Jul
03

Musings on in-stadium economics

By

Nothing irks sports fans more than concession prices. Inside of a stadium, everything costs more. A beer you might buy for $5 at a sports bar costs $9 or even $11 inside the stadium. A steak sandwich that sells for $8 can go for as much as $15. Even New Era Hats, priced at a steep $34 at the flagship store, can go for $40 inside the stadium.

Meanwhile, fans like to justify the prices and their ballpark expenses by blaming — or celebrating — the payroll. Yankee fans are willing to pay so much for concessions because the team has a $200 million payroll, and that lofty total demonstrates the Steinbrenners’ devotion to winning. Or so it goes.

In the Wall Street Journal this week, Allen Barra, he of the excellent Yogi Berra biography, challenges that assumption. Prices inside a stadium are high, he says, because a stadium is a natural monopoly with a captive audience. Barra writes:

The point is that prices go up because the owners think that’s what you’re willing to pay. If you are willing to pay, the price stays high. If you aren’t — or at least if enough of you aren’t — then the price will come back down. It’s that simple.

The athletes and their agents don’t determine the price of tickets, souvenirs and food. Not even the owners determine them. Well, they sort of do when it comes to the food. The hamburger joint across the street from the park probably charges half of what you pay at the game, but that’s because the ball club has a monopoly. In general, though, you are the ones who set the prices for T-shirts and baseball hats.

It may take a while but eventually, if baseball management has overpriced its commodities, consumers — that’s you, the fans — will show them their error and the prices will come down. If you are willing to pay their prices that means they set the right prices after all.

It is a very valid argument, but Barra obscures his point by the end. He says that if society were to stop spending as much at baseball stadiums, then prices and salaries would go down. There is, it seems, a cause-and-effect problem. If salaries don’t determine how much a team can charge, then why would cutting fan spending reduce salaries?

In reality, salaries do have an impact on how teams set their prices. The teams need to generate a certain margin to cover their expenses. For the Yankees, that includes a lofty payroll and luxury tax payments. While revenue from TV deals and licensed merchandise sales cover some of that, the rest is captured through ticket sales and in-stadium concession deals.

Where the monopoly takes over though is in the profit space above the margin. Once the Yankees recover the payroll and luxury tax figures, anything they make above that is pure profit that can be pocketed or reinvested in the team in future years. If that $15 cheese steak were $12 instead, the Yanks’ would probably be covering their costs and more. But since fans are willing to pay $15 for it, the Yankees will continue to charge that much, pocketing the profits as any company would.

Categories : Musings
  • Hawkins44

    Allen Barra is a genius. A stadium is a natural monopoly because you can’t go anywhere else to buy a cheap beer…. that’s deep stuff. Get him working on revamping our health care system stat!

  • celerinosanchez

    You get what you pay for. Anyway, who cares! Montero has hit 5 Hr’s over his last four games. The guy is 19, in AA, hitting bombs and not striking out. Hip! Hip! Jesus !

  • Thomas A. Anderson

    Fans have all the power and rarely want to use it.

    If they don’t pay for overpriced stuff the Yankees will lower the price.

    Thus is the basics of economics, no?

    • Zach

      Yes.
      They have no competition inside the stadium, so there’s no need to lower prices until numbers show they’re not maximizing their growth.

      It’s no different then an airport or movie theatre. How much are those large cokes or large tub of popcorn?

      • pat

        However much they are, YOU CAN GET A LARGER ONE FOR ONLY A QUARTER MORE!

  • Tony

    People aren’t going to sit somewhere for 4-5 hours and not eat or drink anything.

  • http://theyankeeuniverse.com Moshe Mandel

    “In reality, salaries do have an impact on how teams set their prices. The teams need to generate a certain margin to cover their expenses.”

    Isn’t this backwards? I think prices have an impact on the salaries- the market and the monopoly determine the prices that a particular team can charge, and that total tells them how much they can sink into payroll and still make a profit. You seem to be saying that teams who go out and sign an extra player then set their prices to cover that margin, but I think it is the other way around: they determine the prices the market will bear, and then pay players up to a point where they retain a workable margin.

