Ticket Pricing at Yankee Stadium

The Yankees have a very odd pricing scheme at their stadium that belies sound economics. They charge a lot of money for their tickets and none of their tickets are worth as much as they sell them for on an individual game level.

If you go to Stubhub between 5,000 and 10,000 tickets are available to any upcoming game and they are almost all at lower prices than the season ticket price. When the Braves come to New York next Tuesday you can buy 2 tickets in Row 12 of Section 104 (great seats) for $141.85 includes all Stubhub charges; the partial season ticket price point in that section is $100 per ticket or $200 total. This was chosen at random, but almost all tickets on Stubhub, for almost all games, are less than retail price.

The amazing thing is that you can buy tickets to the Red Sox series in July, on a weekend, for just a few dollars over retail price. This is probably the most expensive game of the season, but there are currently 10,903 tickets available for the Sunday night game on July 29. Demand may be high, but so is supply. If you owned season tickets, it is not possible to unload Red Sox tickets to make up for the loss on Tuesday night games against the Braves; the same seats as above are selling for $278.25. But, there are 16 seats available in the 12th row of Section 104; I would expect that price to fall as game time approaches.

Following Stubhub on a regular basis, I am positive you could attend all 81 home games, in pretty much any section of the Stadium, for less money than it costs to buy season tickets. You would probably spend 20-50% more for about 10 games, but you would spend 50-80% less for many more games. Thus, the only rational reason to buy season tickets is to get access to post season tickets which are general worth much more on the open market than the retail value.

On this promise, they are able to sell the mid-30,000 range season of ticket plans, which translates into an attendance of about 40,000 people in a stadium that seats about 52,500. Their pricing scheme is not in the best long-term interest of their team, but may provide short-term benefits.

Short-term: they are selling their tickets for more than they are worth. That means that for every ticket that is sold, they get extra money. Most likely that extra money is more than the cost of eating a few thousand tickets per game and the money those people spend at the game.

Long-term: they are selling season tickets to scalpers more than fans, which diminishes their long-term fan loyalty. Also, it makes season tickets less valuable, because the fun of season tickets is sitting next to the same people each game.

If the Yankees get rid of Stubhub, as they are threatening, it would be devastating for their bottom line, unless they dramatically lower their retail price. Scalpers would not be as willing to buy up the tickets if they are not able to get any money, even at a loss, for regular games. Fans have already dictated that they are not going to pay retail. Season ticket holders that remain will be less likely to resell their tickets for those games that they cannot attend, because it would not be worth the added hassle of selling on a less easy resell market. Thus, I would expect a dramatic drop in season tickets compounded with even more tickets being unused.

Randy Levine, if you read this column, I have a few suggestions. And, I am willing to work for nothing except for a few overpriced tickets and World Series ring if the Yankees go all the way.

Hockey and Conditional Probability

Update 5/27 at 2 PM ET: With the Devils capturing the Eastern Confernece on Friday the markets bore out my assumptions. The Kings were 53.1 percent likely to win against the Eastern Confernece champion when it was 25 percent likely to the Rangers and 75 percent likely to be the Devils. Now that the opponent is 100 percent likely to the Devils they are 58.9 percent likely to win the Stanley Cup. Had the Rangers prevailed they would have fallen to about 42 percent likely to win …

Game 6 of the Eastern Conference finals is tonight, Friday May 25, between the New Jersey Devils and the New York Rangers. The Devils lead the best of seven series 3 game to 2 and are in a strong position to play the Los Angeles Kings for the Stanley Cup. Currently, the likelihood of winning the Stanley Cup is the Los Angeles Kings 53.1 percent, Devils 31.7 percent, and Ranger 15.2 percent.

The Kings are most likely to win the Cup because they have one less round to win. They are already in the finals with 100 percent where the Devils and Rangers face uncertainty in regard to their place in the finals.

The Devils need to win one of the next two games to get into the finals. They are approximately 75 percent likely to achieve that. Thus, the Rangers, who need to win both of the next two games, are 25 percent likely to make the finals. I am assuming the teams are about 50 percent likely to win any individual game and the game are independent (i.e., a loss tonight does not make it more likely the Rangers win Game 7). In reality, the Devils are slightly more than 50 percent to win tonight and the Rangers would be slightly more than 50 percent to win game 7, if necessary.

Based on the current odds, if the Devils are 75 percent to make it to the finals, then they are just 42 percent to beat the Kings when they get there. They are 31.7 percent to win the finals, with a 75 percent likelihood of playing in the finals, thus, 31.7 / 0.75 = 42 percent.

If the Rangers are 25 percent to make it to the finals, then they are 61 percent to beat the Kings when they get there. They are 15.2 percent to win the finals, with just 25 percent likelihood of playing in the finals, thus, 15.2 / 0.25 = 61 percent.

