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The Economics of Running
Money--it’s not always readily associated with running, but in fact it's what makes the wheels of the sport turn, as it does in just about every other endeavor of life.

  
The Economics of Running
Don Allison's column appears regularly at Cool Running.


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By Don Allison
Posted Tuesday, 2 July, 2002

Money—it's not always readily associated with running, but in fact it's what makes the wheels of the sport turn, as it does in just about every other endeavor of life. Is it only recently that concerns with legal tender have overspread the sport of running, or does it just seem that way? In this first of a two-part article, I'll take a look at the effect money has had upon running; first from the buyer's perspective, then in part two, from the seller's.

There are two areas in which runners are prime consumers: footwear (and to a lesser extent apparel and accessories) and events. There are other areas in which runners spend (books, magazines, coaching, specialty food and drink, and travel come to mind), but these are dwarfed by the "big two."

Runners are always going to need shoes and they are always going to be looking for races. It has always been thus, and will continue to be so. Both of these markets have matured during the past 30 or more years, but if history is any guide, are nowhere near saturation, because shoes will continue to wear out (quickly!) and events are even more disposable. In addition, as fast as consumers leave the sport, new ones appear. The growth in running, particularly in running in organized events, has increased in recent years beyond the expectations of even the most wildly optimistic manufacturers, retailers and event managers.

Shoes, shoes, and more shoes

The story surrounding the evolution of athletic footwear is well known: Bill Bowerman and his waffle iron, followed by Phil Knight and his fledgling Blue Ribbon Sports, which he operated out of the trunk of his car then turned into a corporate giant called Nike. Others followed in Knight's footsteps, realizing that running shoes were not just a functional piece of equipment, but something that could be marketed. Sophisticated design, improved performance, specialty shoes—even fashion—were all footwear marketing tools just waiting to be developed. As we all know, major shoe manufacturers have relentlessly capitalized on that market ever since.

As in most industries, sellers charge buyers as much as they will possibly spend, before they protest by making fewer purchases or looking for a less expensive product from a competitor. How much are you willing to spend for running shoes? Although that amount varies widely among buyers, most runners I know are quite willing to open their checkbooks for a pair of shoes that will provide comfort, performance and relatively long-lasting wear. Excluding extreme-discount sellers, that figure seems to range anywhere from a low end of $40 to a high end of $125 or more. And like most runners I know, I get queasy thinking about reaching for triple digits to buy a pair of running shoes, especially when I know I may be back in six months—or sooner—looking for another pair.

That raises the issue of obsolescence. Are manufacturers doing all they can to extend the life of their product—or not? If not, is it for economic reasons? After more than three decades of research and development by major shoe companies, is it reasonable to expect that someone would have come up with a longer-lasting product? Obviously, this is a delicate dance for shoe companies. If someone were to market footwear that would last for a year, two, or even three, and other manufacturers were forced to follow suit, then the size of the market would shrink drastically, resulting in lost profits and a huge industry shakeout. It happens all the time in other industries. Shoe companies say that to develop such a product is unrealistic, given consumer demand for stability, comfort, and lightness. Thus, several decades into the evolution of running shoes, their useful life is still maddeningly short. I spent a few hundred dollars last year on running shoes, an amount I would consider average for a serious runner. Although I feel somewhat manipulated by shoe manufacturers, I am also grateful for a quality product that allows me to participate in the sport.

We all know that running in shoes that are too worn is an invitation for injury. But most of us are tempted to squeeze just a few more runs from those shoes that we shelled out serious dough for not so long ago. Sometimes economics prevails over common sense.

Race -- or Event?

The second target for runners-as-consumers is in event entry fees. For obvious reasons, this market is completely different from that of footwear, primarily due to the decentralization of sellers. Whereas there are only a handful of major footwear manufacturers, there are tens of thousands of events and event organizers. And whereas the footwear industry is tightly regulated, the event market is a virtual free-for-all. Want to start an athletic footwear company? Good luck. Start a road race? No problem. Anyone can do it. Making money from an event? Well, that's a different story.

Years ago, event management as a business venture was a laughable concept. Runners were loathe to spend money for a race, and for organizers, charging a fee was a necessary evil, used only to defray expenses, which usually added up to very little. Expectations were low, both on the part of the buyer (the runners) and the seller (the event). The entry fee for my first marathon, in Foxboro, Massachusetts in 1979, was $2 pre-entry and $4 post. As laughable as it seems now, I actually spent time contemplating whether I should sign up early or wait. For that $2 I received a well organized course with traffic control, mile markers, water stations, accurate results, a T-shirt, and a nice post-race meal in the school cafeteria. Not a bad deal!

