winning might be more important in New York)

In other words I'm not even going to try.

Tangotiger said...

Great stuff. The main issue here is that many teams play to capacity, so that even if they would increase attendance, they can't. I think you need an extra parameter, say "wait list" that would indicate the likely number of people on the waiting list, on average, per game.

I think it's also fair to say that at least 50% of food and beverages revenue is pure profit. Since the TMR shows the average ticket price and the overall cost, we could make a reasonable guess as to how much extra profit each ticket brings in.

Sony Ericsson Takes Over Title said...
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