Now the results are finally in and, regardless of the on-field success in San Diego, I would like to turn my attention to the financial success of the Five-Win Pass.
I calculate the increase in profit attributed to the Five-Win Pass to be $156,000 but that if just a small percent of single-game ticket sales were diverted to the Five-Win Pass, the Padres would have been better off not offering the Five-Win Pass altogether.
All I can say is that cannibalization is no laughing matter.
Last month, I explored a unique promotion offered by the San Diego Padres: the Five-Win Pass. The Padres announced that starting 27 July 2018, for $99, fans could purchase a Five-Win Pass that guarantees them entrance to every Padres home game until the fan got to see five wins. As I explained, the pass was probably worth the $99 price tag, but it depended on how many games the fan expected to attend and if they did not mind watching the Padres lose.
Now the results are finally in: through 21 games of the Five-Win Pass, the Padres are 7-14, meaning fans who picked 13 games at random still have a 50% chance that their pass is still valid!
Regardless of the on-field success in San Diego, or lack thereof, I would like to turn my attention to the financial success the Five-Win Pass brought to the San Diego Padres. The first step of determining the financial success is to find out how many Five-Win Passes were actually purchased. Since I cannot exactly call up the San Diego Padres front office and ask how many tickets they sold (and, believe me, I have tried...) I need to estimate the increase in attendance at Padres home games since the commencement of the Five-Win Pass.
Thus, I turn to my simple model to predict home-game attendance (which I have used in many other blog posts to study $1 Hot Dogs and the Chicago White Sox, When the Oakland A's Did Not Charge for Admission, or How Bobbleheads Are Under-Utilized). The simple model controls for the Padres opponent and the day of the week, month, and year of the game. With just these few controls, I am able to explain 80% of the variation in the home-game attendance.
I run my aforementioned model up to 27 July (the first day of the Five-Win Pass) and then use the estimated coefficients to predict the attendance all subsequent Padres home games. I then assert that the difference between the actual attendance and the predicted attendance of the Five-Win Pass games (known as the residual) is the Five Win Pass's effect on attendance. Below is a graphical depiction of the residual and it represents the increase in attendance over the entirety of the Five Win Pass.
The second step to understanding the success of the Five-Win Pass is to translate these results in dollar figures. To do so, I calculate a basic profit formula as follows:
where π is profit, TR is total revenue, and TC is total cost. I expand this to the following:
The ticket revenue attributed to the Five-Win Pass as the price of the Five-Win Pass multiplied by the largest increase in attendance over the entire promotion (i.e. the largest residual). Using some historical data, I calculate the concession revenue to be ⅓ the average Padres ticket price (Forbes says it is $25), and the cost to be the average baseball operations per ticket to be $5.50 (see here for a more detailed description why). Now our formula is as follows:
Therefore, I calculate the increase in profit attributed to the Five-Win Pass to be $156,000!
Wait, only $156K?!
But, consider that I suggest 8,500 Five-Win Passes were sold and the seats would have otherwise sat empty. An additional $156K near the end of a disappointing season can certainly be called a success (consider that three divisional rivals are fighting for a playoff spot and the Padres never had more than a 1% chance of making the playoffs this year...)
But before we chalk this entire promotion up to a win, lets not forget about the potential for cannibalization: there may be some fans who purchased a Five-Win Pass but would have purchased single-game tickets if the Five-Win Pass was never offered. If the Five-Win Pass cannibalized any single-game ticket sales, the true number of Five-Win Passes would be larger than simply the increase in the attendance during the promotion, although I have no way of assessing if there was any cannibalization. However, cannibalization could be a major problem as average ticket revenue per consumer is declining as the Five-Win Pass continues (i.e. the Padres lose more and more games), and the cannibalized single-game tickets are actually a detriment to the Five-Win Pass's success.
Let's define the cannibalization rate as the quantity of lost single-game tickets divided by the quantity of Five-Win Pass tickets. If we assume just a small cannibalization rate, the success of the Five-Win Pass begins to look like a bit of a failure. Below is a visualization of the effect of this phenomenon on profit compared to the situation where no Five-Win Pass was offered.
By some measures, the Five-Win Pass was a success. But when we consider that some fans may have bought single-game tickets but instead opted for the Five-Win Pass, we begin to witness the effect of cannibalized sales. And while I do not know exactly what the impact was exactly, what I can say is that cannibalization is no laughing matter...