If the markets are perfectly efficient, a Devils win tonight should push the Kings up to 57 or 58 percent from their current 53, as they would have a 100 percent likelihood of facing the Devils. If the Rangers win tonight the Kings should drop to about 47 or 48 percent as they will be a little more than 50 percent to face the Rangers in the finals. If the markets are extremely efficient, you can see them move in real-time as the game progresses.

In the interest of full disclosure my ancestral home is New Jersey and I am proud Devils fan.

David Rothschild is an economist with MSR-NYC. He has a Ph.D. in applied economics from the Wharton School of Business at the University of Pennsylvania. Follow him on Twitter @DavMicRot.

Is the New Jersey tunnel project too big to succeed? The economist’s view. (Originally posted on Yahoo!'s "The Signal" Blog)

Here's the economist's outlook on the problem: While a new rail link would provide positive returns for society, neither private nor public institutions are properly incentivized to make it happen.

Traffic on the current rail links, two 100 year old tunnels, is at full capacity and will only increase over time. Lawmakers and analysts dispute the cost of building a new tunnel, but it's generally estimated to be in the neighborhood of $10 billion. It will take decades to recoup the investment. This type of massive-scale infrastructure is beyond the scope of any corporation, but not for the simple reason of scale. Consortiums of private institutions can raise massive amounts of money. But can you imagine anyone in the private sector investing in a project that may not earn money for several generations?

More important is that the project would have many positive "externalities," or societal benefits that no owner can capture and charge for. If 100 people need to get from New Jersey to New York City every day, society benefits from them sitting in a single train, rather than 100 automobiles: less pollution and less congestion. But the owner of the train or the tunnel it goes through cannot charge one person for the value of slightly cleaner air. Only a government can internalize the value of clean air for all.

While the government can value something like clean air, it is not good at valuing long term investments. In the same way that corporations are obsessed with daily stock prices and quarterly earnings, politicians are obsessed with monthly poll numbers and biennial elections.

Click Here for the Full Text on Yahoo!'s The Signal

Hollande favored as next French President (Originally posted on Yahoo!'s "The Signal" Blog)

François Hollande, the Socialist Party candidate for president of France, has an 85.3 percent likelihood of capturing the presidency from incumbent Nicolas Sarkozy in the upcoming election. At this point, the other three major competitors: Marine Le Pen (far-right), Jean-Luc Melenchon (far-left), and François Bayrou (center) have negligible likelihoods of victory. It is almost certain that the election will be decided in a run-off, rather than anyone gaining a majority in the first round.

Click Here for the Full Text on Yahoo!'s The Signal

Romney’s top-five vice presidential nods: Who’s the potential time bomb? (Originally posted on Yahoo!'s "The Signal" Blog)

Now that the race for the Republican nomination is effectively over, Mitt Romney's campaign is speaking publicly about who they might choose as his running mate. While the prediction markets we rely on for forecasting elections also take action on vice-presidential nominees, this is a different type of race, decided by a small council of insiders rather than an election or caucuses. The current frontrunner in the prediction market data is Marco Rubio, the first term senator from Florida.

A presidential candidate has two political priorities for his second-in-command: That the candidate helps and that the candidate does not hurt. For Romney, this breaks down as follows: A candidate can help by providing the former Massachusetts governor cover from the right, recruiting some votes from the center or left, or by helping capture the candidate's home state or region. A candidate can hurt Romney by overshadowing the campaign, either with questions about his or her fitness for the top office–see Quayle and Palin–or by causing a scandal of some degree. Reaching a bit farther back, one can recall Thomas Eagleton of Missouri throwing the 1972 McGovern ticket into total chaos when it was revealed he was treated with shock therapy for depression and possibly an alcoholic.

Let's look at who leads in the market and their individual potential for helping or harming Romney's chances …

Click Here for the Full Text on Yahoo!'s The Signal

With Santorum out, it’s Ron Paul, not Newt Gingrich, who benefits (a little) (Originally posted on Yahoo!'s "The Signal" Blog)

Gingrich is excited to be the last legitimate challenger to Romney, at least in his own mind, having told Justin Sink of the Hill that "there's a conservative, named Newt Gingrich, and there's Mitt Romney." But with Santorum out, Gingrich's likelihood in any given primary contest remains negligible.

In fact, it's Ron Paul who has an increased likelihood of carrying a state with Santorum out of the way. The market on Paul winning any primary (other than the disputed Maine) jumped to a 7 percent likelihood Wednesday. He has small but non-negligible chances in a few states, including Kentucky, home of his son, Sen. Rand Paul. Santorum dropping out will allow Romney to focus fewer resources on some small states with late primaries, giving Paul and his massive national organization the opportunity for a surprise win.

Click Here for the Full Text on Yahoo!'s The Signal

Should Santorum supporters in Pennsylvania vote for Romney? (Originally posted on Yahoo!'s "The Signal" Blog)

The future of the Republican primary hinges on Pennsylvania, where Rick Santorum must win his home state to hang on to his tenuous position in the race.

