ON MONDAY, Larry Brooks, the New York Post’s beat writer for the New York Rangers, penned a column headlined “NHL Should Freeze Price Along with the Ice.” He argues that the NHL should place an across-the-board price freeze on tickets because of the looming recession. At first, this sounds like a nice, warm-fuzzy idea, for fans at least: whatever happens on Wall Street and in Detroit, you’d still only have to pay the usual $100 or so for a seat at Madison Square Garden. But examined more closely, the economics behind a price freeze would be bad news for the NHL and for fans alike.
Brooks proposes the freeze as “positive publicity,” which he thinks might stimulate ticket sales and head off a “calamitous decline” during the 2010-2011 season. But aside from the fact that “we all are worried,” he’s curiously silent on any evidence for a major future ticket sales decline. Right now, the league isn’t facing a sales problem—season ticket sales for next year are already up 4 percent. The NHL is currently “in growth mode,” as commissioner Gary Bettman put it recently. “I have no doubt that, over time, if it’s long enough and bad enough, it will have some impact, but based on what we’re seeing right now, our business seems to be strong.”
So why the sudden call for a price freeze that is probably unnecessary? And more importantly, how will a price freeze really help the NHL if the mandatory low prices cause it to lose money it could be making?
There are a few fundamentals in any market. In this case, we are concerned with the market for NHL tickets. In this market, there are a certain number of tickets available for each team to sell, this number of tickets is the quantity we are concerned with. A price freeze, in economic terms, is a “price ceiling,”—a concrete figure that sets a product’s maximum price. Here is a basic supply and demand graph with a non-binding price ceiling (you can ignore the “non-binding” part for this little economics lesson):
The place where the supply curve intersects with the demand curve is called the point of equilibrium, and it determines where the price of NHL tickets should be in relationship to the quantity—the maximum people are willing to pay for the available tickets.
Now, another basic graph that shows the effect of a “price freeze”:
Suppliers (NHL teams) can only charge a certain amount for tickets, and some of them may be forced to drop out of the market, or at best, teams will feel a financial strain because they’re unable to charge enough to keep the team a profitable business. This would likely never be a factor for well-off teams like the Rangers, but for teams in small markets and non-traditional hockey markets (Nashville, Tampa Bay, Phoenix) it might even cause clubs to fold—a reduction in the quantity of tickets in the national market.
A price freeze causes a consumer surplus, which means that since the demand is not allowed to set the ticket price, lots of people are getting them for less than they are actually worth. More people want the cheaper tickets, and thus demand soars above supply and the equilibrium isn’t allowed to catch up. Most of the time high demand is good for business because it drives prices up and increases profits—which many NHL teams need. But a ceiling on ticket prices means teams are stuck charging whatever tickets were worth at a particular period in the past, and cannot use shifts in the market to make the money that is their right to make. Fans are already willing to pay whatever price is necessary to see a hockey game—hockey is far more exciting live than it is on television—and there’s no sign they’ll be backing out en masse anytime soon.
Still, a price freeze at first sounds nice to fans. It would seem like a nice gesture, one little assurance of consistency in a time when everything else is uncertain. But that’s about all it would be—a nice gesture. In some cases, nice gestures make for bad business, and in this case the hockey fans will pay for that bad business when their favorite team is forced to cut salaries or move to a better market. It might sound like cold capitalism, but if NHL teams can’t turn a profit, they won’t be around for fans to enjoy.
One fan who read Brooks’s column commented: “I always feel like I have been taken advantage of every year and in the playoffs especially. I am one of those season subscription holders that is seriously considering bailing out next year.” That’s too bad, but it’s exactly the way it should work. When some fans become annoyed by ticket gouging and drop their season tickets, there are plenty of others who will step up and buy the tickets in their place. Madison Square Garden is constantly packed despite having some of the highest ticket prices in the NHL. Even in our current economic situation, a price freeze is foolishness. Let supply and demand determine the price. If people can’t afford to go to games at a high price, than the demand will go down, and the price will eventually follow. The market works—even for hockey.
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