DO A MEA CULPA NOW CHURCHILL DOWNS

Excerpt from Churchill Downs’ (CDI) controversial procedure for purchasing tickets to the 2012 Kentucky Derby and Kentucky Oaks:

“A deposit in the amount of $100 is required to be paid by credit card at the time you submit your preferences. If your request is filled, your $100 deposit will be applied toward the price of the tickets being purchased. If we are unable to fulfill your request, $50 of your deposit will be refunded to your credit card and the remaining $50 will be retained as an administrative fee.”

This policy has provoked outrage among horse racing fans who are posting messages–on various websites–that are virtually all hostile toward CDI.

Ticketmaster and most websites that sell tickets to entertainment and sporting events apply an administrative fee. However, to my knowledge, none charges an administrative fee to people who do not actually obtain tickets. The U. S. airlines are some of the worst offenders when it comes to tacking on fees and some are now requiring extra dollars to reserve the most desirable seats, but such charges are for customers—not would-be customers.

From CDI’s perspective, the company might argue that people who want to purchase tickets are better off under the new procedure. Typically, professional ticket scalper organizations submit numerous ticket requests to high-profile events; this is done under multiple names to get round ticket limits imposed. Scalper requests can have the effect of dramatically reducing the chances of an individual who puts in an order for a few tickets. CDI could advance the proposition that CDI’s imposition of a fee on losing requests will result in scalpers not submitting so many requests. The fallacy in this logic is the administrative fee will undoubtedly also deter individuals whose sole goal is to attend the Kentucky Derby rather than to purchase tickets for resale. Moreover, the scalpers can pass on their additional costs by simply raising ticket prices for an event as much in demand as the Kentucky Derby.

From another CDI viewpoint, the company stands to make considerable incremental cash. If the ticket requests were oversubscribed by, say, 10,000, the administrative fees would amount to $500,000, less about $15,000 CDI would pay the credit card companies for processing the orders.

Lastly, CDI might point out that the vast majority of people who buy Kentucky Derby tickets neither read nor post on horse racing message boards.

The overriding question for CDI is whether the monetary benefit from the administrative fee outweighs the public relations fallout. The company evidently thinks so, but that remains to be seen. When personal seat licenses were introduced by the NFL (and copied by CDI), there was an initial outcry that later subsided. That could be what will happen in the case of the CDI administrative fee. Yet just because a company can impose a charge does not mean that it should.

The view here is that CDI would have been better served if the company had simply left things as they were or raised ticket prices on the 20,000 seats being made available to the public for purchase. If CDI raised prices at least the increase would fall on customers (who had a choice to buy or not to buy)  instead of people who wanted to be customers and were denied.

The CDI administrative fee, as constituted, is a poor business proposition and fundamentally anti-consumer, for this reason: How many goods or services can you think of in which a potential customer is charged for not purchasing?

I have written in the recent past about the high quality of management at CDI. However, the administrative fee is not one of their shining moments.

If I were the CDI chief executive, I would immediately do a public mea culpa and retract the administrative fee. It is all about sending a consistent message about how you respect and value the folks who want to do business with you. Perceived gouging has no place in such a message.

Copyright © 2011 Horse Racing Business