The political gambling markets that we watch so closely are extremely confident that Mitt Romney will ultimately win the nomination. This gives Santorum supporters in Pennsylvania an interesting choice when they go to the polls:

Option 1: Vote for Rick Santorum. By definition, supporters believe his positions align the closest with their own. Voting for Santorum sends a message to the Republican Party that the voter wishes the party would nominate a person with similar political philosophies.

Option 2: Hold your nose and vote for Mitt Romney. Presumably, the majority of Santorum supporters would prefer Romney to Obama in the White House in 2013. A vote for Romney helps him end the primary sooner and focus on Obama. Quite simply, it increases the likelihood that Romney wins the presidency in November.

Here is how an economist like me would approach the problem: First, think about how different your political opinions are from those of Santorum, Romney and Obama. If you feel that the distance between Romney and Santorum is very far apart, and that Obama is not much further from your positions than Romney, then it would be rational to vote for Santorum and send a message of support for his positions. If you feel that the differential between Romney and Santorum is relatively small, and that Obama is much further from your positions than Romney, then it would be rational to vote for Romney and give him a boost in November.

Click Here for the Full Text on Yahoo!'s The Signal

Markets predict Supreme Court will overturn health care law (Originally posted on Yahoo!'s "The Signal" Blog)

Because the measure is Obama's signature domestic accomplishment, many people are more interested in the impact the decision has on politics than it has on healthcare. We'll see how Obama's odds of reelection move when the decision comes out. It's not a foregone conclusion what this relationship will be–there are those who argue that the having the law overturned will benefit Obama by relieving his campaign of a political liability. But I am not personally that interested in the effect of healthcare on the election. I am more interested in the effect of the election on healthcare.

There are three choices for how to respond to the uninsured when they require health care. The first is to let them die if they are faced with catastrophic medical costs. We as a country have deemed that unacceptable, so we allow people in this situation to receive emergency care which, if they cannot afford it, is ultimately paid for by the insurance companies in the form of higher fees charged by the hospitals in order to absorb these costs. That means the cost ultimately is born by the insured. Second, we can raise taxes and have the government pay for insurance, which conservatives of course do not like. Third, we can find a private solution, like the individual mandate, that provides for full insurance coverage, but does not rely on government taxes. This raises the number of healthy people on insurance, which allows the system to accommodate higher-cost customers–the basic concept behind market-based insurance.

Click Here for the Full Text on Yahoo!'s The Signal

Election prediction scorecard: PredictWise got 21 of 26 forecasts correct (Originally posted on Yahoo!'s "The Signal" Blog)

As we reach the halfway mark in primary season, PredictWise is pausing to take stock of our predictions so far and how effective the political markets have been in forecasting the winner. We've made calls at least a week in advance for 26 primary contests so far—every matchup, excluding territories and nontraditional matchups in Missouri and Wyoming. Our predictions, which are based on data from the gambling markets at Intrade and Betfair, were correct in 18 of those seven days before the election. At five days out, the odds rose to 21 in 26. Interestingly, they were equally accurate one day ahead of time.

It's easy to assume that the reason we—or anyone else—got some of those predictions incorrect is that our methods are flawed. But one of the principal lessons of this campaign cycle, so far, is that in fact elections are subject to the fall of the dice, and that no model for predicting them can ever be correct in every instance. In other words, we don't want to be right all of the time. That is why we attach likelihoods to all of our forecasts. When we say Rick Santorum has a 50 percent likelihood of winning a state, we literally mean he will win every other time. When we say 20 percent likelihood, we mean it will happen 1 out of 5 times.

Click Here for the Full Text on Yahoo!'s The Signal

Previews: Louisiana (politics) and Kentucky (basketball) (Originally posted on Yahoo!'s "The Signal" Blog)

Rick Santorum is going to win the Louisiana primary today with 97 percent certainty. Then he is highly likely to lose the three following primaries on April 3 to front-runner Mitt Romney: Washington, D.C. (Romney at 96.3 percent), Maryland (Romney at 97.1 percent), and Wisconsin (Romney at 90.6 percent). More importantly, Romney is now 91.1 percent likely to capture the Republican nomination, according to prediction market data.

OK, I have provided the necessary political commentary for the day. Now let us return to the more exciting contests.

Kentucky continues to dominate the NCAA tournament, and now stands at 35.5 percent likely to win the tournament; Kentucky's rise from 26.7 percent to 35.5 percent is an interesting story. Its largest sustained jump in likelihood did not occur during any of its three tournament wins (which were highly anticipated), but during Michigan State's loss. That loss (which we gave a meaningful 33.5 percent likelihood) ensured that the winner of the South Region would face no higher than a fourth seed in the semifinal contest. Kentucky is strongly favored against No. 3 Baylor to make that trip to the Final Four.

Click Here for the Full Text on Yahoo!'s The Signal