  • mike

    “In reality, salaries do have an impact on how teams set their prices”

    Obviously, there is a relationship between the two. But I wonder if the point is just that the relationship is principally in the reverse. That is, rather than thinking of rising salaries leading to higher prices at the ballpark, we should think of higher prices at the ballpark leading to higher salaries. If the team can charge more and so generate more revenue (because we are willing to pay more), then the team can afford to spend more on things like player salaries.

    Of course, the relationship probably works both ways to some extent since our willingness to pay more for seats may be impacted by the quality of the team on the field, which in turn is impacted by how much is spent on salaries. The mistake is to think that if they spent less on players, they would necessarily charge less for seats. This would only be true if enough of us were then less willing to pay the higher prices. But it seems likely that there is a great deal of elasticity in this relationship.

  • Corey

    i realize im gonna get bashed for this but i am not a met fan…however…in Citi the same exact beer that would cost u 11 dollars is 6.50. I’m not a met fan, but if the mets can afford to charge 6.50 for a beer can the yanks meet us half way? the 2 stadiums are only a few miles apart, surely the economics are not that different.

    flame on.

    • celerinosanchez

      Yankee stadium is like Disney World, Shea (I refuse to call it Citi) is like Six Flags. I’ve been to three games at the stadium this year sat in seats ranging from $45 to $350 and haven’t missed a single pitch due to waiting on line for food, beer or taking a leak. Loge seats in the old stadium were $75, 200 level seats in the new stadium are $100. I missed 2 innings of a game last year trying to find, and then wait on line for french fries for my 5 year old daughter. I’ll pay the extra $25. The food and beer? They weren’t cheap in the old stadium either.

    • http://theyankeeuniverse.com Moshe Mandel

      That’s not true. The 12 oz. beer at Citi is 6.50, and the 16 oz. beer at NYS is 9.00.

      • Rich M

        The 12 oz. beer at NYS is $6.00

        • http://theyankeeuniverse.com Moshe Mandel

          And there you go- the prices for beer are pretty similar.

      • Corey

        it is true, im talking about good beer

        • Corey

          i don’t drink the piss that many people call beer (i.e. domestic beers like bud coors miller and their respective lights)

        • http://theyankeeuniverse.com Moshe Mandel

          Which good beer is 11 dollars at NYS and 6.50 for the same quantity at Citi? I’m pretty sure that is false. Not trying to be annoying or confrontational, it just is not something that I have seen.

          • Corey

            anything out of beers from the world, so Heineken becks etc.

            • Corey

              and you have seen it sir, i complained about it @ WW, im sure u read it :)

              • whozat

                A) Why would anyone read WasWatching?

                B) Even so, this is still just you talking about it. Moshe’s saying he hasn’t actually seen this to be verified by anyone else. You saying it once in one place and then again in another is not verification.

                • Corey

                  me buying it myself is enough verification for me, and A) noone asked you

              • http://theyankeeuniverse.com Moshe Mandel

                I did read it, I just had not looked into it at the time. Now I’ve been out to Yankee and spoke to some people have been to Citi, and the consensus was that the pricing was not hugely different, the Mets just have more options.

            • http://theyankeeuniverse.com Moshe Mandel

              Those are 11 dollars for 16 oz at Yankee Stadium, 7.50 for 12 at Citi, if I remember correctly. A larger disparity, but not huge.

              • Corey

                its 6.50 for sure, i went to a game on monday. 4.50 for 4 oz. pretty much proves my point regardless of size anyhow.

                • http://theyankeeuniverse.com Moshe Mandel

                  The difference is 15 cents per oz, is it not? Not great, but not a monumental difference. A 16 oz. serving in Citi of that beer would be an extra 2.40. That’s about the difference you would pay for a nice beverage in a restaurant in Queens vs. one in Manhattan.

                • http://theyankeeuniverse.com Moshe Mandel

                  Basically, just to sum up, the prices on the draft beers and bottled beers are pretty close, within a few cents per oz, while the premium beers (ha) are a bit more. I dont think anyone expected them to be equal, as I’m pretty sure they were not last year.

                • pat

                  Umm the price difference is moot as one beer entails having to watch the Mets while drinking it.

                • http://theyankeeuniverse.com Moshe Mandel

                  Lol. Actually, being that you have to watch the Mets with it, it is vital that people be able to afford more beer. If you get drunk enough and squint, maybe their pinstripes and interlocking NY ripoff start looking like the Yankee uniforms.

