Thursday, October 16, 2008

Are NBA Tickets A Capital Good or Consumer Good?

The immediate reaction by many would be that it is a consumer good.

But, this isn't the correct answer.

The NBA is eliminating about 80 jobs in the United States, the first major American sports league to announce layoffs because of the worldwide economic turmoil.

This makes a lot of sense.

Commissioner David Stern told The Associated Press last month the league would cut staff in anticipation of the downturn. He said Sunday the figure would be about 9 percent of the American work force, and the league confirmed the number of jobs the next day.

“My guess is that by the time we tip off in a week or so, we will be down modestly in season tickets. … We think we’ll be up in revenue, but I just can’t say for sure whether we’ll be up or down in attendance because it’s just so touch-and-go, because sports tickets are very much disposable income,” he said. “So, we’re not going to see a huge impact, but I dare say we will see some impact.”

According to ABCT, there is a movement in spending from the capital goods sector to the consumer goods sector during the re-adjustment period following a central bank money inflation induced mal-investment period. So why might there be a downturn in sales of NBA tickets?

Because not all buyers of tickets fall into the same category.

If you and the boys are headed out for a night on the town that includes an NBA game, that would be a consumer purchase. The same applies if you are taking your son to a game.

On the other hand, if the tickets are bought by a corporation for the purpose of developing a long term bond with a client or potential client, this should be classified as a capital goods purchase.

My guess, then, is that during a downswing in the business cycle, the NBA will see an increase in family type purchases of tickets and a downswing in the types of tickets corporations favor, e.g. season tickets and suites.

There is also a probably a difference between different sports. I once had a conversation with a Los Angeles Clppers season ticket salesman, who once held the same position with the Los Angeles Dodgers baseball team. He told me that there was a tremendous difference in the clientele between the Dodgers and Clippers, with Clippers season ticket sales being much more corporate and Dodger season tickets being purchased by families or groups of guys splitting up a season.

To the degree this fact holds throughout the leagues, the NBA is likely to be more impacted by a recession than Major League Baseball.

So are NBA tickets a consumer good or capital good? The answer is Wenzel's Observation #2. The same good may be either a capital good or consumer good, depending on POP, the purpose of the purchase.

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