Planet Money - Hot Dog Hail Mary (Classic)

Episode Date: November 27, 2020

The Falcons are trying something radical: Making their food cheaper. It could break stadium economics.Learn more about sponsor message choices: podcastchoices.com/adchoicesNPR Privacy Policy

This is Planet Money from NPR. Hey, it's Nick Fountain. Normally on Thanksgiving morning, I wake up, fill up a thermos of coffee, get in a cold car, and drive to a football game. I watch my high school football team, Go Wolf Pack, play our rivals. Boo! No, just kidding. I don't really care about who wins the game. I usually just go and sit with the football band and catch up with my friends. And if I'm lucky, Mr. Pitts lets me hop on snare drum for Louie Louie or maybe even my favorite, Wipeout.

This year, obviously, I did not go to see a football game. I haven't been to a live sporting event in months and I miss it, as I'm sure do a bunch of you. So today on Planet Money, we're going for a pure nostalgia play. We're going to play an episode I worked on with reporter Teek Root back in 2018, all about live sporting events. The episode started at Madison Square Garden at a New York Knicks game. We're there for a little research. Ice cold beer, York Knicks game. We were there for a little research. Ice cold beer? Cold water? How much is Bud Light? Bud Light, $14. One Bud Light? One Bud Light, $14. Longtime listeners of Planet Money will know that I used to work at a stadium and all the time people would complain about the prices. Like $4.25 for a Coke? What is there, rum in it? And I would be like, you don't like it? Don't buy it.

But now I'm just a mere consumer. And this sort of stuff, it kind of gets to me. Hey, how are you? Could I have two hot dogs, two pretzels, two beers, a popcorn and a water? Which beer, Stella or Bud Light? Just Bud Light. $62.75. Yikes.

Stadiums are like airports and movie theaters. They're captive markets. Once you're inside, you don't have a choice. It's basically a monopoly. The reason this works out so well for the monopolists is you always think that you can somehow avoid getting hungry, but it's a waiting game, and eventually you always do. And so demand for hot dogs and bud, it doesn't change all that much.

And the monopolists have been pushing the limits of that forever. Oh man, it's a pretty good dog though. No, these are good. It's like 75 cents per bite. I was going to say that's a good deal, but if you do the math, I'm not so sure. Yeah, we're not so sure any of this makes sense. What if stadiums have actually been hurting themselves? What if they haven't really understood their own market?

Hello and welcome to Planet Money. I'm Teak Root. And I'm Nick Fountain. And Teak, we are here today because you told me that someone is messing with this whole captive market thing. The Atlanta Falcons, they're bringing prices down. They're selling hot dogs and beer for relatively normal prices, like $2 hot dogs and $5 beers. Today on the show, what happens when a major sports team turns stadium economics upside down? team turned stadium economics upside down. Can I talk to the grill master real quick? We get to Atlanta, walk to the stadium, and meet Zina Smar.

She's been tailgating for 17 years. Alright, what are you cooking today? We are doing burritos and tacos and nachos. Think about tailgating for a second. For the price of parking, some charcoal, and some ice, you get to eat delicious hot food, medium rare even if you want it, at supermarket prices. Now, we obviously don't know if tailgating is a direct response to the crazy prices inside stadiums, but sometimes it kind of feels like it.

We're in Atlanta to see how the Falcons' experiment with food and beer pricing is working. Last season, the Falcons dropped their prices. And our first question is, have people even noticed? We asked Sina, have you noticed that the food's cheaper? She's like, oh yeah. Much cheaper. But she still isn't buying more inside. Us old-time tailgaters, you know, we got a tailgate. So by the time we're going to game, really, we're full.

So the only thing they probably can get out of is a drink, you know? Okay, this next question is more of a personal obsession of mine. Because the food is so expensive inside most stadiums, I always bring my own snacks. Some stadiums allow it, but many, including the Falcons, do not. But where there's a will, there's a way. And our economist brains are like, now that food prices inside the stadium have dropped,

is that will lesser? Do people used to sneak in more food? I don't know about the food. Like, oh. Now the alcohol. How do people sneak alcohol in? Do they just put a little bottle under there? I can't tell you our secret. Oh the alcohol. How do people sneak alcohol in? And they just put a little bottle under there? I can't tell you our secret.

