The rock-concert business began on the evening of November 6, 1965, outside a loft building on Howard Street in San Francisco. Bill Graham, a thirty-four-year-old frustrated actor from the Bronx, had organized an “appeal” for the Mime Troupe, a radical theatre group he managed, whose leader, Ronnie Davis, had recently been busted for public obscenity. Graham was more hustler than hippie, but he understood the kids, and he had arranged for several local rock bands, including Jefferson Airplane and the Fugs, to perform at the benefit. Arriving on a motor scooter with Robert Scheer, the managing editor of the magazine Ramparts, Graham saw a long line stretching down Howard Street—“Huge hordes of people,” as he recalled in his autobiography, “Bill Graham Presents,” written with Robert Greenfield. Turning to Scheer, he said, “This is the business of the future.”
There had, of course, been rock-and-roll concerts before the Mime Troupe appeal; the Beatles had filled Shea Stadium a few months earlier. But that was show business as usual, staged for teenyboppers, who screamed so loudly that the musicians couldn’t hear themselves play. The kids who lined up on Howard Street were there for the experience. Drugs helped, but, as history would show, it wasn’t only drugs that made a great rock show a transformative event. It was the music, the artist, and the community of fans—instant cousinship, as Graham called it—together with the sudden blaze of lights, the press of sweaty flesh, and a thousand fists punching the air as the chorus rolled around. Inside the loft, Graham recalled, “I saw people come in and instantly start dancing with other people and only then did I realize that they didn’t know each other. They just started dancing. I’d never seen that before.”
This year, Live Nation, the world’s largest concert promoter, will attempt to re-create the spirit of that Howard Street happening at some twenty-two thousand concerts, performed by sixteen hundred acts, in thirty-three countries around the world. Last year, Ticketmaster Entertainment, the world’s largest ticket seller, sold more than a hundred and forty-one million tickets, valued at more than $8.9 billion. With the collapse of the record business, as a result of piracy (album sales are almost half what they were in 2000, and, according to some surveys, ninety-five per cent of all downloaded music is stolen), the business of selling live music has become the main source of revenue for the popular-music industry. That means the work of developing acts, spreading the word, and supporting tours—all of which used to be done by record labels and radio (back in the days when the big rock stations played new music)—now has to be done by Live Nation and Ticketmaster, whether they want to do it or not.
Almost everyone agrees that the business of live music—the live experience, as Live Nation calls its product—is dysfunctional. Both Live Nation and Ticketmaster are loathed by fans, and their stock prices are depressed. Concertgoers complain about the “convenience charges” as well as parking and facility fees that Ticketmaster tacks on, which can account for more than thirty per cent of the cost of a ticket. Promoters worry that, as the top-grossing touring acts—the Rolling Stones, the Eagles, Paul McCartney, Bruce Springsteen, U2, Madonna—get older, very few younger acts are popular enough to fill stadiums and arenas on the two-year-long tours that superstar rock bands undertake. (Forty per cent of the seats at all Live Nation concerts go unsold.) Most galling to the four stakeholders involved in putting on a concert—the artist, the promoter, the venue operator, and the ticket seller—is the loss of billions of dollars in revenue to the “secondary market”: the Internet-driven business of ticket reselling, in which ticket brokers and scalpers profit, while the people who take the artistic and financial risks hardly participate at all.
Bill Graham did not live to see “the future” become the live experience; he died in a helicopter crash after a Huey Lewis and the News concert in Concord, California, in 1991. But if you go back to that night on Howard Street and try to understand what Graham saw, it seems obvious that the success of rock shows will always be measured not in box-office revenues and beer sales but in the quality of the party. Records are commodities; concerts are social events, and in trying to make a commodity out of the live experience you risk spoiling the experience altogether.
Two recent concerts—the shows that Bruce Springsteen and the E Street Band performed at the Izod Center, in the New Jersey Meadowlands, on May 21st and May 23rd—have come to serve as a referendum on what’s wrong with the live-music business. The shows marked the end of the first leg of Springsteen’s “Working on a Dream” tour, which was announced in late January, after the release of his new album. In the flush days of the record business, bands toured to support the album; these days, the album is a teaser for the tour. (The Boss’s new album, which has a list price of $18.98, has sold about five hundred and fifty thousand copies in the United States; last year’s Springsteen tour grossed $204.5 million.) Ticketmaster handled the majority of the dates on the first U.S.-based leg of the tour, and tickets for most of the twenty-six shows went on sale on Monday, February 2nd—a day after Springsteen’s halftime performance at the Super Bowl.
