Revenue Management in Sport Stadiums

Industry Overview

A sport stadium is a venue for sports, concerts, or other events and consists of a field or stage either partly or completely surrounded by a structure designed to allow spectators to stand or sit and view the event.

Beijing National Stadium, also known as the Bird’s Nest

Here some useful links:

As revenue management is defined as selling physical space for a given length of time for a variety of prices, sport stadium revenue management is in its core about selling seats (the physical space) per game (a proxy of time). The goal is to maximize the revenue per available seat-game. To be able to do so, it is important to control both space and time in order to effectively manage customer demand. Stadiums do have control over their space as they can divide space for instance in different seat categories. However, it is difficult for them to control time as time is sold per event such as games rather than per hour. Additionally, depending on the functionality of the stadium and the frequency of games, those events are held on different weekdays with frequencies ranging from once a week to once a year. Baseball games for example take place 81 times a year leading of a utilization rate of only 22%. Therefore it is crucial for successful sport stadium revenue management to learn how to gain more control over time. Controlling both space and time enables to define different space and time combinations which target different market segments and are priced differently.

Apart from revenues generated through ticket sales, revenue managers should also focus on ancillary revenues from food and beverages, the use of function space (if available), the sale of sporting goods, and advertising in the stadium.

In short, even though sport stadiums use some of the strategic levers of revenue management, there is still ample room for improvement to move towards dynamic demand-based pricing as it is the case for example in the airline industry. The biggest area of opportunity for stadiums lies in defining time as explicit as possible as this leads to greater control over customer demand which is an integral condition for successful revenue management.

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MANAGING SPACE

Selling space implicitly

Sport stadiums sell their space implicitly. The most common configurations are seats, areas for standing and club suites. Taking this approach one step further, a stadium can use additional space configurations outside the seating and standing area for example by defining it as retail, function or F&B space. As space is defines implicitly, the stadium can control the way in which space is sold by designing different types of space with different characteristics that hence appeal to different market segments and can be priced differently. For example, boxes offer more privacy and better view on the field and offer include additional services such as butler service. This package hence comes also at a different price point.

Inventory types

a. Sport stadium as space unit

Space in sport arenas can be discussed regarding the shape and size of the stadium itself. Open, oval and horseshoe shaped stadiums are common especially for American football stadiums, whereas rectangular stadiums are more common in Europe for football.

Another aspect of space covers the flexibility of its use. Certain stadiums are primarily designed for one specific sport such as baseball or American football while others are designed to be easily used my multiple types of sports and events. The most common multi-use designs consist of a football pitch with a running track and can also be used for other events such as a live music venue for concerts. An advantage of this design is to reduce costs by sharing infrastructure and real estate and by reducing idle time as the arena can be rented for different events. Disadvantages of this design stem from the need of satisfying the requirements for different sports such as the distance of the stands from the field or the different sizes and shapes of the playing fields. However, the importance of multi-use stadiums is decreasing since the 1970s towards single-purpose stadiums. Building two stadiums next to each other to share amenities such as parking lots compensate at least partially for the limited use.

b. Inventory type as space unit

An “all-seater” stadium has seats for all spectators while other stadiums are designed that all or some spectators stand to view the event. Most of the stadiums offer boxes or club luxury suites at high prices which can accommodate a limited number of spectators. During special events such as Super Bowl, those boxes can cost hundreds of thousands of dollars

When planning a new stadium, the definition of those different inventory units can be used to define the optimal mix of categories depending on demand and space and time requirements of each space type. The optimal supply mix in terms of number, facilities and supply mix flexibility is the foundation of successful revenue management.

In stadiums, the space configuration can also be analyzed under the view point of how flexible space can be used. The majority of inventory units are not flexible, such as permanently installed seats, club suites or facilities such as meeting space, retail or F&B. Some elements, however, allow certain flexibility through retractable seats or even modular arenas. A modular stadium is a permanent sports facility that is constructed of modular components that allow enlarging or downsizing. This type of arenas as well as the use of retractable seats allow additional flexibility to cater towards different types of events depending on the popularity of different events and leads to different opportunities of revenue management.

Seat categories by customer group

Seat category by level

Club suites

Additional standing category during a concert

Generating additional revenues

The development of ancillary revenue sources is apt for stadiums as they can sell other services and products that customers can buy while they are using the space or to take them with them after they completed the service experience. Common examples are:

Meeting space

Restaurants and bars

Rental for events

Retail space, here for Manchester United

To define which products and services should be offered and how they should be offered it is important to analyze the needs of the customer. These additional services can also have an impact on when customers arrive to an event and how long they stay after an event. There are four ways to increases the productive use of space:

  • Reducing idle time by renting the arena for events other than its core functionality
  • Time extension is a very useful way for sport stadiums as the length of their events is externally controlled e.g. by offering pre-show or post-show events such as concerts or exhibitions
  • As discussed above, from a revenue management perspective multi-purpose stadiums are more favorable than single-use stadiums as they can host different type of sports event as well as concerts and alike.
  • Offloading all non-revenue producing operations to a less expensive alternative provides another method to increase the productive use of space.

One other element to increase revenues is by creating an environment that entices customer to spend more. For sport stadiums such space ambience elements can be used primarily for the ancillary revenue generating areas such as the retail and F&B area by using adequate ambient, design and social elements such as light or music.

And lastly, a substantial revenue generating area in sport arenas stems from advertisement. This category sells both time and space explicitly meaning that the stadium has control over how long a certain ad space is used but does not give the control over how space is defined. Especially during games that are televised, this results in tremendous revenue generating opportunities.

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MANAGING TIME

Selling time implicitly

Stadium operators sell time implicitly as they sell service experiences in the form of events such as a baseball game or a concert rather than time by the minute or by the hour.  As the length of such an event is mostly determined by external forces such as the duration of a game, they have less control over how long customers use their space. This might limit the revenue potential of the sports arena.

Examples to sell time explicitly

However, there are certain ways where sport stadiums can also explicitly selling time such as by the minutes, the hour or the day. This has the advantage that the company can better control its capacity because they know how long customers will use the space. Stadium operators have different options to sell time explicitly.

  • Advertisement: Especially during games that are televised, this results in tremendous revenue generating opportunities
  • Subletting space to restaurants and bars
  • Subletting space to retail and souvenir shops
  • Parking lot revenue management
  • Events such as meetings, conventions, etc. The following links shows a stadium which rents its space by time: http://www.ohiostatebuckeyes.com/facilities/rental-information.html

Advertising cost for 30 sec during Super Bowl

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MANAGING PRICE

One revenue management strategy to manage time is using rate fences. They give companies a logical rationale to justify price discrimination.

Physical rate fences

Physical rate fences are characterized through tangible features such as: