‘Face Value’ at the heart of bowl system woes

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The bowl system is a disaster. So we’re told.

I admit that it has some issues, but the reality is that the bowl system works for many of the parties involved. It’s still a worthy achievement for a good chunk of college football programs and players. Networks like ESPN and CBS still find even the mid-December bowl games worthy of showing on television.

While we have a number of games that don’t exactly get the juices flowing in terms of interest, numbers show that people still watch these games. Saturday’s New Mexico Bowl drew a 1.9 overnight rating on ESPN which topped the Indiana/Butler college basketball game involving the top ranked basketball team in the country.

The two major issues of the bowl system are:

  1. How the matchups are selected – giving us FSU v NIU in the Orange Bowl is nonsense
  2. How schools are on the hook for tickets are face value

Frankly, the two issues are related. When Alabama and Notre Dame square off, schools have no problem unloading their tickets since demand is so high. On the other hand, when Florida and Louisville square off, Florida has a difficult time selling their allotment of tickets (current sold roughly 6,500 of its 17,500 tickets). Since we’ve discussed at length the matchup selection process, we’re going to focus on the tickets part of the equation.

Face value for the Sugar Bowl tickets range from $135 to $200.

It’s a simple equation. Great football matchups drive demand. Demand drives higher ticket sales and higher ticket prices. The problem occurs when demand doesn’t support ticket sales at “face value.” Face value for the Sugar Bowl tickets range from $135 to $200. Obviously if fans can buy tickets on StubHub for $50, they’re not going to pay the school $135 or $200 for a ticket.

Oddly, it seems that few reporters discussing this issue understand basic economics. On the previously mentioned article, the author seems to think that the problem itself is the secondary ticket exchanges:

Blevins-Morgan and Florida officials said the secondary ticket market is tough competition. Secondary ticket brokers, like Stubhub, Ticketexchange and Ticketcity, have plenty of Sugar Bowl tickets on their web sites and most are cheaper than the face value of the seats.

The problem of course has nothing to do with secondary ticket exchanges. The problem has to do with artificially setting the “face value” price higher than what true demand supports. Demand is dictated by the product, not the availability of a market place. The availability of a market place simply helps price setting line up with what real demand is.

Interestingly, nobody really questions the idea of face value. Face value essentially does nothing except to extract money from Universities and fill the coffers of the organizations running the bowl game. Fixing “face value” at a given rate regardless of demand for the game is the problem. If you change how face value works, we can stop screwing schools over simply for being selected to play in a bowl game.

I would propose an alternative setup. Rather than automatically putting a University on the hook for 17,000 tickets at face value, the bowls should release tickets into the marketplace similar to how a company might IPO its common stock to the investing public. As we know, the IPO process isn’t perfect, but compared to bowl game ticketing, it’s not even close.

When a company IPOs, they hire bankers to essentially help them gauge the market and price the stock at the highest rate that the market will support. The IPO price is not some number that they pull out of thin air; rather, it is a number created by people who get paid to get that number right based on real market conditions. If they get the number wrong, it impacts their ability to manage IPOs in the future. It impacts their ability to make money in the future. This is called incentive.

In the bowl system, you have bowl organizations that price the tickets as high as they want because they’ve setup a structure that screws over the Universities if demand isn’t high enough to support the ticket sales. There’s no risk in mispricing the tickets. Currently, the risk is on the Universities. Risk needs to be shifted to be more on the bowl committee itself.

Moreover, when a stock IPOs, other organizations have the opportunity to buy that stock at the IPO price before it goes into the public markets. For example, when Facebook IPO’d, other banks and institutions could buy the stock at the IPO price before it went into the market. Why would they do that? Because they have cilents that want the stock, and they can facilitate their clients acquiring the stock before the public gets their hands on it. This is exactly how Universities should buy bowl tickets.

When the bowl organization prices the IPO rate or “face value” of the tickets – a price based on perceived demand of the actual football game – the participating Universities have the option to buy a given amount of tickets at that face value price before the tickets go on sale to the public. If the schools see that their students and alumni are demanding tickets, they’ll buy more. If not, they’ll buy less. If the school buys too many and loses money, well, they read the demand wrong.

