An Investment Strategy For Professional Sports Clubs

At the beginning of December 2014 Deloitte published the latest “Finanzreport deutscher Profisportligen 2014”, giving an overview about the financial and economical situation of the four German sport leagues basketball (BBL), handball (HBL), ice hockey (DEL), and third league football. In summary the report certifies all four leagues increasing attendances and growing financial revenues. Main sources of revenue were commercial revenues, including incomes from sponsorships and merchandising, and match day revenues from ticketing. On the downside, gains from media right sales were negligible for clubs of BBL, HBL, and DEL as there were no considerable broadcast arrangements.

The outlook, given by the authors of the report, is more or less positive for all three leagues, thus we can expect also future grows in terms of attendance and revenue figures.

This circumstance raises the question where growth actually comes from? Using the example of the BBL and its development in the recent years we can see, that the governing body plays a crucial role when it comes to enabling and initialising professionalisation and commercial growth. However, in the end the individual participating clubs are responsible for acquiring commercial partners and establishing professional structures. By taking a look at the commercial business strategies of most of the clubs of BBL, HBL and DEL it can be assumed, that the top priority of the greater part of these clubs is to invest financial resources in the sports squads, rather than investing in infrastructure and commercial structures. This approach is based on the theory that high investments into the team lead to a better sportive performance and thereby to a higher attractiveness for spectators and commercial partners. The figure below exemplifies this approach.

Against the background of a sustainable long-term business strategy, which aims on stable, better increasing, financial revenues and sustainable numbers of spectators, I am convinced that the aforementioned strategy is not the most rewarding one. This view is based on the proven fact, that the greater part of fans and followers in diverse sports is not primarily interested in victories and excellent sportive performances of their teams, but rather in excellent customer service, CRM and fan engagement measures, and, of course, commitment and dedication of the players. However, last named does not require top-earning players. Consequently, in my opinion the investment strategy at professional sports clubs should look like shown in the figure below.

The figure shows, how an investment in the infrastructure and the administrative office staff enables customer (fan) service and therefore customer satisfaction, which is one of the key elements for customer retention. Additional manpower in the commercial department would also enable the sustainable management and acquirement of sponsorships and partners. A qualitative approach to potential partners is more likely to generate new contracts than only sportive success without the appropriate address. After a timeframe of two to three seasons the additional revenues will break even the investments and from that point on additional revenues could be invested into the actual performing team, without neglecting the requirements of a professional sport club of today.

The full report from Deloitte is available upon request: Deloitte Report [German only]

Common Ticketing Strategies in Sports

This essay gives a broad overview about the marketing theory behind the term ‘strategy’ and describes why and how strategies are developed and used. Finally it gives an overview about three common ticketing strategy approaches used by professional sports clubs nowadays.

In my post from the 28^th October I identified three reasons why on-site spectators are crucial for every sport club. In addition to these reasons, Drayer et al. (2012: 184) argue that facts like increasing revenue needs, through for instance growing player salaries and operational expenses, and latest technological developments force sport marketers to seek for more effective ticketing strategies in order to meet the organisations’ needs.

Generally speaking a strategy could be defined as “a plan of action designed to achieve a long-term or overall aim” (Oxford 2014). Although the sport business is characterised through certain particularities and generic marketing measures cannot be simply adopted without adapting them, it is worth considering the not sport related marketing theory at this point in order to provide a basic theoretical foundation. According to Palmer (2007: 23) a successful marketing management process consists of the four fundamental stages analysis, planning, implementation and control, whereat the planning stage comprises the development of a strategy based on the specific circumstances identified during the analysis stage. It is also generally acknowledged that, event though there are particular situations that require specific marketing strategies like for example the introduction of a new product, an on-going implementation of marketing measures is crucial for an organisation in order to reach its objectives on a permanent basis (Hooley et al. 2004: 44-47; Palmer 2007: 23; Jobber & Ellis-Chadwick 2013: 54-58).

