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Athletic department could make millions with implementation of dynamic pricing model

Marissa McClain/Daily
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By Greg Garno, Daily Sports Writer
Published July 10, 2013

Because they stand to make $5 million.

Any more questions why the Michigan athletic department shouldn’t implement dynamic ticket pricing for football tickets?

Last week, Michigan announced that all single-game football tickets would be subject to a new dynamic-ticket pricing policy — which will determine the price of the ticket based on the demand for the ticket. The policy will only affect single-game tickets and not season tickets or student tickets.

“Dynamic pricing is a practice that has become standard across the sports and entertainment industry after gaining acceptance through airlines and hotels,” said Hunter Lochmann, chief marketing officer for Michigan Athletics, in a statement to the athletic department.

But just how much of a difference will the policy have on ticket prices?

Endzone tickets for games against Notre Dame or Ohio State are already projected to cost more than $100 from a standard $65 ticket and could go for more. The estimated total revenue for the athletic department is $5 million, according to Jesse Lawrence, a contributor to Forbes and founder of TiqIQ — a live-event ticket-pricing aggregator and search engine that provides flexible buying and selling options.

Nearly 80 percent of ticket sales go to students and alumni, according to Lawrence, leaving 21,700 available seats, or 20 percent. Michigan estimates that intial dynamic price of tickets could range from no increase — like Sept. 14 against Akron — or a $130 increase — like Sept. 7 against Notre Dame.

“They (the consumers) are going to pay more anyways,” Lawrence said. “It’s just a question of who’s making the money? Is it the school or is it the broker?”

The athletic department is set to release tickets on July 31 to the public, at which point it could decide to withhold a percentage of those tickets for a later time. Lawrence said he estimates that the athletic department could make up to another million dollars should they hold on to the tickets while the price goes up.

“If they wanted to be as greedy as possible, they probably would have jacked it up higher than that,” Lawrence said. “The market would have dictated that the demand would be enough to absorb the prices.”

Both Lochmann and the athletic department did not estimate on new revenue, since the number of tickets available is unknown. However, Lochmann said in an interview with Crain’s Detroit Business that he expects less than 10,000 single-game tickets to be available.

In 2011, Michigan set a home attendance record of 114,804 when it played Notre Dame for the first night game in program history.

“We’d be happy if we netted over $1 million,” Lochmann said to Crain’s.

Dynamic pricing was used originally by entertainment and hotel industries before it expanded into sports, where teams from the NFL to Major League Soccer make use of the computer program’s input.

Michigan will use QCue, a computer program that “determines what drives sales using variables such as start time, opponents, etc. to set more accurate prices from the onset and maximize demand across the house.”

Professional sports teams like the MLB’s New York Mets or the NBA’s Atlanta Hawks, among many, use QCue to capture opportunities to raise prices.

The University of California, one of the first collegiate programs to implement dynamic pricing, also uses QCue to suggest ticket prices. The University of South Florida and Georgetown University use dynamic ticket pricing as well.

On Monday, Purdue University announced that it too would use dynamic pricing for football season.

“One of our guiding principles is to drive change and innovate and in this case, it’s a win-win,” Lochmann said to The Daily. “Creating extra value for our season ticket holders and also creating more revenue to support our 900-plus student-athletes across 31 teams.”

The use of dynamic pricing is expected to help athletic departments, much like professional teams, recuperate profits lost to secondary ticket markets like StubHub or Ticketmaster. According to the athletic department, an aggregate of secondary market average ticket prices for the same endzone seats against Notre Dame cost as much as $133 more as of June 26.

Michigan is the second most valuable football program according to Forbes, worth a $120 million. Only Texas, worth $133 million is valued to be more. Lawrence said he believes that the additional revenue would be enough to make the Wolverines the No. 1 most valuable program.

The $5 million could also be used to help offset the cost of projects like a new $30 million outdoor track and field facility or a $40 million expansion of Canham natatorium.

“There’s so much money to be made in the whole college football ecosystem that to think that they would not maximize revenue is a bit naïve frankly,” Lawrence said. “It is business, even though it’s a collegiate program. They’re obviously dedicated to making as much profit as possible.”