      • Nady Nation

        You can get a 16 oz. draft of Bud or Bud Light at Citi for $6.25.

        • http://theyankeeuniverse.com Moshe Mandel

          And you get a souvenir 24 oz. draft of those beers for 10 bucks at Yankee Stadium.

          • Nady Nation

            Definitely, just saying that the beer deal at Citi is a little better than you originally stated.

            • http://theyankeeuniverse.com Moshe Mandel

              I guess. Per oz, the difference in price for the bottled beers is minimal, and same with the draft beers. Citi does have the advantage that they sell the draft stuff in lower quantities, so you could get 16 oz. of “beer” for 6.25.

    • emac2

      You can get beer for a buck at 7-11 but how much fun is it to sit in a parking lot for three hours?

      I don’t think anyone is going to watch a Met’s game just for cheaper beer.

      • Corey

        i never said that, im saying it he mets can charge 6.50 for a glass of beer, then so can the yankees.

        • whozat

          First, you’ve asserted that there is some volume of decent beer that is available for 6.50 at Citi and costs $11 at YS. Despite people refuting your assertion, you’ve pooh-poohed them because they must be talking about cheap “piss”. The burden of proof is on you, since you’re the only one who seems to be complaining about it…what beer are you talking about?

          Second…why should they? The market will bear a higher price. This is, by definition, a luxury item. The Yankees COULD sell 16oz of fat tire for 6.50, but since people will (apparently) pay more…why should they?

  • cuponoodles

    Well, the above stated prices are why I never buy anything at baseball parks…

    • Corey

      6.50 for a beer is reasonable if you frequent bars

  • emac2

    I’m surprised there are even a dozen comments here. In a country where people buy gas from the same company every time even if it’s cheaper accross the street I don’t expect people to protest high prices by going without or causing themselves any inconvenience.

    Hopefully the current economy will allow people to be thrifty without being prosecuted as communists or worse.

    • Stephen

      color me confused with that last comment

  • JeffG

    We pay more at convenient stores because they are close, we pay more at airports, like stadiums, because we are there and the only place to go. What does this have to do with Yankee stadium?

  • Arlok789

    The article is right. If we stop buying the expensive stuff, salaries will come down. It is simple supply and demand. The team has a monopoly on tickets and concessions. They control the supply and thus they are able to set the price. Ideally, a monopolist wants to set the price where marginal revenue equals the marginal cost. For a baseball team, that price is where there are just enough fans willing to pay to sell out every game and each of those fans is willing to buy concessions.

    Salaries are also determined by supply and demand in the labor market for major leaguers. There are a limited number of elite players and there are 30 teams that demand their services. Each of those teams is flush with cash due to their monopoly on tickets and food. They can pay players millions of dollars before they have to worry about breaking even. The supply is short and demand is high which drives up the cost.

    Now imagine that outside vendors are allowed to bring food carts into stadiums to sell concessions and a hot air balloon company takes rides over the stadium and starts selling tickets to watch games from the balloons (I know this is ridiculous but it is the first thing that came to mind regarding competition for tickets.) Now the Yankees can no longer charge as much for ticket prices or food because consumers can choose an alternative. Teams no longer have demand for elite players unless the price is much lower because they simply can’t afford it. If A-Rod tries to sign a 300 million dollar deal and the Yankees don’t bid, maybe he has to come down to 150 million before the other teams jump in. Salaries have to come down. Another way salaries would come down is with an increase in the amount of talented players. For example, look what happened to the salaries of corner outfielders over the off season. Abreu signed what, a 5 million dollar deal? Simply, there was too much supply so price had to come down.

    I’m no expert but i believe that part of the price issue has to do with the monopoly granted to Major League Baseball by Congress. The number of teams per capita is far lower than what the population can actually support which means each team is going to make a boatload of $$$.

    I knew my econ degree was good for something. Can we win today please and start another streak?