When it comes to selling tickets, the sport related literature agrees on the perception that there is a wide array of strategies and tactics that could be used to pursue ticketing objectives. However, there is also accordance about the fact that a ticketing strategy is never a ‘one size fits all’ model. Instead a customised approach, which considers the specific circumstances of the particular organisation, is required (Irwin et al. 2008: 88-91; Meir & Arthur 2007: 322/323; Fullerton 2010: 4/523; Lee & Kang 2011; Rishe & Mondello 2003). Nevertheless there are, as listed below, several acknowledged basic practices, which are nowadays considered to be expedient.

According to basic marketing theories, a strategy is always linked to particular objectives, defined during the analysis and the planning stage, which are again linked to the corporate objectives of the overall organisation (Rowley 1997; Meir & Arthur 2007: 326; Shilbury et al. 2009: 35). For sport clubs this circumstance becomes obvious when comparing the objectives of the profit orientated franchise clubs in most North American Major Leagues with the not-for-profit approach in, for instance, German basketball (Dietl et al. 2011). Whether a club follows the objective of revenue maximisation or increasing the attendance (Lee & Kang 2011), the overall purpose of developing a (ticketing) strategy is to gain a competitive advantage towards direct and indirect competitors (Schwarz & Hunter 2008: 9; Shilbury et al. 2009: 35). This is mainly achieved through adapting an organisation’s marketing mix (4 Ps, respectively 7 Ps) to the specific needs of the customers (Palmer 2004: 19).

Although all parts of the marketing mix are important and should not be neglected, the ‘Price’ element could be considered as the most crucial one when it comes to ticketing strategies (Lee & Kang 2011; Drayer et al. 2012; Shapiro & Drayer 2014; Irwin et al. 2008: 89; Fullerton 2010: 523). One major reason for that is the fact that Price is the only element of the marketing mix which actually generates revenue (Kotler & Armstrong 2004; Clowes & Clements 2003) as well as the fact that price significantly influences the decision making of customers, as described later in this passage.

When it comes to ticketing strategies, broadly defined it could be distinguished between four different ticketing strategy approaches, which also demonstrate the development over time from a comparable simple approach right up to complex strategies, based on latest marketing insights.

The first and most simple strategy is based on a ‘one size fits all’ concept where clubs charge the same price for every ticket and every game throughout the whole season (Drayer et al. 2012: 184).

The seconds approach alters this strategy and is also known under the terminology ‘discriminatory ticket pricing’. It mainly comprises different prices for different seat categories (e.g. standing stands versus courtside seats) and different customer segments, such as discounts for students and children (Fullerton 2010: 526; Meir & Arthur 2007: 333; Rishe & Mondello 2003: 73; Drayer et al. 2012: 184).

The third approach is called ‘Variable Pricing’ (hereinafter known as VP) and means “selling a seat for different prices depending upon timing or the opponent” (Fullerton 2010: 527). This strategy takes factors like demand and attractiveness of the game into account and aims primarily on maximising the attendance at low-demand games and increasing the revenue at more popular ones (Drayer et al. 2012: 188; King 2002; Drayer & Shapiro 2011; Mullin et al. 2007: 227). Commonly a VP strategy divides the totality of games per season into two or three categories, each representing teams with the same projected attractiveness and demand (Clowes & Clements 2003: 116). Timing is the second major factor the strategy takes into account. Because different times and dates, for instance weekdays versus weekends or public holidays, create different demands, different prices for peak and off-peak games seem to be advisable (Blakey 2011: 86). According to Cameron (2002) the two requirements for a successful implementation of a VP strategy are to keep accurate transaction records and to consider the interests of season tickets holders.

