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Ticket Pricing within the German Bundesliga

Can German football clubs use dynamic pricing as a profit enhancing pricing tool in the future?

Term Paper (Advanced seminar) 2016 38 Pages

Business economics - Investment and Finance

Excerpt

Table of contents

List of abbreviations IV

List of figures V

1 Introduction

2 The German Bundesliga
2.1 Economic development
2.2 Analysis of Ticket Pricing within the German Bundesliga
2.2.1 Price discrimination
2.3 Football culture in Germany
2.3.1 Ticket Pricing and fan acceptance
2.4 Findings

3 Revenue Management
3.1 Dynamic pricing in sports
3.2 Conditions for Revenue Management
3.3 Opportunities and threats of dynamic pricing for football clubs
3.3.1 Opportunities and threats of dynamic pricing for football clubs with low capacity utilisation
3.3.2 Opportunities and threats of dynamic pricing for football clubs with high capacity utilisation
3.4 Possible revenue maximisation of Bayern Munich (numerical example) .

4 Recommendations and conclusion

Literature

List of abbreviations

illustration not visible in this excerpt

List of figures

Figure 1: Development of revenue of the Bundesliga in billion euros, 2002-2015

Figure 2: Development of advertising, media and match revenues in million euros, 2012-2015

Figure 3: Development of ticket prices for seats, 2006/07 - 2012/13

Figure 4: Bayern Munich - Possible revenue through dynamic pricing

1 Introduction

Football is undeniably sport number one in Germany. The total revenue of the first Bundesliga division exceeded 2.6 billion euros in the 2014-15 season, an increase of 7% compared to the previous season’s record.[1] The Bundesliga has traditionally been the football league with the highest attendance by global comparison. On av- erage, German Bundesliga clubs manage to sell 93 out of 100 seats per match. There are two reasons that can explain the high attendance: First, Bundesliga clubs benefit from a great stadium infrastructure. Second, Bundesliga clubs are well known for quoting considerably lower prices for tickets than other European top leagues such as the English Premier League. In fact, despite the highest attendance in European football, German Bundesliga clubs do not manage to capitalise on ticket sales.

Nevertheless, ticket sales are the most controllable source of revenue and therefore very important for football clubs. The price has a high influence on the profit and charging the right price for a ticket can lead to an increase in total revenue and profit without any investment in advance.[2]

Up until now, ticket prices have been set according to a fixed pricing concept based on fan base segmentation and price discrimination. This method requires accurate price predictions and does not allow for price changes according to demand as the prices are fixed ahead of the season.[3] One possible solution in order to capitalise on ticket sales is dynamic pricing. This pricing system involves price adaptations in reaction to fluctuations in demand in order to maximise total revenue. It is already successfully applied in the airline industry. Concerning the sports industry, this pricing concept is relatively new and it has not yet been applied in the German Bundesliga. This work aims to assess whether German Bundesliga clubs can use dynamic pricing as a profit enhancing pricing tool in the future.

In Chapter 2, the reader will get an introduction to the German Bundesliga. The economic development of the German Bundesliga is presented and the current pric- ing system within the German Bundesliga will be analysed. At this point, the reader will be introduced into the different forms of price discrimination applied by the football clubs. Subsequently, the reader will be introduced to German football cul- ture and, finally, ticket prices in connection with fan acceptance are pointed out. In Chapter 3, Revenue Management, better known in sports context as dynamic pricing, will be introduced as future ticket pricing strategy. The reader will get basic information about Revenue Management, its field of application as well as the gen- eral conditions for its successful application. Then, the opportunities and threats of dynamic pricing for football clubs with both high and low capacity utilisation will be analysed. Additionally, a numerical example concerning a possible revenue maximisation through dynamic pricing for Bayern Munich will be presented.

The conclusion to chapter 4 will give an answer to the question of whether German Bundesliga clubs can use dynamic pricing as a profit enhancing pricing tool in the future as well as some recommendations for future research.