Oh, please. We say goodbye to Xena. Go Falcons. Go Falcons. Rise up. And walk into the stadium. Our first stop is the front office. There, we find Rich McKay, the head of the Falcons organization.

Rich is American football royalty. When he was a kid, he was the ball boy for the Tampa Bay Buccaneers. His dad was the coach. He grew up, became the general manager of the Bucs, hired Tony Dungy. He seems like a walking, there is no I in team poster. He only speaks in we statements. What are we doing? We on camera or are we just talking?

Just the radio. Take off that jacket. Love that. Take off your shoes if you want. Yeah, no, no, I got comfies on so far. Rich started off on the football side of things, but eventually he moved to the business side. And he started looking at the NFL fan surveys. He noticed two things that the Falcons were completely failing at.

The food and the parking. The parking, there wasn't much he could do about that. And the food? Could you complain about, I don't know, warm beer? Yes, you can complain. That's all you do is complain. It's nothing that happens as a result of it. The way stadium food usually works is people like Rich pretty much outsource all of the food stuff to a huge company called a concessionaire so that they don't have to worry about the food at all. But also, they can't do

anything about it. So Rich knew the food situation was bad, but he didn't know how bad until this one day. We had a ticket guy came to me and he said, hey, I want you to go to a meeting. We're going to meet with the concessionaire and we're going to talk about the setup for a suite. Suite like Skybox, where the fancy people hang out. Concessionaires run those too. And I said, well, what are we going to talk about? And he said, the pricing. And I said, okay, well, what's your concern? Well, my concern is that they charge this, this, this. And do you know that for the little stir straws, they charge 36 bucks? Wait, wait, wait. Not per straw. No.

Per a box of 20. So Rich and the ticket guy, they grab a box of straws and bring them to a meeting with the concessionaire. We said, yeah, we give them a package and they don't really look at it. They just pay us for the setup. And we said, well, but give them a package and they don't really look at it. And, you know, they just pay us for the setup. And we said, well, but look at the straws. I mean, isn't this a problem? For Rich, a line had been crossed.

You might say it was the final straw. That's when we asked about the contract. That's when we asked about, well, how are these prices set? And by we, this time he means Greg Beatles. Greg is the chief operating officer of the Falcons. A little more reserved, numbers guy, and also cheap. Like, when he'd take his wife and kids to the game... I'd get a hot dog, cut it in half, give each of them a half of a hot dog,

and buy two waters and four straws. Hey, this is too expensive. You guys gotta share your water. Greg looks at the contract, brings what he finds to Rich. And according to Rich, it's not good news. They were in charge of pricing, the concessionaire was, and they were allowed to charge, quote, market prices. So we said, well, you know, a $6 hot dog is not a market price. And they said, no, no, market is defined by similarly situated sports venues. And we were like, that's a terrible definition of market. You know what it's a good definition of, though? A captive market.

A place where one seller has a monopoly, and no one can undercut them. What the Falcons needed was a new contract, and they had an opening. They were designing a brand new stadium, and with it comes a new concessions contract. So they told all the big concessionaires, come to our offices and pitch us. And they all came with the same sort of contract that everyone uses. One where the concessionaire writes a huge upfront check to the stadium, and then they both split the revenues from the food. Someone came in and pitched us, we'll write you a check today for $20 million

so you can buy all the equipment that you need to buy. We'll give you 60% of the gross revenues. So before any expenses are paid and you're just done. And then we worry about all the rest. Best deal you could possibly get, right? That'd be the best deal you could get. And that's very enticing. Just we could be done with it. We don't have to worry about it anymore. I used to work at a stadium in concessions, and this right here was a revelation to me. I did not know this is how these deals were structured, but now I understand why prices are so high. Right from the start, the concessionaire has dug itself a multi-million dollar hole. So for them to get their money back, there's only, you know, two sides of the balloon left to squeeze.