The Izod Center is a two-tiered arena with roughly twenty thousand seats, which is owned by the New Jersey Sports and Exposition Authority, a public agency that was also the promoter for these two shows. (Live Nation promoted dates in other cities.) Some forty million people live within two and a half hours of the Izod Center, many of them Springsteen fans. The Boss could probably have sold out ten shows at the venue; because he had decided to do only two, desire for the tickets was guaranteed to be intense. With tickets in such short supply, market logic dictated high ticket prices. But Springsteen and his longtime manager, Jon Landau, had fixed prices at ninety-five dollars for lower-tier and general-admission standing-room floor tickets, and sixty-five dollars for upper-tier tickets. Given what Springsteen could have asked (the Stones charged four hundred and fifty dollars for the best seats on their most recent U.S. tour), these tickets were a remarkable bargain—proof, if anyone needed it, of Springsteen’s solidarity with his working-class fans.
The phenomenon of below-market-value tickets has inspired a cottage industry of economists seeking to explain seemingly illogical pricing in the rock-concert business. Alan Krueger, a Princeton economist who, in May, was confirmed as the Treasury Department’s assistant secretary for economic policy, is one. “There is still an element of rock concerts that is more like a party than a commodities market,” Krueger told me. A ticket to a rock show, he said, bears elements of a “gift exchange,” in which intangible benefits accrue to the seller. Cheap tickets increase the possibility of a sellout, which augments merchandise and concession sales. Sellouts make the concert experience better for musicians and audience alike. And, one might add, a cheap ticket is the price the music industry pays to preserve the illusion that the sixties never ended. “In some fashion, I help people hold on to their own humanity—if I’m doing my job right,” Springsteen once said, of his performances. At least, he helps people hold on to their savings.
In a 2006 paper titled “Rockonomics: The Economics of Popular Music,” written with Marie Connolly, Krueger reports on data that he and twelve Princeton students collected at a Springsteen concert in Philadelphia, on October 6, 2002. Every ticket cost seventy-five dollars, and the box-office amounted to around $1.5 million. Krueger and his researchers found that a quarter of the fans they interviewed before the show had bought their tickets on the secondary market, where they had paid an average of two hundred and eighty dollars. Had Springsteen charged the market price for all tickets, he would have collected about four million dollars in additional revenue, a figure Krueger calls “astounding.” Studying concert-ticket sales, Krueger also told me, is not all that different from analyzing mortgage-backed securities, which were at the heart of the financial crisis. Both are bought and then resold on a secondary market, and “both markets are also subject to price bubbles, lack of trust, inadequate regulation, and imperfect information.”
By drastically underpricing the Izod Center tickets, Springsteen was inadvertently helping to create the circumstances for an orgy of speculation and scalping on the secondary market. The desire for a hot ticket is not an economic calculation; it’s a craving. Thanks to the Internet, satisfaction is only a couple of mouse clicks away.
Ticket scalping is probably as old as tickets. (Ticket scholarship is a neglected field, but, in the English-speaking world, tickets are thought to have been invented in the Elizabethan era.) According to Kerry Segrave’s “Ticket Scalping: An American History, 1850-2005,” the term derives from the early days of railroads, when “scalpers” would sell partly used tickets at a discount. By the late nineteenth century, New Yorkers were applying the word to the crowds of “sidewalk men,” who sold tickets for inflated prices outside Broadway theatres, and who were a source of public outrage. “The greatest evil that theatergoers in this city have to contend with is the ticket speculator,” a local magistrate named Crane said in 1901. “They are practically highwaymen and hold up everybody that goes to a place of amusement.”
For more than a century, public officials have repeatedly introduced anti-scalping legislation; many such laws have been struck down as unconstitutional, on the reasonable ground that a ticket scalper is no different from an art dealer or a real-estate speculator. Sidewalk men were sometimes arrested on charges of disorderly conduct; eventually laws were put in place that prohibited scalping within a certain distance of a venue. But, as anyone who has been to a big game or a show at Madison Square Garden knows, such laws are rarely enforced.