2 The German Bundesliga

The Bundesliga is a professional football league in Germany which has developed into one of the most important global sporting competitions since its founding in 1962.[4] German professional football is divided into two divisions, the first and the second Bundesliga. Each division consists of 18 professional clubs who play against each other twice per season. The aim of all clubs in a division is to win the Bundesliga title, which is given to the team with the most cumulative points out of the 34 games per season. All clubs are organised by the Deutsche Fußball Liga GmbH (DFL), which is in charge of the organisation and marketing of professional football in Germany.

This work will only focus on the first Bundesliga division.

2.1 Economic development

The global popularity of football, and especially of the Bundesliga, and its attraction on football fans results in significant turnovers for all parties concerned. The “2016

Bundesliga Report”, a yearly report issued by the DFL, provides information about the current economic situation of the Bundesliga.

The 18 professional clubs generated a record revenue of 2.62 billion euros in the season 2014-15, an increase of 176 million euros (Mio €) or +7% compared to the previous record of the 2013-14 season.[5] The fact that the gross domestic product of the Federal Republic of Germany grew by less than 2%, and that this revenue is the eleventh record in a row, shows the impressive positive trend of the Bundesliga, indicated by figure 1.

Figure 1 Development of revenue of the Bundesliga in billion euros, 2002-2015.

illustration not visible in this excerpt

Source: DFL (2016), p. 9.

It is remarkable that even in times of economic crisis, for example 2008-09, the Bundesliga achieved constant growth in terms of revenue.

The profit after taxes accounted for roughly 51 Mio € in the 2014-15 season, which means a rise of 31% compared to the previous season. For the fifth time in a row there was a positive result after deducing all costs.[6]

Another characteristic of the Bundesliga is the well-balanced revenue stream. The three largest items, media receipts (731.1 Mio €), advertising (672.7 Mio €) and match revenue (520.6 Mio €), account for about three quarters of total revenue.[7] Figure 2 shows, that all these items experienced growth over the past three seasons: Media receipts and advertising accounted for growth of +18% and +16% respec- tively, whereas the match revenue posted the lowest growth of +11%.

Figure 2 Development of advertising, media and match revenues in million euros, 2012-2015.

illustration not visible in this excerpt

Source: DFL (2016), p. 12.

Furthermore, the Bundesliga is well known as the league with the highest number of spectators across all sports leagues worldwide, only second behind the American National Football League (NFL).[8] With more than 13 million spectators during the 2014-15 season, the Bundesliga recorded the second-highest attendance since its foundation. The average attendance of a home match was around 43,500 spectators in the 2014-15 season. In fact, the average attendance per match was above 40,000 for the eighth time in a row. In comparison to this, the English Premier League had an average attendance of 36,200 at their home matches in the 2014-15 season. The capacity utilisation runs at more than 90%.

The high attendance may be due to two reasons: Firstly, a major strength of the Bundesliga is its infrastructure in terms of stadiums. Bundesliga matches are played in very modern stadiums.[9] As a result of the World Cup hosted in Germany in 2006, a sum of 1.4 billion euros has been invested for reconstructing or extending the stadiums in Germany. Aside from being modern, German stadiums are well known for their high capacity due to huge standing terraces. One example is the stadium of Borussia Dortmund, called “Signal Iduna Park”. With 81,359 places, it accounts for the highest capacity in Germany (whereof 28,059 places are in the standing area). Extensive standing sections have a distinct tradition within the Bundesliga and therefore are characteristic of German football. They account for about one- quarter of the stadium capacity and maintain the exciting and unique Bundesliga atmosphere.

Bundesliga clubs benefit from the superb stadium infrastructure, but this alone does not explain the high attendance. The second reason is the relatively low and afford- able ticket prices.[10] In comparison to other European football leagues, especially the English Premier League, the Bundesliga ticket prices are by-far the lowest. The cheapest day ticket for a Bayern Munich home match is 15€, whereas a ticket for a home match of Manchester City is about 46€.11 Throughout all Bundesliga clubs, ticket prices for the lowest category, for instance the standing section, are below 20€.12 The average price for a season ticket13 in the standing area was roughly 180€ in the 2014-15 season.

Nevertheless, the Bundesliga ticket prices experienced a significant increase in the last few years. Nearly every club has charged a higher ticket price for a seat ticket in the 2012-13 season than in the 2006-07 season as shown in figure 3.

