Bob Smizik, a columnist for the Pittsburgh Post-Gazette thinks sports teams, their stadiums, and their contract concession providers are perpetrators of “world class price gouging”. He thinks they have no conscience because they charge $6 or $7 for a beer and $3 or $4 for a soda. I don’t agree, for several reasons.
I often cite sports teams as good examples of businesses who use two-part pricing, or three-part pricing. Hotels, movie theaters, live theaters, concerts, and nearly all entertainment venues are also good practitioners of two-part pricing. The simple concept is to attract customers with a price for that item or service they are seeking, and then sell ancillary products at healthy markups when the customer is much less sensitive to the price.
Parking and food/drink are the 2nd and 3rd parts of the pricing. Parking is never included in the price of a ticket to a sporting event, concert, play, etc. Concert tickets for some of the major shows have been $200 to $300 per seat lately. Do they really need to charge another $25 for parking? Perhaps not, but people will gladly pay it. One can park near the Mellon Arena in Pittsburgh for $12 to $15 per day. At concert time, though, the cost of parking can go up to $25 depending on how close to the arena the lot is. Now the parking lot earned fees all day, and at night there is not a city full of workers trying to find a place to park, so why charge so much? Because you and I and many other people bought tickets to the event, we have to park somewhere, and we are willing to pay. I know I don’t factor in the cost of parking when deciding to buy tickets to a concert – do you?
Some would argue that parking is different. Land is very expensive and limited and the parking lot owner has to earn a return on their investment in the land. But, if beer companies can earn a return on beer by selling it for $14 per case, why do they have to charge $7 for a single beer at the baseball game? Answer- because 40,000 people are happy to pay it.
Sometimes I watch baseball on TV, and I watch at least one football game nearly every weekend. I don’t have a beer or a hot dog each time I watch a game on TV, and if my kids watch with me, they don’t eat ice cream while doing so. But it’s different when we go to a live game. My family and I go to baseball games every summer. I don’t remember exactly, but I guess we have paid about $27 per ticket on average. I am quite certain we have also purchased beers (for my wife and I) priced at $6 or $7 each, sodas for $3.50, hamburgers or hot dogs for $5 to $7, peanuts for $3.50, and Dippin Dots for $4.50. Why? Because we enjoy it as part of the whole experience. We are cognizant that the prices seem high, but we accept that and pay them.
In his article, Mr. Smizik seems indignant at how high the prices are compared to the grocery store. Look around, though, and I think you will find they are not that much higher than other places. Sodas sold at the movie theater cost as much as those at a stadium. Hamburgers in restaurants are nearly all $8 or $9. Beers in a restaurant are $5. Have you been to a private golf club or tennis club lately? The prices there rival those at the stadium, and in some clubs exceed stadium prices. None of these establishments charge what grocery stores do, and they shouldn’t. Customers decide which grocery store to use based on a number of factors, including the prices of hot dogs, hamburgers, and sodas. Once they are there, customers buy what they need and want, including light bulbs and batteries that are priced higher than at Home Depot. Customers decide which events to attend based on many other factors long before price becomes a factor. Once they are at the stadium, they buy what they want and are less concerned about the prices.
My last observation is the laws of supply and demand work. If the customers were really that sensitive to the prices and did not get sufficient value out of their purchases, they would stop making those purchases and ultimately those prices would come down. If that happens, Bob Smizik will have been right. I would not bet on it, though.