Licensed ticket brokers are usually distinguished from scalpers, although they sometimes employ scalpers to unload their excess inventory on the street. But the Internet has blurred the distinction between pros and amateurs by making it possible for people like Amy Stephens, a thirty-three-year-old mother of three from Atlanta, to enter the profession. In the summer of 2001, Stephens and her husband came to New York with a pair of hundred-dollar tickets to see “The Producers.” Unable to use them, they put them on eBay, where they promptly sold at a four-hundred-dollar markup. Stephens bought more “Producers” tickets at the box office, and they sold for a profit, too. Back in Atlanta, she bought a twenty-game pack of Anaheim Angels tickets, which guaranteed the holder seats for playoff games, and when the Angels went to the World Series, Stephens sold those tickets for fifteen hundred dollars each. By 2005, Amy’s Tickets was grossing a million dollars a year. “I would never in a thousand years stand on the street and sell tickets,” Stephens told me. “But this was so easy.”
The Internet has made scalping as common as day trading. I heard of one college student who earned a hundred thousand dollars a year by scalping tickets on StubHub, the largest of the ticket-reselling sites, and TicketsNow, the second largest; both sites are online marketplaces that charge buyers and sellers a commission in return for guaranteeing transactions. We have become a republic of scalpers—even America’s team, the New York Yankees, has joined in. The Yankees used to confiscate season tickets from fans who’d scalped them, but now there’s a StubHub window at the new Stadium.
The rock-concert industry has not, by and large, been able to take advantage of this new market, because in some states ticket venders are legally bound to sell tickets for their face value, and because some of the twenty or so superstar touring acts that generate the majority of the income don’t want to charge market prices. In 2008, Ticketmaster expanded its reach within the secondary market by purchasing TicketsNow, but in doing so the company set itself up for a potential conflict of interest. There appeared to be a strong incentive for Ticketmaster to get tickets into the hands of brokers who operate on TicketsNow, and to reap hefty commissions.
On February 2nd, at a few minutes before 9 A.M., Maria Shwalb, a benefits manager for a large pharmaceutical company, was at her computer, waiting for the Izod Center shows to go on sale. Born and raised in northern New Jersey, the heartland of Springsteen Nation, Shwalb has seen close to fifty of Springsteen’s shows, going back almost thirty years. But she had never been really close up, and that was her dream—just once, to be right in front of the stage.
Not too long ago, Shwalb would have taken the day off and stood in line at the box office or at a nearby Ticketmaster outlet. More than once, she’d waited in line all night; even when she was pregnant with her second child she’d got in line at 6 A.M. The line was democratic, and self-policing, and it imposed its own kind of morality on the ticket market. The best seats went to the people who were willing to wait the longest, rather than to the people who would pay the most. Of course, ticket brokers sent “diggers”—generally teen-agers who were paid a set price for each ticket they dug up—but that was O.K. with Shwalb, because, she told me, “those guys had to wait in line, too, same as everyone else.”
But the spectacle of people camped for days around city blocks to get tickets to a hot show has disappeared, as ticket buying has migrated to the Internet. Ticketmaster doesn’t dedicate a certain number of tickets to each outlet—all tickets are pooled—so ticket buyers have a better chance in the online queue than in a physical one.
At precisely 9 A.M., Shwalb filled in the “captcha”—the distorted word puzzle designed to foil automated responses and bulk purchases by ticket brokers. Selecting four ninety-five-dollar seats—for her and her “core group” of Jersey girlfriends—she hit the “Get Tickets” button. The transaction began, but just after the “Complete Purchase” button appeared, a message popped up saying, “System down for maintenance.”
“What?” she thought. “They’re doing maintenance now?”
She tried again. This time, a banner appeared at the bottom of the screen, redirecting her to TicketsNow, the secondary-market site, where, it said, “tickets might still be available.” Indeed, tickets were available, at prices starting at around three hundred for the nosebleed seats in the rafters and rising into thousands for lower-loge seats near the stage.
“It had only been ten minutes,” Shwalb said. “I thought, How the heck could all these people buy their tickets, and then list them for resale so fast?” Shwalb didn’t know that Ticketmaster owned TicketsNow. When she found that out, she understood: Ticketmaster appeared to be supplying brokers and scalpers with primary-market tickets.