Figure 3 Development of ticket prices for seats, 2006/07 - 2012/13.

illustration not visible in this excerpt

Source: Kein Zwanni (URL1).

Using the example of Borussia Dortmund, the increase in ticket prices between the 1998-99 season and the 2013-14 season will be shown. Since 1998, day ticket prices increased by approximately 87% for normal matches and even by 126% for selected top matches.[14] This enormous increase may be due to the higher quality offered when visiting a football match. As already mentioned, there have been some efforts made to modernize stadiums in order to guarantee a higher degree of comfort and security. Hence, with rising quality, the price for “Bundesliga match day” needed to be adjusted by an increase.

Not only have the prices of day tickets increased during the past few seasons, but also the prices for the season tickets. For instance, the price of a season ticket in Munich, Stuttgart or Bremen increased by 30-40% from the 2005-06 to 2014-15 season.[15]

Another thing which could be observed in the last few years is the so called “Topspielzuschlag” (top-game surcharge). Ticket prices vary more strongly for top games as clubs charge higher ticket prices against clubs which are more prestigious and attractive. Bayer Leverkusen especially capitalises on excess ticket demand for their home matches against Bayern Munich. In fact, the cheapest ticket price for a seat in Leverkusen is three times higher for a game against Bayern Munich (76€) compared with a game against Freiburg (26€).16

Nevertheless, current ticket prices are still reasonable compared to the prices quoted by other top European clubs.

It can be stated that the Bundesliga has succeeded in combining athletic ambition and economic rationality: It shows a continuously strong performance in both an athletic and an economic sense. This cannot be taken for granted considering the fact that the international environment for professional football has never been more economically powerful and competitive.[17]

2.2 Analysis of Ticket Pricing within the German Bundesliga

Despite the fact that the German Bundesliga records the highest attendance in European football, the professional clubs do not succeed in capitalising on ticket sales.[18] In fact, the average ticket price of the Bundesliga is ranked lowest among Europe’s top leagues. However, ticket sales are a revenue stream which can be easily controlled by football clubs. The price is the most effective profit driver and charging the right price for a ticket can result in an increase of revenues and profits without any great investment in advance.

Bundesliga clubs have strong fan bases which guarantee a strong ticket demand. For instance, nearly half a million season tickets have been sold prior to the 2015- 16 season.[19] Borussia Dortmund sold 55,000 season tickets until the beginning of August, 2015 - the most season tickets of all Bundesliga clubs. With 57.22% in the 2014-15 season, the proportion of season tickets exceeded the proportion of day tickets (42.78%), meaning that more than half of total tickets sold were sold weeks ahead of the 2014-15 season kick-off.

It is important to know that Bundesliga clubs do not offer only one ticket category, but a large range of different tickets. This will be further analysed in the following chapter.

2.2.1 Price discrimination

These days neither companies nor football clubs set one fixed price and wait for customers who are willing to pay this price, instead they use price discrimination. The latter is conventionally defined as the practice of selling the same product or service at different prices to different consumers.[20] It allows firms to capitalise on different willingness to pay in order to maximize their revenues compared to a one- price pricing. Aside from the revenue maximization through capitalizing on the consumer surplus, price discrimination tackles other aims of a firm, like the increase of customer loyalty and satisfaction through special discounts such as a volume discount.

There are some conditions that have to be met in order for price discrimination to be applicable.[21] Firstly, the firm must be able to sort the customers into different segments which can be separated from each other due to their diversity. Within one segment the customers should be more or less homogeneous. Second, the customer segments have to differ in their willingness to pay and they must have different price elasticities. Last but not least, the firm must have some monopolistic market power.

Football clubs satisfy the conditions for effective price discrimination.[22] First, football clubs have a certain degree of monopolizing power. Second, they are able to group fans into different segments. Fans are an extremely heterogeneous group of customers and it is not surprising that they differ strongly according to demographic or geographic. As there are differences in fan’s willingness to pay, Bundesliga clubs charge different prices for tickets in order to capitalise efficiently.

In 1920, English economist Arthur C. Pigou outlined three basic forms of price discrimination. The different types and how they are applied by Bundesliga clubs will be assessed in the following chapters.

