Selling forwards for sporting events

By Felix Salmon
April 3, 2009

Preethika Sainam of Indiana University, along with two colleagues from Chapel Hill, has an interesting paper suggesting that sports organizations shouldn’t sell tickets to big sporting events, like the finals of the Final Four, where the teams who will be playing are unknown. Instead, they say, they should sell options to buy tickets at a certain price once it’s known who’s going to be playing. This system, they say, will raise more money in ticket sales, will make fans happier, and will reduce scalping.

The interesting thing is that reading between the lines of the paper, it seems that selling options is actually the second-best solution to these problems. The best solution would be to replace some (but not all) of the tickets with team-specific forwards, which expire worthless if that team doesn’t make the finals. That would allow the “team-oriented” fans to buy forwards rather than tickets which they might not want if their team fails to make it to the finals; it would allow “game-oriented” fans to buy tickets to the finals just like they can right now; it would mean that many more tickets could be sold in total (for the final match-up, you can sell 32 times as many forwards as there are seats), which would reduce the supply/demand imbalance which often drives scalping.

Professor Sainam, however, reckons that the forwards idea is a non-starter, for reasons of optics: she worries, she tells me, “that fans could perceive the league as profiting unduly from the situation”. And so the options option is the next best thing. She explains why even when you only sell as many options as there are seats, scalping should still be reduced:

The league can insist that the fam buying the option is the same as the one exercising it. So, until a point fairly close to the game, the fan retains the ticket. Beyond that, if the ticket is of little value to the fan once the uncertainty is resolved, the fan has two choices: (a) Let the option expire, and (b) Buy the ticket and take responsibility for scalping it (assuming that there is no “policing at the entry gate”). We note here that fans scalping tickets is a different issue from professional scalpers scalping tickets. Many fans would not want to undertake the risk of exercising the option and then not being able to scalp the ticket successfully. The league can also enhance the incentive to let the option expire (if the fan is not willing to see the game) by reimbusing a small fraction of the option price to the credit card of the fan in case the option was left to expire.

Expired options, of course, then become empty seats, which can be sold directly by the league rather than by scalpers.

Personally I’m a big fan of the forwards idea — especially for big international competitions like the World Cup or the European Cup. But if the likes of FIFA don’t want to go there, that shouldn’t stop local hotels from adopting the idea. Why sell all your rooms only once for the night of the big match? Instead, sell forwards, which expire worthless if a certain team doesn’t make the final. Hotels are struggling these days — this seems like an easy way to make a lot of money, if you’re lucky enough to be in a city hosting a major cup final.

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