By 10 A.M., ninety-nine per cent of the tickets to the two Izod shows had been sold. Maria Shwalb failed to get a single one. She didn’t even consider buying on TicketsNow—not because of the prices but because, she said, “a scalper’s a scalper.” Instead, she did what tens of thousands of other fans who couldn’t get tickets that day did: she blamed Ticketmaster.
Both Ticketmaster and Live Nation enjoy monopoly-like dominance in their fields, but they achieved those positions by different means: Ticketmaster through technological innovation, like Microsoft, and Live Nation through consolidation, like Standard Oil. Together, these two companies have transformed the concert industry from a regional business, run by entrepreneurs, into a global one, run by corporate managers. Whether the incorporated concert business can make money is still an open question.
Bill Graham created the template for the independent promoter: part entrepreneur, part showman. By the early seventies, other men in other cities had followed him into the business: Don Law, in Boston; Ron Delsener and John Scher, in New York; Seth Hurwitz, in Washington, D.C.*; and Jerry Mickelson, in Chicago. Eventually, about forty of these characters emerged in the metropolitan areas of North America. They ran their regional businesses like small fiefdoms, limiting competition, especially if they controlled exclusive venues where artists wanted to play, like Graham’s storied halls—the Fillmore West, in San Francisco, and the Fillmore East, in New York.
From the beginning, concert promotion was a perilous business, because the promoter takes the risk of the concert not selling out (or, far worse, of the artist getting sick or even dying, which is what happened recently to AEG Live, the promoter of Michael Jackson’s concerts at the O2 arena, in London). The promoter guarantees the artist a minimum fee or a split of the box-office, whichever is higher, and, out of his share of the “split point” rents the hall, buys advertising and insurance, hires security, arranges the ticketing, handles or contracts for concessions and merchandise sales and parking, and lays on the backstage catering. In the early days of rock concerts, the promoter got to keep forty per cent of the box-office, but, as the artists grew in stardom, managers and booking agents were able to negotiate ever larger splits for their clients; the promoters’ share of the box-office shrank to twenty per cent, then to ten, and then to five. Graham used to say, “The only thing that is consistent in this business is that the promoter is always being asked to take less and less.”
Ticketmaster was started in 1976 by two graduate students at Arizona State University who were frustrated at not being able to get tickets to their favorite rock shows. At the time, venues sold concert tickets from their own box offices, and also distributed tickets to record stores, head shops, and other outlets. Larger venues contracted with Ticketron, then the dominant company, to sell tickets over the phone from its network of call centers and from its outlets. Some locations would sell out quickly while others had tickets left over. The A.S.U. students devised a computer network that would allow outlets to share information about their inventory, and created a database from which all tickets were allocated.
In 1982, Jay Pritzker, a wealthy investor from Chicago, purchased Ticketmaster for four million dollars. Pritzker brought in a lawyer and former standup comedian named Fred Rosen to run the business, and Rosen made two key innovations. He insisted that Ticketmaster be the exclusive ticket seller for a given event, because by controlling the entire inventory Ticketmaster could offer fans the best available seat, no matter where they purchased tickets. Ticket buyers, Rosen calculated, would pay for the convenience. In return, Rosen offered promoters and venue operators a percentage of the extra charges. They were quick to embrace the new business model because it offset some of the losses from their shrinking split points. Ticketmaster bought what was left of Ticketron in 1991.
Rosen’s strategy was brilliant, except for one thing: from the beginning, ticket buyers hated the fees. But ticket buyers weren’t Ticketmaster’s clients; the promoters and venue operators were. Ticketmaster was simply offering a service, which ticket buyers were free to forgo. As a practical matter, however, the concertgoer could hardly avoid Ticketmaster. In 1995, Pearl Jam refused to play in venues that contracted with Ticketmaster, with which it was already embattled. The band’s tour, which played only in racetracks and small arenas, and which was plagued with bad weather and illness, was abandoned midway through. Pearl Jam blamed Ticketmaster.
