I'm Matt Notowidigdo, I'm an Associate Professor of Economics in the Northwestern Econ Department. I do research in labor economics, health economics, but today, I'll talk about sports. Outside of my research, I do work on sports consulting for baseball teams, basketball teams, football teams, on ticket pricing primarily, and also do consulting work on things like revenue sharing agreements. >> So tell me a little bit about both. So who is it that is actually asking you to consult, first? >> Sure, so we've done work both with teams and with, what I'll call the central league offices, like the Commissioner's Office in Major League Baseball. So in some cases, the teams have specific requests for ways that they could price their own tickets better to align with demand or try to increase attendance to meet certain targets or have better price differentiation across the games of the season, for example. Sometimes, by contrast, the league offices want some general lessons that they can then give to all the teams in the league about how they could be pricing better. >> And when you're working with a particular team, are you working with a particular area of the business side of the establishment? >> That's a good question. Most of the time we work with the analytics team, which typically sits on the business side, separate from the day-to-day management of the team itself. So unfortunately, we don't get to hang out with the people that do the player analytics or things like that, we work with the people who have the data that we end up using for our statistical analysis. So those are the people that manage the team's databases in terms of their season ticket holders, how many tickets the team is selling directly. Teams often increasingly have data feeds directly to organizations like Ticketmaster or StubHub.com. So the teams have data feeds coming from those organizations, and then we'll be working with the people on the team that manage those data feeds. >> Perfect, and how do you set yourself up as a consultant? How do the teams even learn about you? >> That's a good question. So we're set up as a LLC, it's just me and a partner, and we have some research assistants from time to time that help us out. Mostly, we meet the teams through word of mouth, and we've given talks at the MIT's annual Sports Analytics Conference. I think that's a great way to learn about the sports business. So we've given presentations there, we've gotten contacts to teams there, and some business has grown out of that. But mostly what's happened is that we've worked with a team, and then we've worked with that team repeatedly, and then they pass our information along to other teams. And that's how we've grown our work. >> Do they ever feel that they want to keep the information proprietary? Or because geography plays such an important part in team sports in this country, do they feel like that everybody can have a better dynamic ticket pricing? >> To my surprise, we haven't encountered a lot of resistance from the teams of having us work with other teams. I think that suggests that a lot of the lessons that we're giving are context specific, geography specific. In some cases, the specific consulting advice we're giving, that is specific to the team, they make clear when we can share with other teams. So for example, in the case of revenue sharing agreement, the team might want to talk to us about ways of managing the revenue sharing requirements strategically. And they wouldn't want us to give the same advice to other teams, if that makes sense. >> And talk to me a little bit about, first of all, what is revenue sharing and why does it come about? >> Sure, just to be concrete, consider the case of Major League Baseball. To try to ensure a competitive balance across the teams, some of the teams that have very high revenue coming in from ticket sales or television rights, teams that do very well in terms of getting all the money from those sources, the league redistributes some of that money to other teams. And the specific formula they use is complicated and constantly being a reanalyzed to basically meet this trade-off of giving teams an incentive to raise revenue, but also redistributing revenue across teams to ensure a competitive balance. And I think that that's a trade-off the league office is constantly trying to grapple with. >> Sharon called this creeping socialism. [LAUGH] >> What we've found is that it's something that all the teams recognize is important. In the sense that a situation where the teams can have unrestrained ability to raise revenue, but not have any of that revenue be distributed to other teams, might quickly result in a league where it was the same teams that were constantly winning. And I think that all the teams recognize that that's not a situation you want to be in. So at least some revenue sharing seems like it's in everyone's interest. But of course, you don't want too much revenue sharing, otherwise the teams don't have an incentive to make the right investments in bringing fans to the stadium. And I think that's the trade-off that the league offices are constantly struggling with. Most of our advice is with respect to how the teams can try to take advantage of it in the best way possible, given the rules that the league has set up >> Are there some teams that aren't doing dynamic ticket pricing at all? >> Interestingly, so the term dynamic ticket pricing in most leagues refers to the ticket price changing on a day-to-day basis or an hour-by-hour basis. So as the game date approaches, the ticket price could go up if it's a very high demand game or it could fall off quite a bit. There's a lot of variation across teams in whether they use that or not in all the leagues that we've looked at. Most of our expertise actually is not in dynamic pricing. It's what we call variable pricing, which is setting the ticket prices at the start of the season, reflecting the demand that you anticipate at the start of the season. Because a lot of the variation in demand is predictable. It's a division rival, it's a time when school's out, it's a weekend versus a weekday. Basically what we try to communicate to the teams is that a lot of that variation is things that things you ought to be able to plan for and price for at the start of the season. And what we try to advice a team to do is to use dynamic pricing, but to use dynamic pricing to reflect unanticipated things that are happening over the course of the season. Maybe the team does unexpectedly well, maybe the weather gets unexpectedly bad, or there's someone that announces retirement halfway through the season, and so this would be the last time the fans get to see that player. In those cases, the team ought to adjust its prices to reflect that new information. But in general, we want to try to caution teams from relying too much on dynamic pricing, because it might actually be a symptom of the fact the team's not thinking enough ahead of time about what those prices should be in the first place. >> Nice, and when you think about how you price consulting, I don't want your secrets, but how does a consultant think about, do you work on a project basis, do you work by the hour? >> That's a good question, it's something we've really struggled with. To be totally blunt, teams are pretty stingy in how they spend money outside of their players. That's been my experience in pretty much every league we've worked with. Now as an economist, I kind of asked myself, why is that the market equilibrium? And the hypothesis I have is that working in sports teams is really fun. And so they're able to get really great people to work with them, even though they are not being paid a lot of money. And I think that extends to how they deal with people outside of the organization as well. So when they're working with contractors or consultants or they're soliciting bids, our experience has been that teams just aren't willing to pay that much money. And it's not necessarily an irrational view, it reflects the fact that they are in this privileged position of constantly getting a lot of people who want to work with them. And it is fun to work with them, that's been my experience. They have really smart people in the organization. But it's made it, so from a pricing perspective, it's challenging. Because I think that we're able to deliver value to teams that have prices that don't reflect demand very well. But oftentimes, the teams just aren't used to paying a lot of money for external consulting services. >> And what skills do you think people ought to have if they were listening to you and thinking gee, I would love to work in some kind of analytical capacity as an external vendor to a team? >> So what I've noticed, so I've been doing this since 2004 off and on, and every year it seems like the people we meet at the teams have more and more analytical sophistication. They have stronger statistical backgrounds, they're good with programming, they have database experience, it's just there's so much data that the teams have access to. And so I think some of the important skills, both working inside the team and working outside organizations but supporting the team, it's just I think those analytical skills of making sense of big datasets is very important. Just to give some examples, the teams track a lot of behavior of their fans. Who's showing up to game, who's buying concessions, who's logging into the team website, who's using their loyalty points? Who's renewing their season ticket package and how does it vary with different characteristics? And so we try very hard to make sense of the data the team gives us. But we also notice teams increasingly are hiring people who have a lot of that statistical expertise. And so it's actually a lot more fun for us to be able to work with them, because I do a lot of statistics in my research outside of sports. It's nice to be able to do more of that, bringing it into the team, and working with who the team has.
