Friday, September 4, 2009

Football Economics: Suing the People Who Pay to Maintain Your Sport?

Here's something a little outside my normal fare. I've recently used one example from outside the mainstream of political debate to highlight some basic facts about the immigration issue. Boxer Abner Mares is the very archetype of the immigration issue as it genuinely affects American society. On a less positive and uplifting note, the Washington Redskins are proving themselves an example of the corporate-consumer relationship as it affects the American economy. It isn't pretty.

The Redskins are suing fans who have entered into long-term season ticket contracts. These contracts offer season tickets to purchasers at a significant discount in exchange for a commitment to purchase said tickets every year of the contract's duration. The fans in question are not being sued because of money that the organization has lost. They are being sued for breach of contract because they cannot afford to buy season tickets this year. The customers being sued, overwhelmingly, are individuals who have taken significant economic damage from the credit crisis of 2008. Examples given in the linked piece include:

A real estate agent whose business has been wiped out by the collapse of the housing market.

A car salesman who lost his job.

A developer whose business is hurting so badly that he had to make drastic labor cuts.

This is not even a case of a corporation chewing up the poor, these people were comfortably upper middle class before the credit crash. They were able to enter into agreements in good faith based on their income. There was no reason to believe they would not be able to fulfill their commitments. Their only reason for defaulting on their contracts was an unforeseen disaster that they had no way of predicting. It is telling that many of them, in their new circumstances, cannot even afford to retain lawyers to fight the lawsuit.

It is also important to remember that we are not talking about genuine losses. The Redskins (through the subsidiary that owns the stadium, Wfi Stadium Inc.) have already pocketed the money from all tickets already purchased. They are not suing for money they have lost. They are suing for money they now will not earn because of the change of economic circumstances. This appears straightforward at first glance, they want to make sure the contract is honored.

The problem is, by not selling those season tickets at the discount rate, they now have the ability to sell those season tickets at full price or to sell the individual seats per game at a far higher rate than the seats would have fetched reserved for season ticket holders. So they stand to make more money by voiding the agreements than they stand to lose. They will certainly sell the tickets, regardless of the awards they receive in court, if the defendants cannot pay the judgments. Football games routinely sell out, which means the freeing up of new seats allows them to sell tickets in situations where they would not normally be able to sell them. At, I must repeat, full price. Which means they stand to make more money than they lose and anything they do collect from the people they are suing is simply gravy.

Contract law is on the Redskins' side, most likely. I am not a contract lawyer, but it would appear to me that a binding agreement would have to favor the Redskins in this case. However, there is clearly no breach of good faith here and it is only right to void the contracts and keep what's already been paid while the fans go without their tickets. No harm, no foul for either side. Especially with the increased revenue from the freedom to sell those season tickets at a higher price or to sell individual seats on a per game basis at a much greater total profit.

More importantly, however, is the fact that this lawsuit threatens the Redskins' brand. By suing their fans, the team risks undermining their credibility with the consumers on whom their business depends. Releasing the fans from their contracts does not harm the team and enahances their brand as 'fan friendly.' Suing their fans presents a completely different picture. One can tick down the history of professional sports to find owners who have lost a great deal of money or been forced to sell their teams because of the damage done to the brand by their business decisions. It's not hard at all.

This is merely an example of a problem widespread throughout American corporate culture. The American corporation frequently fails to understand its best interests vis a vis the best interests of its customers. It views its relationship with consumers as written in stone and does not consider how its actions might affect its relationship with those consumers. The myths of supply side economics allow one to believe that advertising dollars will magically replace every customer lost. The problem is that advertising costs money and the increased marketing and PR budget necessary to offset customer loss raises the price of the product... thus it risks making the product more difficult for consumers to purchase and losing even more of its market share. This cycle is self-repeating. The more customers are lost, the more advertising is necessary, and the more the added expense of advertising increased product price the more consumers are priced out of the market.

This is basic economics and, if the world really worked the way the advocates of the 'free market' claim that it works, corporations would not fall into this trap. The American auto industry is an excellent example they they do. The Washington Redskins are setting themselves up as the next General Motors.

Perhaps they should simply show some sense now, take the money and run, and avoid the cycle before it starts.

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