In 1996, Congress passed the Telecommunications Act, which, among other things, deregulated the radio industry. Robert F. X. Sillerman made a fortune by buying eighty regional radio stations and combining them into the giant SFX Broadcasting. He saw a similar opportunity to roll up regional concert promoters and assemble them into a branded, global rock-promotion company, to be called SFX Entertainment. By handling all the dates on a tour, Sillerman told me, SFX Entertainment could organize tours more efficiently, allowing acts to play more dates in less time. It could also attract nationwide sponsors for tours, which would increase revenues. In 1997, Sillerman began making promoters generous offers for their businesses, pledging to retain them as managers, doing what they had always been doing in their territories. By 2000, SFX had acquired eighty per cent of the promotion business. It also became the largest owner and operator of venues in the United States. That year, Sillerman sold the heavily indebted company to the radio conglomerate Clear Channel for $4.4 billion, and left the music business. Clear Channel couldn’t make the company profitable, and in 2005 spun it off as Live Nation. Michael Rapino, a Canadian promoter who had sold out to SFX, became the C.E.O.
In 2007, Live Nation began making so-called “360” deals with superstar artists, among them Madonna and U2; the deals give Live Nation the right not only to promote the artists’ shows exclusively but to be involved in other aspects of their careers as well. Ticketmaster responded by buying Front Line Management, partly owned by Irving Azoff, whose two hundred artists include some of the biggest acts in the touring business, the Eagles, Neil Diamond, and Jimmy Buffett among them. Azoff became the C.E.O. of the new company, Ticketmaster Entertainment, and began to eliminate surcharges by offering “all-in” ticketing, in which the fees were built into the face price of the tickets, like those the Eagles sold for some of the dates on their 2008 “Long Road Out of Eden” tour. Azoff also devised ways of charging scalpers’ prices for the best seats, without raising the face value of the tickets, by selling well-heeled fans “V.I.P. packages” that included backstage access and a meet and greet with the artist. Meanwhile, Live Nation started to develop its own ticketing system, Live Nation Ticketing, which launched in January, 2009. But three weeks later it proved unable to cope with heavy demand for the Phish reunion tour and left countless fans angry.
By then, Ticketmaster and Live Nation had decided to stop competing with each other and agreed to merge. Rumors about the deal began to circulate, and on Wednesday, February 4th, two days after the Springsteen tickets went on sale, the Wall Street Journal published a report saying that Ticketmaster would merge with Live Nation in an all-stock transaction. But if any of the principals hoped that this would help smooth the way for the formal announcement of the deal, the following Tuesday, they were mistaken. That afternoon, the worst possible critic of a merger—the Boss himself—weighed in.
Maria Shwalb wasn’t the only Springsteen fan redirected to TicketsNow on February 2nd. According to information later furnished by Ticketmaster, some eighty-five thousand people in the Northeast received the same message. Springsteen’s management began to hear complaints within an hour of the tickets going on sale. “People just started calling the office,” Jon Landau, Springsteen’s manager, told me. Landau himself took a call from two people who worked for a federal government agency in Washington, seeking an explanation. They were calling in their official capacity, but “they were also fans who were trying to get seats,” Landau said. “They’d been shut out, too.”
On the afternoon of February 4th, Springsteen posted a letter on his Web site, saying he and his team were “furious” with Ticketmaster for the handling of the Izod Center tickets, citing the redirecting of fans to its subsidiary, TicketsNow. He stated, “They did this even when other seats remained available at face value. We condemn this practice,” and added, “The one thing that would make the current ticket situation even worse for the fan than it is now would be Ticketmaster and Live Nation coming up with a single system. . . . If you, like us, oppose that idea, you should make it known to your representatives.”
The next day, Azoff issued an open letter of apology. “While we were genuinely trying to do the right thing for fans in providing more choices when the tickets they requested from the primary on-sale were not available, we clearly missed the mark,” he wrote. “Fans are confused and angry, which is the opposite of what we hoped to accomplish.” While it appeared to fans like Maria Shwalb that Ticketmaster was abetting scalping on TicketsNow, the actual reason for the redirects, according to Ticketmaster, was a technical problem that occurred in the software used to verify buyers’ credit-card information. The glitch appeared at 9:09 A.M. on the day of the sale; Ticketmaster became aware of it at nine-forty-nine, and it was fixed by eleven-thirty. By then, both Izod Center shows were sold out.