And it's food quality. Let's buy the cheapest food that we can and let's charge as much as we can. And maybe, you know, a third is labor. Let's have as few people as possible to make all of this happen, which all of that translates into bad fan experience. That's why it takes so long to get a hot dog. That's why the hot dog costs so much and that's why it might be cold. That's right it takes so long to get a hot dog. That's why the hot dog costs so much. And that's why it might be cold. That's right. Exactly right. In other words, the fan loses.

And if fans keep losing, well, at a certain point, sitting on my couch watching my new HDTV with my frozen pizza starts looking pretty awesome. Yeah, and the fan can't be watching the TV and be at the stadium at the same time. So the Falcons decided to take charge of concessions and get rid of the whole revenue share thing. Instead, they'd pay a concessionaire a management fee, but they'd control everything. How many cooks there are, the quality of the food,

and importantly, the prices. The team didn't want to just lower prices. They wanted to make a statement. We called it street pricing. Like $2 popcorn, $3 fries, $2 sodas. With unlimited free refills. The hope was that people would be happier, sure. But also, there's some economics 101 here.

Lower the price, increase the quantity demanded, and hopefully recoup some of the cost. We were trying to figure out, Greg was, through models of, okay, if we reduce pricing, what demand is that going to drive? Greg estimated that at most people would be buying 25 percent more than before. But because they dropped prices so much, it looked like they were still going to leave money on the table compared to the old model, even though they were selling more nachos and Heineken. But they were really invested in this idea. So they decided, let's go ask the owner of the Falcons, Arthur Blank. He'd been on them for years about improving the fan experience numbers. So they drove to Blank's office, went to a conference room and sat around

a table. It was shaped like a football. We were a little nervous. Whenever you're going to go to your boss and make a pitch that involves, you know, lost revenue potential, you're a little nervous. So you walked into Arthur's office and told him he was going to lose how much money? $4 million. But Blake went for it. He really wanted those fan experience numbers up. Yeah, it turned out convincing their boss was the easy part. The hard part was finding a new partner in this, a new concessionaire. They pitched it to

a few of them. Hey, we've got this new model for concessions and we're going to be reducing prices like a lot, like 50 percent. And could they and would they see themselves being a partner in that? And that was a little, that shook them. Remember, the Falcons are the client. But most of these concessionaires, they just couldn't even comprehend what the Falcons were proposing. They were messing with one of the oldest money-making relationships in the business. The team ended up working out a deal with a concessionaire they knew. They had done the food at their old stadium. And so the Falcons made an announcement.

We're bringing prices down. But you know who doesn't like to hear, hey, we're trying a radical experiment that might unanchor your customers' perceptions of how much they should be paying for your overpriced product? The billionaires who own the rest of the NFL teams. The first NFL owners meeting that we went to after we announced it, there were other teams that were mad. I mean, really upset with us. What are you doing to us? Why are you guys doing this? You know, this is a big revenue stream for us. Don't forget, the Falcons were planning on losing $4 million on this proposition. And that was assuming people bought 25% more products because of cheaper prices. But really, they didn't know what would happen.

Nobody had really done this before. Okay, enough Monday morning quarterbacking. I want to see this in action. It's game time. Atlanta is playing the Tampa Bay Buccaneers, and so far, it's been a rough season for the Falcons. They need a win. We get inside and take a look at the field. But I want to be roaming the concourse,

because I want to know, are people buying more? We should say what the Falcons are doing is not too radical for a business. Like all the time businesses shift their prices to increase profits. You got your supply curve, your demand curve, and right where they meet, that is the optimal price. And our question is... Nick, shh. It's the national anthem. Oh, sorry. Teague, how much money do you have in your wallet? Let's see, I'm taking it out here and I have... None, you have none. None. Tell you what, I'm gonna lend you 20 bucks.

