While the odds of predicting a perfect bracket might be longer than those for winning tickets to the NCAA men’s basketball Final Four through the lottery, March Madness fans still have to rely solely on luck for both.
Fans send payments for tickets a year in advance – long before they know if their teams will advance to the tournament – and hope to be chosen through a lottery.
An alternative method was developed by marketing professors and with Preethika Sainam (PhD ’08) of Arizona State University. The researchers used the purchasing of Final Four tickets as a model for applying options and forwards to consumer markets.
is the first to apply financial options to consumer marketing and analyze forwards’ empirical performance in consumer markets.
In the case of options, buyers pay a fee to a seller that allows them to buy a ticket at certain time and an agreed-upon price. The buyers are not required to buy that ticket, but if the price is lower than market value on the agreed-upon date, the buyer could purchase it and lock in the profit.
A forward operates in a similar manner, but the buyer is required to purchase the ticket on the agreed-upon transaction date, regardless of whether the agreed-upon price is lower than market value at that time.
Consumer options and forwards have benefits for the market’s demand and supply sides.
On the supply side, forwards could allow firms to conditionally sell the same seat multiple times to fans of different teams. Only the fan whose team makes it to the Final Four decides to pay and occupy the seat. Other forwards on the seat expire.
On the demand side, fans can invest modestly to reserve a seat, subject to their team making it to the game, and not be left scrambling to buy a seat or sell a costly ticket that has little interest once their team is eliminated.
Forwards also could be used to develop models for selling products such as hotel rooms near a major event like the Final Four or a weekend at a ski resort when the mountain has over six inches of snow.
Managing risk through options and forwards protects buyers and sellers, say the researchers. It also brings more customers into the market and ensures that the fans who most want to see specific teams play are the fans ultimately sitting in the seats.
By Jonathan Groth