But not many Springsteen fans believed Ticketmaster’s explanation. If the company wasn’t moving tickets onto TicketsNow, who was? In fact, brokers routinely offer tickets that they don’t yet have in their possession, and people looking for tickets to other artists’ shows had also complained about being directed to TicketsNow. Ticketmaster had been the object of so much ill will, over so many years, that it was almost second nature for fans to blame the box-office monster. More than two thousand complaints were filed with the New Jersey Division of Consumer Affairs, including one by Maria Shwalb. Some fans filed a class-action lawsuit against Ticketmaster. Courageous New Jersey politicians lined up to support a fan’s right to a low-priced Springsteen ticket. The state’s attorney general, Anne Milgram, opened an investigation. Bill Pascrell, Jr., a New Jersey congressman, called for legislation to restrict ticket scalping, and make the murky world of ticket selling more transparent. (In June, Pascrell introduced to Congress the BOSS ACT—Better Oversight of Secondary Sales and Accountability in Concert Ticketing.) In Washington, the Federal Trade Commission launched an investigation into the ticketing fiasco; the Justice Department also announced an inquiry into the Ticketmaster-Live Nation merger.
Ticketmaster quickly came to an agreement with Milgram’s office, but did not admit any wrongdoing. In addition to paying a three-hundred-and-fifty-thousand-dollar fine, Ticketmaster pledged to reimburse fans who claimed they had erroneously bought tickets on TicketsNow; this cost the company another three hundred and fifty thousand dollars. Ticketmaster also promised not to link to TicketsNow for a period of one year. The New Jersey Sports Authority agreed to conduct a raffle for fans who had filed complaints, using tickets that the authority had kept back from the initial sale.
In early April, the authority notified Maria Shwalb that she had won the right to purchase two tickets to the May 23rd show. She got good seats—Lower Loge, Section 124—and she invited her friend Marlene Caprio, from Hopatcong, whom she had known since college, to join her. They made plans to get to the venue early enough to tailgate in the parking lot before the show. Saturday night with the Boss in the swamps of Jersey at the start of summer: “It is going to be awesome,” Shwalb told me.
Springsteen’s remarks about the Ticketmaster-Live Nation merger resonated in the chambers of the Senate Judiciary Committee’s Subcommittee on Antitrust, Competition Policy, and Consumer Rights, when both Azoff and Rapino testified in a one-day hearing into the merger, at the end of February. (The subcommittee advises the Justice Department on the merger, but Justice has the authority on whether or not to approve it; the decision has yet to be made.) Virtually all the speakers referred to the Springsteen situation. Senator Charles E. Schumer, of New York, declared, “Bruce Springsteen says Ticketmaster abused his fans, and I agree with the Boss.” Schumer also questioned Ticketmaster’s explanation of exactly what happened on February 2nd: “Given what Ticketmaster stood to gain by directing consumers to its own resell site, the episode seems to be much more about money-making than about ‘malfunction.’ ” (In April, Schumer proposed new anti-scalping legislation, partly in response to the outcry over the Springsteen shows.)
The merged company, to be called Live Nation Entertainment, could monopolize the concert industry. It would combine not only the world’s largest ticket seller and the world’s largest management company with the world’s largest concert promoter and the world’s largest venue operator but also the interests of Azoff; Rapino; Barry Diller, who is reportedly slated to become the chairman of the new company; John Malone, the chairman of the cable operator Liberty Global, which is a major Ticketmaster shareholder; and Ariel Emanuel, a prominent Hollywood agent who is a member of the board of Live Nation and the brother of Rahm Emanuel, President Obama’s chief of staff. In theory, Live Nation Entertainment could compete unfairly with AEG Live, the second-largest concert promoter, which was started by the Denver-based billionaire Phil Anschutz in 2005, and with the handful of remaining independent promoters, such as John Scher, who had declined to sell to Sillerman back in the nineties. As both manager and promoter, the company could deny its superstar acts to venues that refuse to use its promotional and ticket-selling services. Ticketmaster maintains that the new merger won’t be anti-competitive, because new ticketing technology allows independent promoters and venues to ticket their own shows, and that the managers’ interests will reflect the artists’ wishes.
