Chapter 3 The Demand for Sports and Entertainment

1. Economics 204 Sports and Entertainment Economics Chapter 3 The Demand for Sports and Entertainment

2. Markets – communication among buyers and sellers for the purpose of trading

3. Consumer Theory • Purchasing Rule • If MUa/Pa > Mub/Pb, buy product “a” • If MUa/Pa = Mub/Pb, stop • Changes • Utilities • Incomes • Prices • Stores • Products

4. Demand • Definition – various amount of a good people are willing and able to buy at various prices • Needs – must have • Wants - optional • Law of Demand – Price increases, Qd decreases • Diminishing marginal utility – as you consume additional units of the same item you enjoy them less

5. Demand Curve • Market Demand – sum of the individual demand curves

6. Determinants of Demand – shift the demand • Willingness • Tastes and Preferences • Fads and Fashions • Advertising • Technology – new and replacement products • Conspicuous Consumption • Number and composition of buyers • Population • Age • Gender • Prices of related goods • Substitutes – Pa rises Qda falls, Demand for b rises • Complements - Pa rises Qda falls, Demand for b falls • Expectations • Ability • Income • Normal – income rises, demand rises • Inferior - income rises, demand falls • Wealth

7. Expressed as Qd = f(Price, Tastes, Number, Expectations, Price of others, Income) • Qd = f(P, A, I, Pop, Pc, Ps) • P = price • A = Advertising • I = Income • Pop = Population • Pc = Price of Complements • Ps = Price of Substitutes

8. Demand vs Quantity Demanded • Demand is the whole curve • Quantity demanded is one price and point on the curve

9. Elasticity – measure of consumers response to a change in prices or income • Price Elasticity of Demand • Formula: % change in Qd/% change in Price • Interpretations • Ed = 0, Perfectly inelastic • Ed < 1, Relatively inelastic (Necessities)-Medical care, food, utilities, public transportation • Ed = 1, Unitary • Ed > 1, Relatively elastic (Luxuries)-Restaurant meals, vacations, soft drinks, sports and entertainment • Ed = , Perfectly elastic

10. Total Revenue = P x Q • Elastic: Price falls, TR rises • Inelastic: Price rises, TR rises • Cross Price Elasticity • Formula: Exp = % change in Qd of A/ % change in P of B • Interpretations • Substitutes: Ex > 0 • Complements: Ex < 0 • Independent: Ex = 0 • Income Elasticity • Formula: Ey = % change Qd/% change Income • Interpretations • Normal goods: Ey >0 • Luxury: Ey > 1 • Necessity: Ey < 1 • Inferior goods: Ey <

11. Sports Demand • Has grown dramatically in the last 40 years • Basketball: 905% • Hockey: 680.7% • Football: 290.5% • Baseball: 251.7% • Strong correlation between economic and athletic performance

12. Demand and Sports Revenue • Scarcity in Sports • Athletic prowess • Beauty • Impossibility • Quality of Teams and Competition • Absolute – difference between leagues • Relative – difference between teams in a league • Uncertainty of Outcomes • Commonality – common bond among people • Winning

13. Demand Determinants • Price • Tastes and Preferences • Fan interest • Quality of the Team • Disposable income – Income that can either be spent or saved • Discretionary income • Normal goods • Inferior goods

14. Price of Other Goods • Complements • Parking • Souvenirs • Concessions • Substitutes • Other sports • Participation • Spectator • Movies • Opera • Concerts • Fan Expectations • Future prices • Winning • Population

15. Demand Issues • Demand for Women’s sports is less than Men’s but growing faster • Large-market teams win more than small market teams • Larger population base • Teams in high drawing potential have stronger teams • Teams in low drawing areas sell players to stronger drawing teams • Consumer Surplus = Reservation Price – Actual Price

16. High elasticity fans receive lower prices • Elderly • Children • Daytime games • Weekday games • Multiple Ticket Packages • Personal Seat Licenses • Revenue • Within league variations • Between League variations

