2010 World Cup: Sepp and Co. Need an Economics Lesson
Though I am a die hard USMNT fan and all-around obsessive follower of the international game, I have not yet had the opportunity to see the World Cup in person. Needless to say, I've been eying up South Africa ever since Germany '06 came to a close. But thanks to some inept measures from FIFA, this World Cup has priced out many fans, including yours truly.
The Telegraph is reporting what we all suspected; overseas World Cup tickets sales have been disappointing. There are so many things here that FIFA didn't seem coming that have contributed to the issue, and it's pretty baffling that they had so little foresight. Then again, it's understandable for a Sepp Blatter-led administration that has been criticized for just looking for the quick buck.
Let's take a look at the circumstances surrounding this tournament. Ticket sales began in the midst of one the deepest global recessions since the Great Depression, and they have continued with the world still far from its former level of output. Couple that with the fairly common security concerns surrounding a nation where violent crime is a problem, and anyone who has taken a basic economics course to tell you that you should expect a decrease in demand.
For a moment, let's all take a little return to the classroom for a little Econ 101. How should a market adjust to reach equilibrium if demand is much less than supply at a given price level? By lowering the price; if this isn't done, there's an excess supply of tickets that will go unsold (see: FIFA's current dilemma). This is such a simple, simple model that carries a pretty common sense recommendation: if sales are below expectations, adjust the pricing. It just boggles me that FIFA has only really taken notice of this and made an effort to correct it until now. Really, these people have to be somewhat educated to get in these high ranking positions, right? Right?
Yes, FIFA general secretary Jerome Valcke's announcement today that ticket categories would be downgraded in order to make them much more affordable to South African residents (so as to sell out every game) falls into the "better late than never" category. But the fact that FIFA waited until this long to make any kind of move now dampens the effect that hosting this global spectacle can have on the South African economy. Instead of those extra tickets going to foreigners who will spend their money on hotels, food, and memorabilia, they will stay in the hands of South Africans, removing that extra injection of outside income from the picture. If this tournament was really about South Africa, FIFA would have made more of an effort to get tickets sold to fans around the world.
Instead, they pretty much did the exact opposite. They gave Match, an agency conveniently led by Sepp Blatter's nephew (as Pitch Invasion astutely pointed out), exclusive rights to sell ticket and travel packages. Essentially, they gave this agency a monopoly on hotel rooms in the various host cities. And, back to Econ 101, what usually happens with a monopoly? Higher than normal prices, which in turn leads to a drop in demand. Couple that with the well-publicized price gouging that has been going on with flights to South Africa, and demands drops even further. Seriously, NO ONE SAW THIS COMING?
As much as I'm sure FIFA likes to think that the draw of the World Cup can allow them to charge a pretty hefty premium, they're learning now that that simply is not the case. Though footy fans across the globe spend nearly four years excitedly looking forward to the next tournament, there is a limit at which they just won't pay to see it in person. Hopefully, Sepp Blatter and company aren't so inept that they repeat these mistakes in 2014 (a tournament for which Match also has exclusive rights. Doh.). At this point, however, I wouldn't put it past them.
As if all this wasn't bad enough, there's the whole matter of FIFA holding down entrepreneurship with its rigid stance on merchandise and World Cup business ventures. Another measure doing its part to hinder the growth of the local economy.
Though it can't stop this company from making a splash. Heck, even though it's in poor taste, at least their taking some of the surrounding market circumstances and concerns into consideration. That's a lot more than FIFA can say.
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2 comments:
Supply and demand is not a relevant model for this situation. That model is for markets in which there are many buyers and sellers. When there is one seller there is a monopolist, and price will remain above the competitive level. Monopolists don't even have supply curves.
A relevant model would look like this:
FIFA has 100 seats to sell. They can sell 60 at $100 each or 100 at $50 each. What should they do? Clearly they make more profit by leaving 40% of the seats empty.
That doesn't mean you have to like FIFA, I sure don't, but they may very well be doing what makes the most economic sense for themselves. And if all those tickets end up going to South Africans that's not something I can really be upset about either.
Thanks for commenting, Aaron.
The thing is, what FIFA wants is to fill stadiums. They said though themselves in one of the articles I linked. So, although they are the only seller, they can in effect act as a responsive market akin to one featuring multiple sellers. Yes, they want profits, but filling the stadiums is clearly the objective, with the recent decrease in ticket prices serving as evidence of just that.
Their mistake though was bringing in a third party that essentially created a monopoly, that being Match.
As you said, Match's main concern is profits, so they'll gladly sell less for more to up their profits. But that doesn't exactly mesh with what FIFA wants, which is packed stadiums that will look appealing to sponsors and television viewers.
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