Dynamic pricing is often lumped together with paperless ticketing as one of the potential “killers” of the secondary ticket market. As the co-founder of...

Dynamic pricing is often lumped together with paperless ticketing as one of the potential “killers” of the secondary ticket market. As the co-founder of SeatGeek, I’m always interested to learn more about how our industry can be affected by new trends. I jumped at the chance to interview some experts in this space and publish my findings on TicketNews.

To get the rundown on dynamic ticket pricing, I immediately called Russ Stanley. Stanley heads the San Francisco Giants ticketing office, the only MLB team to widely use dynamic ticket pricing. The Giants implemented this pricing system with the help of Qcue, a Texas-based software company which helps teams and artists optimize ticket prices. Stanley recalls meeting Barry Kahn, founder of Qcue at an Intix ticketing conference. “When Barry came up to me, I thought there’s no way fans would go for this,” Stanley admitted. It wasn’t until a Tuesday night in August 2007 that it dawned on Stanley how much dynamic pricing made sense. That night Bonds hit his 756 home run against the Washington Nationals before a sold out crowd. No ticketing office could have priced that game accurately prior to the season and Stanley agreed to share data with Qcue shortly afterwards. In 2009, the Giants rolled out dynamic pricing in their bleacher seats, and by Russ’s estimates, the team made five hundred thousand in incremental revenue that year. This season Stanley expanded dynamic pricing through much of AT&T Park and believes that it will generate between three and five million in incremental ticketing revenue. Better pricing means fewer empty seats, and the Giants will earn additional money on concessions, parking, and merchandise this year as well.

Given the Giants’ success, why don’t more teams price tickets this way? According to Stanley, teams are concerned that they will have to spend hours fiddling with pricing, but they are becoming increasingly open to it given the Giant’s success. “Every MLB team will use dynamic pricing in the next five years” Stanley declares. Qcue’s software is user friendly enough that Russ spends only an hour a day pricing tickets, not bad considering that the Giants manually approve every pricing recommendation made by Qcue. Qcue already works with the Dallas Stars and Kahn sees the NBA and NHL as ripe targets for Qcue’s pricing advances. However, some markets will be harder to crack. Ironically, the NFL may benefit the most from a dynamic pricing system but will be the least likely to implement it in the near future. University of Memphis Professor Joris Drayer is all too familiar with suboptimal ticket pricing among NFL teams. He wrote his dissertation on the Denver Broncos, a team that knew they could price tickets higher but did not. Drayer’s dissertation might be limited to the Broncos but our data corroborates that NFL teams do not price single game tickets near their market value.

Dynamic pricing doesn’t necessarily mean the death of the secondary ticket market according to Kahn. He sees two main sellers on the secondary ticket markets; resellers looking for arbitrage opportunities and season ticket holders who simply can’t attend 81 home games. As the primary market becomes more efficient, he foresees brokers and opportunistic resellers no longer making huge multiples on mispriced tickets. However, Kahn believes season ticket holders may have more luck moving their tickets because they will have a better sense of their ticket’s value.

Ticketing offices don’t operate in isolation, and they are very much aware of the public perception around prices. As Professor Drayer notes, teams tend to underprice premier seats relative to their true value. These teams fear the repercussions of setting high ticket prices and are willing to lose some of the value for these seats to the secondary ticket market. The primary market will recapture some of this value with dynamic ticketing, but it’s likely that this will be an area that brokers can continue to exploit. Additionally, teams shy away from capturing the true upside of hot tickets. Stanley admits that he’d be hesitant to raise a ticket that sells for thirty dollars normally to over a hundred just because the demand was there.

At SeatGeek we’re firm believers that the secondary ticket market yields a better deal than the primary market. When tickets are still available to an event, brokers have to adjust their tickets to compete with the box office. When an event is sold out, fans have to go to the secondary ticket market if they want to get tickets.

Dynamic pricing won’t change these dynamics, but brokers will now need to be attuned to shifting primary market prices. The brokers that survive in tomorrow’s market will need to monitor prices and react quickly. The ones that thrive will do a better job accessing future demand than the ticketing offices. The opportunities for windfalls will be fewer than before, but savvy and analytical brokers will survive dynamic pricing.

(I’d like to thank Russ Stanley, Barry Kahn, and Joris Drayer for making themselves available for this Guest Commentary.)

Russell D’Souza is the co-founder of SeatGeek, a company that forecasts sports and concert ticket prices on the secondary ticket market.