17. Music Customers • Albums: ages 12 to 49 • Singles: ages: 12 to 19

18. Demand • Determinants • Tastes and preferences • What’s in style? • British rock 60’s • Heavy metal: early 70’s • Disco • Punk • Alternative • Rap • Advertising • MTV • Videos • Special Appearances • Superbowl • TV shows • Radio • Film • Income: Follows the business cycles of the Economy • Technology: Format • Consumer demographics: Age is dominant factor • Race • National origin • Region of the country: There are no country music radio stations in L.A. • Record charts such as Billboard measure the demand • Elastic demand: luxury

19. Movies • Movie Customers • 16 – 50 73%

20. Demand • Issues for movie going or home video rentals • Story type • Stars • Director • Promotional Budgets • Demographics • Ratings • Awards • Reviews

21. Price inelastic • Price elastic with complimentary goods • Babysitter • Restaurant meals • Parking • Demand falls from first week

22. Fashion • Target market (general) • Females • Young • Target market (high end) • Female • High income • Demand issues • Trends • Price elastic • Social events

23. Marketing: creation and maintenance of exchange relationships • Marketing mix • Product • Distribution • Price • Promotion

24. Core Standards • Distribution • Marketing information management: customer information • Demographics • Age • Marital status • Gender • Income • Education • Ethnic background • Pricing • Product/Service management • Promotion • Selling • Financing • Sports Marketing: Using sports to sell products • Entertainment marketing: influencing people to spend time and money on entertainment • Viewing rather than participating • Ratings = number of viewers

25. Sports and Entertainment Economics • Government • Taxation • Illegal pricing • Price fixing • Bait and Switch • Price Discrimination • Pricing strategies • Markup: MR = MC • Price lines • Psychological pricing: $.99 rather than $1.00 • Prestige pricing • Volume pricing: buy bulk from suppliers • Promotional pricing • Loss-leader • Quantity discounts • Trade-in allowances

26. Price determination • What is the percentage of profit? • What are the costs? • What is the demand? • What is the competition? • Determine the pricing strategy • Profits • Breakeven: what is needed to cover costs • Utility • Form: physical characteristics • Time: time it is accessible • Place: location • Possession: price • Risk • Human: theft, dishonesty and incompetence • Economic: changes in the economy

27. Ethics: deciding what is right and wrong • Financial Analysis • Rate of return • Balance sheet: assets and liabilities • Income statement: revenue and expanses • Industry: group of firms selling a product • Industry standards: guidelines and goals of an industry • Economic market: all the consumers who may purchase the product • Target market: specific customers • Market segment: consumers in a large group that char a characteristic • Market segmentation • Geographic • Demographic • Psychographic: values, interests and lifestyle • Behavior based: attitudes • Market share: percentage of the market • Customer service

28. Marketing Game Plan • Strategies • Marketing plan • Analysis • Mission statement • Marketing information • Tactics • Strategy • Product/service • Distribution system • Pricing • Promotion strategies • Financing • Risk management • Implementation • Timeline • Assignments • Internal communication system • Selling • Review and evaluation

29. Product • Product mix • Product: brand name • Product extensions: warranties • Product enhancements: extras • Product line: group of similar products • Packaging • Brand • Product life cycle • Introduction • Growth • Maturity • Decline • Drop the product • Sell or license the product to another • Discount • Regionalize • Modernize/alter • Recommit

30. Distribution Channels • Types • Live • Venue: place • Stadium • Arena • Theater • Via media • Radio • TV • Internet • Delivery • Market conditions • Business cycles • Peak • Contraction: unemployment • Trough • Expansion: inflation • Entertainment trends • Retro TV • Game shows

31. Sports and Entertainment Promotion • Elements • Advertising • Goal • Budget • Theme • Media • Message • Schedule • Measure effectiveness • Publicity • Goodwill • Damage control • Grass roots: common man • Image