The fourth and most complex approach develops the aforementioned VP strategy further and is known as ‘Dynamic Ticket Pricing’ (hereinafter known as DTP). In 2009 the San Francisco Giants (Major League Baseball) became the first professional sports team which introduced a purely DTP based strategy. Beside the aforementioned timing and opponent, the DTP considers numerous internal and external factors as for instance player performances or even the weather. By using a special DTP technology, clubs can set and adapt ticket prices in real time which allows them to quickly react to demand changes and achieve both, revenue and attendance maximisation objectives (Drayer et al. 2012; Shapiro & Drayer 2014; Rishe 2012). Although DTP, which originally comes from the airline and hotel industry, is nowadays successfully established at some primarily North American sports clubs, Drayer et al. (2012) emphasise the challenges and risks associated with the implementation of such a strategy. Due to missing know-how and technology developed for the specifics of the European market, as well as the lack of required relevant customer information and empirical values at most clubs, considering a DTP strategy for the case of any professional club in Germany seems not to be expedient at this point.

The circumstance that most clubs already altered their ticket prices based on different seat categories and customer segments, as well as the fact that the DTP approach is not effective viable at this point, shifts the focus upon a VP strategy. Researches prove that there are several sport leagues that already implemented the VP approach successfully, including some clubs of the football Premier League (Clowes & Clements 2003), the National Football League (Rishe & Mondello 2003), some clubs of the Major League Baseball (King 2002), and in several college sports (Mullin et al. 2007: 228) to name but a few. In near future hopefully some more will follow!

A list of references and literature used in this essay is available upon request.

Determining the Attractiveness of Away Teams – Using the Example of the Beko BBL in 2013/14

Many sport clubs are looking for ways to increase the attendance figures at home games against especially less attractive opponents and at off-peak times, and furthermore to gain higher revenues at top matches. Dynamic Ticketing and Variable Pricing are two approaches of how to create the ticketing more demand orientated and therefore more target-oriented. Nowadays only a few major league clubs in the US use Dynamic Ticketing. As it requires comprehensive consumer data and a heavily customised IT system developed for the case of the specific club, Dynamic Ticket is basically not yet implemented by clubs in Europe.

A more simple approach, compared to the aforementioned one, is called Variable Pricing. This strategy takes factors like demand and attractiveness of the game into account. Commonly a Variable Pricing strategy divides the totality of games per season into two or three categories, each representing teams with the same projected attractiveness and demand, based on the two factors attractiveness of the opponent and timing (e.g. weekend vs. weekday).

The following framework shows one approach of how to determine the attractiveness of away teams for the case of the German Basketball Bundesliga, the Beko BBL.The figure below gives an overview about how many spectators the individual away teams (rows) attracted during the Beko BBL season 2013/14 when playing at home games of the host teams (columns). The figures are based on the official data given by the Beko BBL (http://bit.ly/1wqLnCT). Each of the given percentages indicates the ratio between the average attendance of the individual home team and the concrete attendance at the concrete game. The colours red and green indicate whether the away team attracted an attendance of less than 5 % compared to the home team’s average, or the away team attracted an attendance of more than 5 % compared to the average of the home team. The example of the FC Bayern Munich shows that every given percentage is green, what indicates that more spectators came to see their home teams playing against the FCB than spectators come in average to the home games of their clubs.

Attracted spectators at away games of Beko BBL clubs in 2013/14
(click to enlarge)

The next figure summarizes the findings of the table above into an overview about which Beko BBL teams could be described as attractive opponents and which as less attractive opponents. Column three shows at how many games the individual away club attracted more spectators than the normal home game average, and column four shows the opposite, thus games on which they attracted fewer spectators. Column seven calculates the summed up positive percentages and negative percentages to a final figure of how attractive the respective club as a guest team is. All figures coloured in green indicate attractive clubs whereas all red coloured figures indicate less attractive clubs. The framework used in this example could be adapted for more or less every sport and used by sport marketers to determine the demand for every encounter of the season and build therefore the basis for further marketing measures, for example a Variable Pricing strategy.

Overview about attractive and less attractive clubs of the Beko BBL in 2013/14,
based on spectators attracted at away games
(click to enlarge)