Monday, March 5, 2018

The unrealised potential of bobbleheads, 2018 edition!

TLDR: "Teams [should] profit maximise by offering promos at games for which they would gain the largest profit. Since live sporting events are mainly fixed cost events, profit maximisation is therefore driven by the number of tickets sold."

Over the last three Major League Baseball seasons, I have developed a model to efficiently schedule promotional giveaways to maximise profit for each team.  In 2018, "I find that my simulated promotional giveaway schedules would attract an additional 110,000 fans league-wide in expectation."

"In totality, the estimated 2018 foregone revenue sums to $3.8 million."

Yes, it is that time of the year already: when each Major League Baseball (MLB) team releases its promotional schedule. And knowing what we know about using promotional giveaways as tool to increase attendance and how dynamic ticket pricing works, I in turn attempt to predict the most profitable way to distribute these promotional giveaways across each team's regular season schedule.

To re-iterate what I have stated in earlier posts, here are two general facts you need to know about promotional giveaways at sporting events (all else equal):
  1. Promotional giveaways increase attendance by about 5%.
  2. Tickets to games with promotional giveaways are more expensive.

Teams acting rationally should then profit maximise by offering promos at games for which they would gain the largest profit. Since live sporting events are mainly fixed cost events, profit maximisation is therefore driven by the number of tickets sold.

For those readers who may familiar with my previous body of work, my methodology has not changed from my 2016 and 2017 editions. For everyone else, here is a short recap:
  1. Scrape each team's website for information on their promotional schedule for the upcoming season.
  2. Parse through the text of the schedule to identify the dates with promos such as (not exhaustive):
    • replica World Series rings,
    • collectible coins,
    • collectible pins, and everybody's favourite;
    • bobbleheads
  3. Merge these promo dates onto each team's respective regular season schedule.
  4. Predict attendance with and without these promos using a simple regression.
  5. Choose the best dates for which promos would be most valuable to the team.
  6. Compare my promo schedule to the actual promo schedule and estimate the foregone revenue to each team.
  7. Repeat steps 4-6 one thousand times in a Monte Carlo simulation.
I found in 2018, there are scheduled to be 254 promo games (excluding the Miami Marlins who have yet to release their promo schedule). This is slightly higher than the previous two years which had 232 and 231 promo games in 2016 and 2017, respectively. Recall that I loosely define a promo as a free item given to fans which have a resale value of at least $10.

Following my methods, I reassign on average 73% of the 254 promo games (185/254).  I find that my simulated promotional giveaway schedules would attract an additional 110,000 fans league-wide in expectation (less Miami). I then multiply my additional but-for world schedules by the average ticket price to get a sense of the magnitude of the estimated foregone revenue. Recall that the tickets to a promo game are, all else equal, more expensive, therefore this is a lower-bound estimate of the true foregone revenue. Below is a graphical depiction the results:

In totality, the estimated 2018 foregone revenue sums to $3.8 million (less the Miami Marlins). In terms of individual teams, we see that the St. Louis Cardinals lead the way in terms of foregone revenue, a trend we saw in 2017.  This is because the Cardinals love to offer a plethora of promos throughout the season, yet are notorious for picking the wrong date for which to offer them: I reassigned 71.3% and 99.7% of their in 2017 and 2018, respectively.

Note that my model never reassigns promos for the San Francisco Giants: the Giants consistently sell out their games and begs to question why the Giants would offer promos at all...

Accumulating the results of the last three years gives us some insight in to the magnitude of the estimated foregone revenue of each MLB team as graphically depicted below:

Again, each year's estimate was assumed to be a lower-bound of the true foregone revenue. And while each individual year may appear to be a small sum of lost profit, we can see how quickly small inefficiencies can add up for a team such as the Cardinals.

And thus, in 2018, there is still some unrealised potential in that little bobblehead - to the tune of $3.8 million.

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