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Sports Abacus: Concessions And Discounted Tickets

I’ve heard from a lot of paperhangers and discount chiefs on the benefits of allowing folks to enter into the venue at a cheaper than normal rate. They resolve the conundrum of revenue losses by talking about how concessions inside the stadium will benefit by virtue of more attendees. Sacrificing ticket revenue becomes necessary, in their opinion, to impact concession stands.

This is wrong-headed when you do the math on this. That’s something that doesn’t get done enough in the sports industry. Specifically, use of a calculator and the brief opportunity to go down the list over everything that could possible call B.S. on a discounted or free ticket theory. Namely the idea that concessions will make up the revenues lost at the ticket counter.

All of the per cap functionaries have costs, including tickets. Except that tickets generally have fixed costs (i.e. costs don’t rise) compared to concessions and merchandise, which have non-fixed costs (i.e. costs rise based on supply versus demand). The only thing close to tickets in terms of fixed costs is parking, however property taxes, labor, traffic control costs can actually generate more costs than expected, therefore impacting revenue expectations.

Let’s go with the scenario that discounting tickets work: A ticket is discounted by $10 each and generates 4,250 additional patrons (losing $42,500 off of the ticket revenue).

There is another factor at play here by performing this discount. By bringing in 4,250 additional fans, you’ve increased the amount of service that you have to provide merely to facilitate them. That means that there need to be more customer service folks, ushers, maintenance, janitorial staff, etc. in order to ensure that each patron is cared for during their time at your facility. These are impact costs:

 

Ticket Sold

Materials

Workers

Stadium

 4,250.00

 $0.50

 $0.50

 $0.50

Cost

Price

Profit

Profit w/ $10 Discount

 $1.50

 $15.00

 $57,375.00

 $14,875.00

 

Notice that in the figures above, you’ve already lost $42,500 off of a $15 ticket price now discounted down to $5. That still means that $1.50 per ticket is now eating at a $5 price point instead of a $15 one.

But you’ve now brought 4,250 fans into your facility for their “taste test” under the theory that a discounted ticket will now impact your concessions stand. Because you’ve already lost $42,500 off of your ticket revenue in order to bring the customers through the door, wouldn’t it be logical to expect $84,500 in concessions revenue from them? Mainly because you as the stadium operator are expecting to significantly impact your profits beyond (double) what you would normally get, correct?

Let’s set up the concessions stand so that we can properly equate price versus sales. That means that we will also look at costs as well as profits in this model:

 

Hotdog

Price

Cost

Profit

 $4.00

 $2.00

 $2.00

Popcorn

Price

Cost

Profit

 $3.00

 $0.75

 $2.25

Soda

Price

Cost

Profit

 $3.00

 $1.00

 $2.00

 

Now that I’ve establish price, let’s explain what some of the costs are that go into the manufacture of each concession item. A good standard of selling is to sell at double or higher whatever your costs are, in order to achieve a profit margin.

Hotdogs may have a fixed cost of $1.75 on their materials (meat and bun) but also have non-fixed costs as well. Those condiments have to be paid for, even though the customer does not pay for them during the hotdog sale. This means that the material side may jump if ketchup, mustard or relish rise in cost (so I placed that cost to the hotdog’s materials side). While this may not appear significant, since most venue operations purchase in bulk, it can end up being a large unappreciated cost that concessionaires have to deal with.

I also placed a cost per worker inside each concession item. They have to be paid for, and it takes several concessionaires in order to run one stand and handle volume. Therefore, $0.25 is not a lot to ask for.

 

Hotdog

Materials

Worker

Cost

 $1.75

 $0.25

 $2.00

 

Soda has a cost of mixture and liquid materials, but you still have to think about straws, cups, and cover. So I placed the materials costs at $0.75 with a $3 price point.

 

Soda

Materials

Worker

Cost

 $0.75

 $0.25

 $1.00

 

Popcorn is a staple of the concession industry. Mainly because the material costs are low enough that it allows for larger profit. Movie theaters aren’t in the movie business, they are in the popcorn and soda business, which is why they want as many movie show times as possible to generate as many new customers buying popcorn and soda as possible. I figured $0.50 for material costs at a $3 price point.

 

Popcorn

Materials

Worker

Cost

 $0.50

 $0.25

 $0.75

 

Let’s not forget the combo packages of soda, popcorn and hotdogs which concessionaires use to lure folks to their stands. This undercuts the amount of profit. I placed an $8 price point on a soda, popcorn and hotdog combo with costs of $3.25 per order.

 

Combo

Materials

Worker

Cost

 $3.00

 $0.25

 $3.25

 

So, I went down the line and did some calculations with each of the 4,250 customers via discounted tickets buying at least one type of concession item. I had the main concentration being the combo price point, since I figured that those 4,250 were “deal hunters” likely looking for a deal when they go to the concession stand too:

 

Hotdog

Popcorn

Soda

Combo

150

200

500

 3,400

 

Gross

Net

Loss Overall

$29,900

$17,900

$24,600

 

The loss overall is what was lost via ticket revenue ($42,500) that was not made up via net gains at the concession counter ($17,900). This also deals with the idea everyone who entered the ballpark actually purchased a concession item. They may not have, but in this scenario, they did.

But I’m willing to play around with the numbers and show what would have occurred if the combo concession item didn’t exist, so let’s take it off of the table as an option. All 4,250 folks who got into the ballpark via discounted ticket now also purchase one of each item at the concessions stand.

 

Gross Revenues:

Customers

Hotdog

Popcorn

Soda

 4,250

 $17,000.00

 $12,750.00

 $12,750.00

 

Net Revenues:

Customers

Hotdog

Popcorn

Soda

 4,250

 $8,500.00

 $9,562.50

 $8,500.00

 

Gross

Net

Loss Overall

$42,500

$26,563

$15,938

 

So, as long as you are willing to ignore the material costs estimated, the concessions stand technically made back as much as you lost at the ticket counter. But in real business terms, you lost way more than you gained. Now, you only have $15,938 to show for a $42,500 expenditure on the ticket revenue side.

 

 

 

 

 

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