(Corrects revenue figure in headline.)
How much is a San Francisco Giants ticket worth? Barry Kahn would tell you it changes constantly. The 28-year-old New Jersey native, with a PhD in economics from the University of Texas, has developed software that helps the Giants price baseball games in much the same way airlines manage seat prices to keep planes full. Kahn's company, Qcue (pronounced "Q-Q"), crunches numbers on dozens of variables to determine prices that will get the largest number of fans into the stands. The software helps the Giants set prices based on past ticket sales, the day and time of the game, the teams' records, the pitching match-up, the weather, the going rate on resale Web sites like StubHub, and other data.
Ticket prices used to be fixed before spring training; with Qcue, they're adjusted almost daily. Giants officials analyze each section of their 41,500-seat ballpark on a PC screen to see where prices should change. A green shading suggests the team is charging too little; red means too much. The team can test various scenarios. What does a price change in the bleachers mean for sales along the first-base line? Will fans pay $10 more for a better seat? "We want to put people in a position where they make the decision to upgrade," says Kahn, who grew to understand the risks of getting prices wrong after seeing his father's concert promotion business collapse.
The Giants say the technology could add $5 million-plus in revenue this year. Revenues are up 12% this season and attendance has jumped 7% (true, the team is playing well), even as the league has seen a slight decline. Kahn is "changing the ticket world," says Russ Stanley, the Giants' ticketing chief.
Stanley predicts that within five years the entire league will adopt market-based pricing. "Everyone is looking to see what this does for us," he says. Other sports are interested, too. Hockey's Dallas Stars are testing Qcue. The National Basketball Assn.'s Cleveland Cavaliers are working on flexible pricing with a Qcue rival, Indianapolis-based Digonex Technologies, while concert promoter Live Nation Entertainment (LYV) is testing pricing software that should be ready next year.
Qcue makes money via subscription fees and by taking a percentage of any increase in ticket revenues above a certain level. That should add up to revenues of $1 million this year and $5 million in 2011, Kahn says. So far, the six-employee company isn't profitable, and Kahn keeps costs in check by crashing on a friend's couch while visiting his biggest client, the Giants. But he insists he'll soon prosper. "There's big money out there in lost revenue from mispricing," Kahn says—more than $20 billion a year for live sports and entertainment, much of it cash that today goes to scalpers. Flexible pricing, he says, lets teams "hedge their bets in bad times and capture the benefits of the good times."
Created software that calculates the best price for each seat
Demand depends on the weather, the pitchers, the rivalry, and more
PhD in economics from the University of Texas