When I went to see John Scher recently, in his offices on lower Fifth Avenue, he said he had turned down SFX’s offer of seventeen million dollars for his company, Metropolitan Talent, because “I’m hardheaded.” (His head—large, bald, and bony—looks like it could do some damage if it butted you.) “And because in my view this industry was never right for consolidation.” It was a “regional, entrepreneurial business” that, with consolidation, became “all about market share and not profitability.” Because the promoter’s margins were so slim, he had to monitor every detail of an event, including how much ice the barmen put in the glasses, or he wouldn’t make money. “That changed with consolidation,” Scher went on. “SFX said to acts, ‘How much are you making on this tour? Two hundred and fifty thousand? O.K., we’ll pay you three hundred and fifty thousand for every date on the tour.’ Soon, eighty per cent of the headliners are doing national tours, for inflated guarantees. What’s the result? Live Nation can’t make money. So they go to Ticketmaster and say, ‘We need a bigger piece of the service charges.’ So Ticketmaster raises its service charges. And then what happens? The public gets fed up. Six- to eight-dollar beers, expensive hot dogs, outrageous parking fees, and expensive tickets—who needs it? So all that starts to erode the business, then gas prices go up, then the economy tanks. And then Michael Rapino stands up in front of Congress and says the business model is broken, and therefore Live Nation has to merge with Ticketmaster. Well, who broke it?”
On the other hand, if the concert business is to become what the record business was for the entire music industry—the hub from which everything else flows, as Rapino put it in his testimony to the subcommittee—then something needs to be done. Because, if new superstars aren’t developed, the concert industry will die, just as the record industry is dying, and then there won’t be much of a music business at all. Danny Goldberg, a longtime music-industry professional, told me recently, “I’m not a big fan of consolidation, but it’s better than anarchy.”
Irving Azoff, who in more carefree days helped Joe Walsh, a client, cut a door-size hole in a hotel-room wall with a chain saw so that they could have adjoining rooms, is now widely seen as the last best hope for the music business. When I asked him what was wrong with it, he replied, “The way the industry is monetized has totally changed. The order used to be: first, records; second, live; third, merchandise. Now it’s: first, live; second, third-party sponsorship; third, merchandise; fourth, publishing; fifth, records. So that’s a big difference.” He added, “And the business model has changed. The old model was: put a single on the radio, put a video on MTV, and sit back and watch the music sell. That is gone. MTV doesn’t play many videos, and radio has playlists that are targeted toward a specific, narrow demographic—white females between thirty-five and forty-five, say. Well, that’s not a group from which to build a large fan base.”
Azoff also told me that he would be happy to see Congress pass new legislation prohibiting scalping, although he didn’t have much hope of that happening. But, I asked, wouldn’t those laws spell the end of TicketsNow? “I wouldn’t have bought TicketsNow if I were running Ticketmaster then,” he replied. In the short term, he went on, “paperless ticketing” was proving to be an effective tool for combatting the secondary market. For this fall’s Miley Cyrus tour, Ticketmaster offered only paperless tickets: instead of receiving printed tickets in advance, concertgoers must bring to the venue the credit card they purchased tickets with as well as a matching I.D. As a result, there are very few Miley Cyrus tickets for sale on the secondary market. (Springsteen recently announced that Ticketmaster will offer only paperless ticketing for some sections of the venues he’s playing in the fall.)
Azoff suggested, by way of an anecdote, that a dynamic pricing system—in which ticket prices would fluctuate with market demand, as they do on the secondary market—might be the future of concert ticketing. “Before I testified in Washington,” he said, “one of the committee members called me into his office and said, ‘What are you guys, fucking stupid?’ I said, ‘What do you mean?’ He said, ‘You’ve got the only business I can think of where the price goes up as soon as the merchandise leaves the store. It’s crazy.’ Then he said he flies back and forth a lot to see his family, and the reason he can do that is because the coach seats are reasonably priced, because some people are paying first class. ‘When are you guys going to go to a dynamic pricing system, so that the people who pay a hundred and fifty dollars for seats up front can subsidize thirty-dollar seats at the back?’ he asked. I said, ‘That makes sense.’ ” While a dynamic system would make hot tickets like those to Springsteen’s Izod Center shows more expensive, it could also make tickets to less sought-after shows less expensive; on StubHub, tickets to Springsteen’s Greensboro show sold for as little as twelve dollars.
I wondered whether live music had a long-term future at all. Azoff wasn’t worried. “Since 1966, when I started in this business, I’ve worked in almost every aspect of entertainment,” he told me. “I’ve been a manager, I’ve run a record label, I’ve produced TV shows and movies—pretty much everything. And, still, the most powerful thing I know of in entertainment is the live experience. The performer onstage receiving the adulation of the fans—there’s nothing like it, and that’s never going away.” He rejected the idea that the live business would suffer from a lack of artist development. “Taylor Swift—and she’s not even my client!—or the Kings of Leon. These are career artists that are going to be around for a long time.” Would they fill stadiums and arenas forty years into their careers, as the Eagles do? “Absolutely,” Azoff said. He added that he thought stealing music had actually generated more interest in live music. “So I’m not one of those guys who goes around saying the sky is falling.”
