The Use of the Two-Part Tariff

in College Ticket Pricing

2010 June 17
by Phil Miller

When you look at how college athletic department officials make business decisions, they act a
lot like their professional counterparts even though the athletic departments are legally nonprofit organizations. But being non-profit in a legal sense doesnt mean that you, as a decisionmaker, cant have maximum net revenue as an objective. It just restricts how you can distribute
the excess revenue.
Daniel Hamermesh has a post at the Freakonomics blog on college ticket pricing that I paste in
its entirety below.(http://freakonomics.com//2010/06/16/college-ticket-pricing/):
Charles Clotfelter of Duke University has a book coming out soon, calledBig-Time
Sports in American Universities. He offers examples of a number of schools that have
great teams in one major sport (for example, football), and mediocre teams in another
(say, basketball). For their mediocre team, the arena is often half-empty, even though
the ticket price is quite reasonable. There is excess supply. For the powerhouse team,
the ticket price is also reasonablebut at that price there is a huge excess demand for
seats.
How to remove the shortage and equilibrate the market? Simple: at one school, the
price of a pair of season tickets is $1,000; to be eligible to pay this amount, one must
make an annual charitable gift of $7,000 to the university. Presumably this contribution
is sufficient to equilibrate supply and demand. I find this quite disgustingbut I suppose
it is more desirable for the university to earn the revenue than to have speculators profit
1

by purchasing the tickets and then re-selling them at the market price, although I would
bet that some season ticket-holders do scalp tickets on games that they cant attend for
personal reasons.
What hes referring to is the two-part tariff that is so common in business these days. With a
two-part tariff, a person pays a flat fee to essentially get the right to buy a product and then has
to pay again buy the product. Its away to obtain higher profits. Sams Club uses a two part
tariffs and so do professional sports team (only there they are called personal seat
licenses. These donations Hamermesh writes about are no different, except for the fact that
what you are buying is not just the right to buy tickets to one sport, but multiple sports.
When I was a student at Mizzou in the 90s, the athletic department sold what was called an All
Sports Pass. The All Sports Pass cost somewhere between $200 and $250 and gave
students access to all sporting events except for mens basketball*, which was the premier sport
at Mizzou back then. For mens basketball, the pass put you into a lottery for reserved
seating. If you chose not to particiate in the lottery, then you got nose-bleed section GA
seats. If you participated in the lottery, youd get, depending on your lottery number, your
choice of seats with more desirable seats being more expensive, just like in the pros.
Any student who didnt buy the pass would have to pay the usual student admission price to get
into any sporting events, even the non-revenue sports. But students with the passes got into
the non-revenue sports games for no extra charge. My sense was this was a way to maximize
attendance, and thus profits, for the athletic department as a whole.
As far as Hamermeshs comment that the practice of requiring donations being disgusting, I
dont share that feeling probably because I obtain greater satisfaction from sports than
Hamermesh (although I dont personally know Dan) and have willingly bought tickets to college
sporting events for almost 20 years now.
Whatever our relative feelings are on sports, amateur status or not, college sporting events
have a scarce number of tickets available and those tickets need to be rationed in some way,
which Hamermesh seems to reluctantly admit.

High schools join the pros, selling

seat licenses for stadiums
By John Seewer, The Associated Press
Posted 9/14/2005 11:22 PM

Bake sales, raffles and other fundraisers no longer bring in enough money for some Ohio high
schools building new football stadiums.
So a handful in the state and elsewhere have turned to selling personal seat licenses just like
the pros.
High schools selling
seats
SEAT LICENSES: High
schools building new
football stadiums are
raising money by selling
personal seat licenses that
guarantee buyers a
theater-style seat in prime
spots.
HOW MUCH: Prices
range from $150 to
$1,500. Some schools
have several plans that
cost more for the best
seats.
WHY SEATS: Schools
don't have the money to
build new stadiums so
they turn to boosters to
fund the projects. Schools
say selling seat licenses
encourages donors to give
more and support
athletics.

Boosters and longtime ticket holders are being asked to

plunk down from $150 to $1,500 so they can reserve comfy
seats in prime locations.
"It's an innovative way of raising money," said Art Bucci,
athletic director at Fremont Ross High School in Fremont,
Ohio. "Years ago, you just put some bleachers up and spray
painted the field."
Personal seat licenses have been widely used to pay for
construction projects for professional and collegiate teams.
Now high schools are following their lead.
Seat licenses priced at $1,500 and $1,000 helped pay for
part of a football-soccer stadium in Ravenna, Ohio. And
Napoleon (Ohio) High School sold 784 seat licenses at $300
each for its stadium.
"With the way finances are anymore, the schools just don't
have the money," said Brad Musgrave, athletic director at
Napoleon. "You've got to come up with creative ways of
financing if you want nice facilities."
Louisville Trinity High School in Kentucky sold naming rights
to 700 seats in its new stadium that opens Friday. The
$1,000 price tag allows donors the right to buy tickets for
those seats.

"They don't have a permanent license, but they do get first shot," said Rob Mullen, the school's
president.
Donors contributed about $2.7 million for the project.
"We were not going to put a surcharge on tuition or charge a student fee," Mullen said. "We
either raise it or we don't build it."
Ravenna athletic director Dave McBee said the only problem has been that some people who
bought seat licenses don't come to the games so some prime seats are unoccupied.
"They just wanted to contribute," he said. "Some people who bought them don't even live in the
community."
Fremont is planning to build a new stadium next year and will sell $600 seat licenses. Buyers
will get seats with cupholders and their name engraved on the chair.
A few fans, though, have complained that they'll be moved from seats they've held for years.
"I sympathize with them," Bucci said. "You've got people on fixed incomes who've had the
same seats for 30 years. They can't really afford to do that."
The school will try to move those fans to spots near where they had before, he said. "We're not
out to make a lot of money," Bucci said. "This is to build a facility and give it back to the
community."