Whether we’re talking about football tickets or health care services, problems always exist when a real marketplace is not determining price. A mass of consumers making individual purchasing decisions is the best way to determine price. Unfortunately, people in position of power – whether it be a group of men in charge of a bowl game or a committee of bureaucrats in Washington, DC – think they know better what a price should be than the marketplace.

Price fixing always results in an inefficient marketplace. An inefficient marketplace always means a third party has to fill the void. In the case of health care, it’s often an insurance company or the government. In the case of many bowl games, it’s often the University that has to fill the gap with their cash reserves. Or, in the case of Louisville and this year’s Sugar Bowl, you have Papa Johns helping subsidize the tickets.

Addition: Stewart Mandel discussed a similar issue in his latest mailbag article:

My view on this has changed considerably over the years. Five years ago, I would have said cut the number of bowls in half. Get rid of games like the New Mexico Bowl with their embarrassing attendance figures (listed at 24,610 this year) and mediocre teams. Stop cheapening the more prestigious bowls by associating them with these J.V. versions that change sponsors every year. But as I watched Matt Scott and the 7-5 Wildcats wildly celebrate their supposedly “meaningless” bowl win, it reinforced my current feeling, which is: Who exactly are these bowl games hurting?

I still think you should eliminate 6-6 teams. Getting to .500 (and often not even that if you take away an FCS win) should not be an achievement. This year that would have necessitated cutting six games, though three winning teams were ineligible, so say you just cut five. That’s no loss, but it’s not going to happen. The commissioners briefly discussed revisiting the 6-6 rule last spring during playoff negotiations, but they were rebuffed pretty soundly by their members. Schools want more postseason opportunities, not fewer. A much more feasible change is addressing the one-sided financial arrangements that these games currently make.

You’ve presumably read numerous stories about teams losing money by playing in bowls, most notably due to unsold tickets. It’s ridiculous for bowls to expect Florida State fans to pay $120 for the same upper-deck Orange Bowl tickets that are available for $17.50 on StubHub, and then if they don’t, stick the schools with the bill. More reasonably, give the schools a week to sell out their allotment (many this bowl season, including Stanford, Oklahoma, Texas A&M, Kansas State, Syracuse, UCLA, Ole Miss and Iowa State, have done just that) before returning the rest, even if that means a lower payout to the team’s respective conference. Or, the conferences should cover ALL expenses, lopping that amount off the top of the overall bowl revenue it divides among its schools. No conference or school actually loses money in the bowl system, but it is true (and ridiculous) that 3-9 Auburn may receive a bigger cut of the SEC’s pie than 11-1 Florida simply because the former had no overpriced Sugar Bowl tickets of its own to unload.

Once you’ve addressed those issues, there’s no remaining downside I can see to having so many bowls. Players get a mini-vacation, $550 in gift swag and an extra month with their teammates. Coaches get the extra practice time and a recruiting bump. Fans of the participants get to go somewhere for the holidays. And the rest of us get three weeks of college football games on TV, which we’ve shown by now that we’ll happily watch.

Photo Credit: Spruce Derden-USA TODAY Sports

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COMMENTS

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  • It also doesn’t help that bowls with corrupt leadership like Capitol One Bowl force the guest schools to buy/sell the worst seats in the stadium with the bird crap on the bleachers so the high school band girls that perform at halftime can sit down low along with corporate bigwigs who like to sit near these teen aged girls.

    Those who attend bowls regularly know this and will buy directly form the host city rather than pitiful seats the school are forced to unload.

  • You’re right about the misunderstanding of supply/demand and how it should apply to face value but the real victim here is the fan and not the school. From my calculations they have 11,000 outstanding tickets and if they range from $135-$200 they may be on the hook for $1.485-$2.2M. Heck for the the total 17,500 tickets they would only owe $3.362-$3.5M. Now with those numbers in mind each team’s payout is $17M more than enough to cover their unsold tickets. If you ask me the schools should be subsidizing tickets for their fan base with that kind of money coming in from one game

    • The fan is not obliged to buy tickets from the school. They can buy market-priced tickets – in many cases well under face value – off secondary providers like StubHub.

      • You’re missing my point. If I’m a season ticket holder that pays a king’s ransom for tickets all season and my school makes it to a bowl game that pays a lottery size jack pot I shouldn’t have to track down cheaper tickets in the secondary market. I should get a loyal fan reward from the school.