32. Sales promotion • Consumer sales • Price reductions • Price pack deals • Coupons • Special gifts • Contests or games • Rebates • Trade sales • Allowances • Contests • Point of purchase displays • Employee sales • Personal selling

33. Promotional Planning • Promotional Plan • Identify target customers • Set promotional goals • Budget • Promotional mix • Measure the results • Sponsorships and endorsements • Sponsorship: underwriters • Endorsement: expression of approval • Celebrity • Events

34. Selling Sports and Entertainment • Sales process • Preapproach • Approach • Demonstration • Answering questions • Closing the sale • Follow up • Skills • Know the product • Know the customer • Know the competition • Entertainment demand • Ticket brokers: legal • Ticket scalpers: illegal • Ticket frenzy • Group and Corporate Sales • Group packages • Special privileges • Special seating • Luxury boxes • Club seats

35. Fashion Marketing Concepts • Fashion Cycle • Introductory Phase • Peak Phase • Decline Phase

36. Product Mix: all the goods an organization sells, in fashion it is styles, prices and classifications • Retailers for fashion • Department stores: Dillard’s and Macy’s • Discount stores: Target and K-mart • Off-price stores: T.J. Maxx • Chain stores: The Limited and The Gap • Boutiques: Tootsie’s • Styles • Classic: traditional with long product lifecycle • Trendy: current style • Young Designer: garments created by designers just starting out • Designer: high quality, high fashion sold under the designer name • Couture: Original one of a kind high quality garment • Haute couture: high fashion individually designed handmade original • Classifications • Sportswear: jeans, sports wear • Activewear: worn while participating in sport • Careerwear: workplace • Eveningwear: special occasion or formal wear • Social apparel: • Lingerie • Accessories • Trend: the direction fashions take

37. Basics of Fashion • Terms • Knockoffs: copies that appear in about two weeks • Softlines: items made of fabrics or leather • Forecasters: predict trends • Merchandisers: plans styles, pricing and amount to be produced • Channels of distribution: path a product takes from production to sale • Economies of scale: large volume production lowers prices • Private labels: Neiman-Marcus only • Brand names: sold by licensing to stores • Brand building: establishing an identity • Just in time inventory • Vendor managed inventory • Visual merchandising: displays, dummys etc.

38. Pricing • Wholesale: to the retailer • Retail: final customer price • markdown: price reduction to speed up sales • Retail price = Wholesale price + Markup • Markup = operating expenses + profit • Markup % = (Retail – Wholesale)/Retail • Categories of price • Discount • Budget • Value-priced • Moderate • Better • Bridge • Designer • Couture

39. Fashion Economics • Overruns: manufacturer has produced too many • Venture Capitalists: invest in risky startups • IPO: Initial Public Offering • Fashion Centers • US • Places • New York • Runway shows • Invitation only • Collection Opening • Los Angeles • Chicago • Atlanta • Dallas • Brands • Tommy Hilfiger • Calvin Klein • Donna Karan • Peter Som • Daphne Gutierrez • Sean Combs • Europe: Versace • London • Milan • Paris • Asia • China • Japan • Madagascar • Vietnam • Korea

40. Promoting Fashion • Media • Print • Broadcast • Direct Mail • Cyber

41. Organizing the fashion show • Determine the purpose • Determine the theme • Develop a written plan with timeline • Schedule location, date and time • Develop a guest list • Find • models • photographers • hair • makeup • music • lighting • sound system • props • Develop and send invitations • Develop and promotional plan • Press kit • Develop a script and program • Schedule and rehearse • Make the audience welcome and comfortable • Gather data and evaluate

42. Other Events • Trunk shows • Fundraisers • Fashion awards • Infomercials • The sale • Preapproach • Approach • Determine the need • Demonstrate • Answer questions • Close the sale • Suggest • Follow up