Short one today, but I want some feedback: why doesn’t Boston build a new ballpark for the Red Sox?

First, some economics: let’s say an average Red Sox seat retails for $501. In practice, most of those tickets are scooped up by scalpers, who resell them for $100 and up. If I’m Theo Epstein, then every penny between the original $50 price and the final $100 price is a penny that I could have captured. This steams my britches.

Should I raise ticket prices across the board? Not necessarily. Baseball tickets are a luxury good, so they tend to have a higher demand elasticity. This means that people are more sensitive to changes in price than with other goods. Cigarettes and gasoline have very inelastic demand, by way of contrast: you can raise the price by 10 or 25 or 50 cents and people won’t buy less of it2. But no one needs loge seats. And a ticket that might have looked perfect at $40 might suddenly seem too expensive at $50. Yes, it’s only another $10, but people are weird.

Further, the Red Sox have been raising ticket prices pretty regularly for years and the problem remains. Scalpers buy up as many tickets as possible, resell them for half again as much, and pocket the difference. It seems pretty clear that the issue with the Red Sox is fundamental: demand outstrips supply.

Fenway Park is the oldest baseball stadium still in operation. It seats 38,805 and is pretty rickety. While other stadiums have fewer available seats (PNC Park in Pittsburgh, for instance), there’s no franchise in baseball with greater demand and fewer seats. Given their tremendous history – to say nothing of their 2004 championship – the Sox can bet on drawing capacity crowds every time.

I would wager that the Red Sox can draw in more fans a season than the struggling Orioles3 (48,800 in Camden Yards) and at least as many as their rivals, the Yankees (56,500 in Yankee Stadium). By this logic, Fenway Park is at least 10,000 seats too small.

So what should happen? Should the Red Sox build a new baseball stadium, raise prices to a level where scalpers won’t be able to make a profitable resale, and start counting their future revenue?

Well, maybe not.

If I’m a stadium owner, I have two nightmares:

(1) Attendance above capacity – the situation described above, where more people want to see a game than can get in. This means I could have raised my ticket prices higher.

(2) Attendance below capacity – empty seats. This means I’m paying rent on seats that aren’t being filled by warm bodies. This means I should have set my ticket prices lower.

Supply and Demand
This is the same situation that confronts any business owner. If I sell out of widgets, it means I set my price too low. I have to scramble to make more, hoping my customers don’t get tired of waiting and shop my competitor. If I don’t sell out of widgets, it means I set my price too high. I have to keep paying inventory costs to keep my widgets on the shelf while figuring out ways to offload them.

From a stadium owner’s perspective, the perfect scenario is a stadium packed to capacity with happy fans, with no one wandering outside saying, “Who wants two?” For obvious reasons, this will never happen.

Let’s say the Red Sox build a new stadium, filling in some more land in the Fens, that seats 58,000. Supply is now closer to demand. Instead of scalpers buying box seats at $50 and selling them at $150, as happened in cramped old Fenway, scalpers now buy box seats at $55 and sell them at $110. So seats are cheaper all around, but Theo Epstein’s not seeing any more money. Oh, well.

With a team as successful as the Red Sox, demand is always going to outstrip supply. And as bad as seeing uncaptured revenue go to scalpers is, it’s worse to see empty seats, mocking you with their green luminescence. Sure it’s bitter logging on to AceTickets and seeing the seats you offered at $20 going for $60. But at least those seats have already been paid for by someone.

The Red Sox could make money, and make the fans happy, by building a newer stadium with better seats. Could they make enough money to make it worth their while? You tell me.

1. I’m making this number out of pixie dust, as I’ve never bought an unscalped Red Sox ticket and have no idea what they’re supposed to cost.

2. This is why most states love to tax cigarettes and gasoline.

3. I mean “struggling” historically. While Baltimore is, as of the morning of April 24th, only 1.5 games out, they’re going to end up 3rd in the AL East like they always do.

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  • Andrew W

    While I can’t cite a relevant economic theory, it always seems that in a situation where demand greatly outstrips supply, demand begets demand.

    So in the Sox case, they’re making money off the pent-up demand for tickets: those who can’t or won’t shell out $50+ for a seat still love their team, so they watch NESN (jacking up the price of broadcast rights year to year), buy hats and jerseys (delicious licensing deals), and–because going to a game at Fenway is such a rare treat–evangelize, turning newcomers to Boston and residents elsewhere into Sox fans. Without that pent-up demand to see the Sox in person, a lot of that falls apart.

    Therefore the biggest nightmare, assuming demand is somewhat near supply, is if long-talked-about plans to bring a minor league team to Southie are realized. A Southie ballclub would be just as beloved as the Sox, the tickets would be cheaper, and getting to and from the games might even be easier. Then again, it could redouble the area’s obsession with baseball and drive demand even higher.

  • marcelo

    Also

    you are assuming that building a stadium would be free of transaction costs. The residents of Fenway and the local politicians have prevented past stadium proposals. In fact I imagine the transaction costs of getting anything of that scope done in Boston would be higher than in any other city besides Chicago or New York.

    Since the prospect of building a new stadium in the Fenway or other neighborhood in Boston is slim-to-none at the present, the owners have spent their time finding other ways to maximize revenues, e.g. adding seats on the Monster or holding one big-name concert every year.

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