CalgaryNEXT, Ticket Prices, and Scarcity Economics

We’ve discussed a lot of different aspects of the CalgaryNEXT development around these parts lately, and today I want to discuss something that’s been bothering me a little bit.

The Calgary Sports and Entertainment Corporation are asking for a fair amount of public money to build their arena. To actually get into the building to watch professional sporting event in the new building, such as a Calgary Flames game, people will have to pay again through buying a ticket.

Scarcity economics is what’s bothering me in regards to event costs.

Right now, the Scotiabank Saddledome seats roughly 19,289 paying customers. At that capacity, the Flames have an internal budget based upon how much it costs to operate the team and the building and all the associated amenities. Let’s use Forbes’ calculations from last year for the average ticket price, which they tabbed at $65.

Presuming the building’s at capacity every night, they’re looking at revenues of about $1.254 million per game. At 41 games a season, that’s about $51.405 million of revenues from the entire season. (Aside: with the ability to bump ticket prices up a bit, now you get why owners love playoff games.)

Now, the literature regarding the proposed Arena Event Centre in the CalgaryNEXT project says that the building will seat 18,000 for hockey. That’s obviously not set in stone, but that’s what they’re planning right now. If the building’s capacity is reduced, as it apparently will be, then ticket prices will need to go up in order to keep revenues the same – I’m presuming ownership will want revenues to be (at least) the same if they’re ponying up $200 million for the new digs.

To keep revenues the same, at the proposed reduction in capacity, the average ticket price would need to go up $5 – from $65 to $70. (This is probably an optimistic view, as most of Ken King’s public comments have involved a larger lower bowl and presumably a reduction in higher-up, and cheaper, seats.)

And that’s ignoring the fact that the proposed funding structure includes $250 million of revenue from a ticket tax. It’s unclear at this point (a) what the tax percentage would be or (b) at what point it’d be added on. For what it’s worth, in Edmonton, it’s a 7% tax right now.

A 7% tax would bump the average ticket price up about $4.50, while a 10% tax would bring it up about $6.50 (depending at what point it was calculated, before or after the capacity drop).

All-in-all, a 7% ticket tax and a price hike to maintain revenue levels would move the average ticket price up from $65 to around $74.50. That’s just looking at the primary market, and ignoring how much a potentially successful team would drive up demand and likely drive up prices on the secondary ticket market.

Would the average ticket price moving from $65 to $74.50 price people out of using the new facility? Yeah, probably. Would it price out a lot of people? I have no idea. But it’s something to consider given how much public money that the Calgary Sports and Entertainment Corporation are including in their proposal for new facilities for their teams.