    • Januz

      The price issue has NOTHING to do with the monopoly granted by Congress. The NFL, NHL & NBA do not have similiar monololies, but they charge whatever they can get away with for tickets and concessions (Preferred Seat Licencing and Knick season tickets come to mind).
      There are many issues involved in setting prices which include labor costs (Players and management), construction costs, debt service, taxes, insurance and legal issues, minor league overhead and scouting to name a few.
      One common theme in chatboards and blogs is that the Yankees should spend more money for various players such as Miguel Sano, after they spent $4.25m on three UNPROVEN 16 year olds yesterday. This money does not grow on trees, it has to come from somewhere. It comes from advertising revenue, licensing, ticket sales, media, and concessions. In the end, the user of these products PAYS for it, one way or another.
      This organization tries to bring in the best players and emminities possible (See Sabathia and Teixeira), instead of running the organization like the Los Angeles Clippers whose entire purpose of operation is to make money, fans be damned. Hal Steinbrenner is even requesting suggestions from the fans to make the New Stadium better. Which shows he cares and is concerned about what we think. Which is a good business pratice (Unlike say Donald Sterling of the Clippers).
      Finally, ff people don’t want to go to games or support then, then don’t. There are plenty of alternatives available to Yankee Baseball (The substitution effect where if one good is too expensive then you can choose another is still in play).

  • MattG

    The relationship between concession sales and player salaries is ambiguous, and subject to many variables. There is no way that a reduction in concession profits would lead directly to a need to reduce player salaries. Instead, it would probably lead through all of these options first:

    Make concessions more profitable:
    1. cut concession expenses
    2. add new, or switch to, more marketable & profitable concessions
    3. increase concession marketing (create meal packages, hand out coupons, so forth)
    4. renegotiate exclusive concession deals
    5. create promotions to get customers into the ballpark earlier, and thus eat more
    6. probably dozens of other things

    If all that fails, and concession profits are still down, they will look to compensate in other areas: TV, souvenirs, advanced ticket sales, additional events & packages, licensing deals, and so forth.

    Only when all this fails will salaries be affected. The relationship between the two is very flimsy.

  • http://anewfrontier.wordpress.com Pablo Zevallos

    I first went to the stadium, and my only qualms are:
    1) What ever happened to guys selling soda, not just beer, in the stands?
    and
    2) The urinals.are.way.too.FUCKING.small.

    That is all.

  • Stephen

    They discuss this quite well in Baseball Between the Numbers, and they show that ticket prices and salaries had little correlation until the 1990s, when the wave of new stadiums increased the revenue of the owners combined with an long economic boom , and ultimately that ticket prices and concession prices allowed the owners to spend more money on players, not the other way around.

    http://books.google.com/books?.....8;resnum=1

  • toad

    “In reality, salaries do have an impact on how teams set their prices. The teams need to generate a certain margin to cover their expenses.”
    Isn’t this backwards?

    Yes. It’s backwards. Mostly. teams charge what they can get for concessions regardless of salaries. Look, suppose you were an owner and found out fans would pay $11 for a beer. Why would you charge less (or more) based on salaries? The only way that would work would be if high salaries implied better teams implied greater willingness to pay high prices for beer.

    That might hold, but the key point is that costs unrelated to actually supplying the beer will not, in principle affect prices.

    Another way to approach it is this. Suppose the team could arbitrarily increase its beer prices from last year to cver a new, bigger, payroll. Why didn’t they charge more last year, and pocket the money?

  • http://mvn.com/pendingpinstripes Greg F.

    Disagree on the beer prices. At most bars in Manhattan, you pay $5 for a 12 ounce beer. At Yankee Stadium, a souvenir cup is 24 ounces and costs $10. Also, you don’t have to tip, so I find it cheaper than a typical bar.

    That being said, the large beers at Citi are 21 ounces and cost 6.50, that is a steal.

    • lordbyron

      I thought the luxury tax wouldn’t apply for a few years due to the new stadium construction costs funded by the Yankees – true or false?

  • Baseballfan

    This all assumes teams make profits…remember PROFITS?

    These are businesses, and they can take a “cash flow” beating in a particular year. If the value of the franchise grows, the owner can always sell.

    In an area of 6 million fans, getting 50,000 of the 6 million to buy a ticket is like shooting fish in a barrel.

    And a whole lot more pay to watch on TV.

    Baseball is not a natural economy where supply and demand seek to co-exist. There is a fixed limited supply. Limited supply of ballplayers, parking spaces, concession items in a stadium.

    The author of the original WSJ article was probably digging into his pocket after a trip to NYS.