2.2.1.1 First-degree price discrimination

First-degree, also known as perfect price discrimination, occurs when a seller charges a different price for each unit of a good or service at the customer’s maxi- mum willingness to pay for the unit.[23] In other words, this would mean that the seller is able to charge each customer based on his or her individual willingness to pay. In this case, the seller can extract all the consumer surplus. However, this form of price discrimination is more or less a theoretical model and its application is not common practice as the firm has to know the willingness to pay of every single customer in advance. The only forms of first-degree price discrimination in practice are price negotiations and auctions.

Consequently, if Bundesliga clubs want to capitalise the whole customer surplus, they have to auction their tickets and hence sell it only to those fans with the highest willingness to pay.[24] Up to now, Bundesliga clubs have not used ticket auctions to sell their tickets (the primary market). However, ticket auctions exist on the secondary market and the evaluation of, for example eBay auctions, offers a lot of information concerning the fans’ willingness to pay.

2.2.1.2 Second-degree price discrimination

Second-degree price discrimination means that a seller offers different packages or options of a product at different prices.[25] In fact, every consumer faces the same prices, but each package has different characteristics and therefore differ in their prices. The consumers can self-select into the different price categories which means that they segment themselves on their own. The second-degree price discrimination can be implemented in two forms, the performance-related and the quantity-related price discrimination.

Performance-related price discrimination occurs when a firm offers products that do not differ in terms of region, time and quantity but in terms of the performance included.[26] A common example are flight tickets as the customers can decide out of three different tariffs (economy, business, and first class tariff) which differ in the performances included. For the performance-related price discrimination it is of great importance that the differences are perceivable for the customers so that they can decide if they are willing to pay more for the performances offered.

The quantity-related price discrimination implies that prices differ according to the quantity purchased of a product.[27] This form of price discrimination is also known as non-linear pricing as the price which the customer has to pay declines with in- creasing quantity and consequently there is a non-linear relationship between price and quantity.

[...]


[1] Cf. DFL (2016), p. 8; Nufer & Fischer (2013), p. 50.

[2] Cf. Nufer & Fischer (2013), p. 49.

[3] Cf. Lanzavecchia et al. (2014), p. 6.

[4] Cf. DFL (2015), p. 4.

[5] Cf. DFL (2016), p. 8.

[6] Cf. DFL (2016), p.8.

[7] Cf. DFL (2016), pp. 8 &12.

[8] Cf. DFL (2015), p. 60; DFL (2016), p. 2; Statbunker (URL).

[9] Cf. DFL (2015), p. 60; Büttner et al. (2007), p. 1.

[10] Cf. DFL (2015), p. 60.

[11] Cf. Cataldo (URL).

[12] Cf. Kein Zwanni (URL1); Übersteiger-Blog (URL).

[13] Season ticket is a ticket for all 17 home matches of one club.

[14] Top matches are home matches against the most attractive and prestigious opponents of the Bun- desliga. Cf. Schwatzgelb (URL); Kein Zwanni (URL1).

[15] Cf. Steding (URL).

[16] Cf. Steding (URL).

[17] Cf. DFL (2016), p. 15.

[18] Cf. Nufer & Fischer (2013), p. 49.

[19] Cf. Statista (URL1); Statista (URL 2).

[20] Cf. Varian (1989), p. 598; Simon & Fassnacht (2009), pp. 257-259.

[21] Cf. Varian (1989), p. 599; Simon & Fassnacht (2009), p. 257.

[22] Cf. Nufer & Fischer (2013), p. 54.

[23] Cf. Varian (1989), p. 600; Simon & Fassnacht (2009), pp. 263-265.

[24] Cf. Nufer & Fischer (2013), p. 54.

[25] Cf. Klein & Steinhardt (2008), p. 44; Simon & Fassnacht (2009), pp. 263-265.

[26] Cf. Simon & Fassnacht (2009), pp. 265-267.

[27] Cf. Simon & Fassnacht (2009), pp. 267-271.

Details

Pages
38
Year
2016
ISBN (eBook)
9783668580916
ISBN (Book)
9783668580923
File size
742 KB
Language
English
Catalog Number
v381982
Institution / College
Pforzheim University
Grade
1,7
Tags
ticket pricing german bundesliga

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Title: Ticket Pricing within the German Bundesliga