All right, we each got 20 bucks, let's go spend it. Let's go, Nick. We head into the concourse. I gotta say, it's not halftime yet, is it? Nope, we still got a ways to go. There's a lot of people waiting in line for food. Whoa, it's like, what, 40 feet down the way? Yeah. The thing is, more lines don't necessarily mean more profit. You drop the price and your margins are thinner. Okay, you got two hot dogs,

two fries, one popcorn, one bottle of water, and two Bud Light. That's right. $28? No way. That's pretty much the same thing we bought at Madison Square Garden at half the price. All right. End of the first half. We got a lot more food to eat. We got a lot more money to spend. After the break, we'll come back and eat the rest of the food.

I'm still eating, Nick. We head up the stairs past this guy. I got the cold beer. You tell everybody, I got the cold beer. I, me, I got cold beer right here. And find David Collins, plate full of snacks. Hopefully we can pull it out, but the defense, man, we got to get better on defense. Oh. And as I say that, we got a plate.

Yes! Woo! That's why I love these guys, man. That's why I came here to watch this. David came all the way from New Jersey. He's a big Falcons fan. He goes and sees them when they play in Philly. My brother's an Eagles fan.

They suck. I go to the games with him, and the last time he played in Philly, it was ridiculous. I paid almost $40. On what? On just beer, a burger, and popcorn. It was ridiculous. And today you have what, a burger, fries, and a soda, a big soda? This is the second time I actually bought food. Like I've never bought more than food one time at a stadium.

This is great. That right there is the sound of high fan experience numbers. And Greg and Rich told us this whole project has been a wild success. For one, people are coming in way earlier and spending more money because of it. They said they're selling as much before the game even starts at the new stadium as they did the entire game at the old stadium. Greg and Rich thought that they were going to leave $4 million on the table, but it's actually way less.

And that's because, remember, they thought they were going to increase sales 25% at best. They've blown past that. They are selling 53% more product. And other teams have noticed, big teams like the Ravens, the Lions, Mississippi State. They are all significantly lowering their prices. The Falcons say they have few regrets, except maybe the free refills on soda. As evidenced by David from Jersey, the guy who thinks the Eagles suck. How many refills did

you do today? This is the second one. Nice. Second one. The second one and there's still a lot of gameplay to go. People are refilling their sodas on average 3.7 times. And Greg says at that rate, he'd be happy if they're breaking even on soda.

ATM! ATM! ATM! We head to the bleachers on soda. A-T-M! A-T-M! A-T-M! We head to the bleachers and sit next to a guy who's really responding to the low beer prices. How much do these seats cost? About $150 or something. A game? Birthday weekend.

Happy birthday. Thank you, dog. Thank you. Cheers. This Michelob's for you. Looking out at this huge stadium, all I could think about was, yeah, sure, good story. Generous owner does right by the consumer. Everyone's happy, blah, blah, blah. But there is more to this. Building this new stadium was really expensive.

And you know what? The Falcons raised their ticket prices. The Falcons don't even sell single game tickets anymore, other than for standing room. If you want a seat, you have to buy season tickets. It seems like the Falcons aren't really even targeting the one-off take your kids to an NFL game sort of fan anymore.

They're marketing towards the people who will come back time after time. Let's just sit back and watch the rest of the game. Yeah, I agree. I may run to the bathroom quickly, but other than that... Before you do that, let's do the credits. We always love to hear from you. Send us an email at planetmoney at npr.org or follow us on social media at planetmoney.

Our supervising editor is Brian Ersat. Our supervising producer is Alice Goldmark. I'm Nick Fountain. I'm T. Groot. Thanks for listening. Alright, here it is. 7 seconds remaining. 21 yards to go. Buccaneers going for it. Oh no! He's going for it! The QB's going for it!

Oh, he tried the lateral! Oh my god! And fumble! Go! Oh, a lateral! That was crazy! Oh my god! Bucs win! And a special thanks to our funder, the Alfred P. Sloan Foundation, for helping to support this podcast.