Even the much heralded Boston and New York Marathons were low cost in those days. The first time I can recall being mildly annoyed by what I perceived to be a high entry fee was at a triathlon in the early 1980s. I think the race cost $15 or perhaps $20 for a race that took me more than six hours to complete. It seemed a lot to me then. But I wanted to do the race, so I paid the fee anyway.

That economic concept (inelastic demand for events) has manifested in a full scale escalation in event fees, much of which has taken place during the past five years. Runners have shown a strong desire to participate in certain events, regardless of the entry fees. In economic terms, demand has outweighed supply, at least as it applies to some big-ticket events, the key word being "event." A distinction must be drawn between a "race" and an "event." The former offers participants primarily the competition itself, while the latter is certified entertainment, with corporate sponsorship, high quality food and drinks, music, cheering spectators, big crowds and inevitability—high entry fees.

Just how high? Would you believe $500? How about $1,500? $3,000? Seem crazy? Not anymore. While events themselves may not charge that much in direct entry fees (although some specialty events do run into several hundred dollars), many are affiliated with charitable organizations that require a fund raising minimum of at least that much in order to participate.

While the purpose of this article is not to delve into the running and charity debate, (been there, done that!) it is a fact that charitable organizations have altered the landscape of participatory events in recent years. Whereas once an event organizer could only charge a straight entry fee that runners were willing (or able) to spend, now entry requirements can be couched in the murky waters of "fund raising." This so-called "win-win" situation, in which dollars are raised for a worthy cause in return for entry into a coveted event, has taken the cost of getting into some events into another economic stratosphere. Almost all major marathons have joined the fundraising bandwagon, especially popular events that fill up early. Hundreds—and in some case thousands—of places are held for those willing to pony up the fund-raising minimum, or more. The product has become so valuable, that a fund-raising requirement of several thousands dollars no longer seems unreasonable. That restriction of entries also serves to force up demand for remaining spots in the event, thus driving up direct entry fees. Who would have ever thunk it? Bring back the $2 marathon!

For those who refuse to play the charity game, there are still plenty of races to run, and even "events" in which to participate. Yes, there are still bargains to be had. Why? Because some race directors—God love their altruism—organize races solely for the benefit of runners, not for the purpose of generating income for sponsors, charities, other non-profit organizations, or themselves. There are still countless races staged by civic organizations, running clubs, and individual runners. The surprising thing is that these races can be just as much fun to run as the big ticket events, if not more, especially for those who abhor big crowds and overbearing sponsors. Most runners are willing to pay for well organized events in which they receive an accurate and well managed race. Surely there are those that will complain about the lack of amenities and freebies, but for the most part distance runners are an understanding lot. The key is for the consumer to have reasonable expectations going into a race, and be happy with what they pay for. Caveat emptor (let the buyer beware) is as applicable to running races as it is to any other buyer-seller exchange.

Consumer awareness, or lack thereof, does come into play however, in a couple of areas. The first is in runners knowing that all product is not the same. This may seem simplistic to some, but I personally know some beginning runners who have been sorely disappointed to learn that all road races do not provide the kind of amenities and support they experienced at Boston, Chicago or other big city marathons. The fact that the entry fee is only a fraction of these big city marathons seem irrelevant to them.

Secondly, as a consumer, is it important for you to know where your dollars are going? Management of big-ticket marathons are always quick to point out that hefty prize money payouts for top finishers are financed by sponsorship dollars rather than race entry fees. But who says that is always true? And if so, how come these heavily sponsored events traditionally have the highest entry fees? The Boston Marathon forks out more than a half-million in prize money, almost all concentrated among the top ten male and female finishers. Would it bother you to know that some of your $75 entry fee is going towards that prize money pool? How about the supposed quarter-million that Haile Gebrselhaisse hauled in for simply showing up at the London Marathon? That was before he even took a stride in the race. You may not care who wins, but the media does (at least a little) and that is what spins the money wheel of big city marathons, attracting sponsors to the event and the sport in general. You may not have heard of Marshall Medoff, but back in the early 1980s he understood the selling value of the Boston Marathon, and darn near made off with ownership of the event before anyone knew what he was doing. He was outcast as a pariah of the sport back then, but would feel right at home in this day and age of marathons as a marketable commodity.

The bottom line for you as a runner and a consumer is that you can expect entry fees for big-time events to remain high, and even to continue to steadily increase in upcoming years, as long as demand remains strong—and currently it is at an all-time high. But the good news for runners is that strong demand for events will continue to create supply. And that will be welcome news for race organizers—and running shoe manufacturers.

What do you think about the economics of running? E-mail your thoughts on this article to don-allison@attbi.com.

 

 

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