A few days before the first of the two Izod dates, the New Jersey Star-Ledger ran a story about how many tickets had been held back from the initial sale of the Izod shows and who had held them; Ticketmaster made this information available to the New Jersey attorney general during the investigation. The numbers revealed an inconvenient truth for Springsteen and the politicians who had rallied to his side: many of the seats had been held back by Springsteen himself. In June, the Star-Ledger ran another article pointing out that the holds included many of the best seats. According to the newspaper, 2,262 seats were held back for the May 21st show, which represented sixty per cent of the best seats in the house. Springsteen, the band, his management company, and Columbia Records, his label, had retained 1,450, and the New Jersey Sports Authority, its sponsors, and the media got the rest. (None of the ninety-eight hundred seats in the upper tier were held back.) Of the 1,126 seats in the four lower-loge sections closest to the stage—the very best seats in the house—all but a hundred and eight were kept from the initial sale. (The Star-Ledger’s hold numbers were from March; by showtime in May many of these seats had been released to the public.)
“Everyone knows that in New York and Los Angeles you have to keep a fair number of tickets back,” Jon Landau explained to me. “There’s a lot of media, most of the band and the crew live around here, and they want to be able to invite family and friends to the show. And you need tickets for your record company, agency, and V.I.P.s, which is a very real phenomenon in New York and L.A. If Faith Hill and Tim McGraw call up and want to see a show, you’d like to be able to offer them good tickets.” (Landau also pointed out, in a letter posted on Springsteen’s Web site, that the holds were blended with the fan seats.)
No one was accusing Springsteen of scalping these tickets—the idea was unthinkable. By pricing the best seats at ninety-five dollars, however, Springsteen was giving fans like Maria Shwalb the illusion of getting a good seat for cheap, when in fact many of the best seats never went on sale at all. Also, by holding back so many choice seats, Springsteen was contributing to the high prices for the few that were available on the secondary market—a fact that ticket brokers were quick to note. Don Vaccaro, the C.E.O. of TicketNetwork, a brokerage site, has said, “It’s unfortunate that fans were misled that most of the best tickets were made available to the public. . . . More surprising is that an artist who claims to be for the common man would be part of that scheme.” Not long after Vaccaro made that statement, three ticket resellers, including TicketNetwork, were sued by the New Jersey attorney general for selling tickets to a series of Springsteen shows at Giants Stadium that had just been announced for the fall—tickets that had not yet gone on sale.
At around five-thirty on the afternoon of Saturday, May 23rd, Maria Shwalb steered her pewter-colored Nissan with “JNGL LD” license plates off Route 3. She passed the spot just inside the Izod access road where the scalpers usually congregate, but no scalpers were there. She was directed to a parking space near the arena, and she and Marlene Caprio got out their lawn chairs and the cooler, and settled in among the faithful for a tailgate party.
Shwalb had no problems with all the tickets the Boss had held back. “It’s his show,” she said, and laughed. “Bruce can do no wrong in my book.”
“I just hope he plays ‘Jersey Girl,’ ” Marlene said.
All around, other fans were drinking beer, playing bean-bag-toss games, blasting Springsteen from boom boxes, and dancing, possibly with strangers.
Shwalb spotted a volunteer who was collecting money for the Community Food Bank of New Jersey, a charity that Springsteen supports, and she reminded her friend to make a donation before they went in, because that would also enter them in a raffle for two tickets to stand right in front of the stage.
At about seven, they got in line to pick up their tickets. Nearby was a lone fan with a “Need Tickets” sign hanging from his chest, forlornly askew.
“Where are all the scalpers?” I asked him. Combing the crowd earlier, I hadn’t seen any, and concluded that the Internet, in fostering a nation of scalpers, has been hard on the sidewalk men.
“They’re around,” the ticket seeker said confidently. “They’re just lying low.” But he was still standing there, alone, at seven-thirty, a half hour to showtime.
By eight o’clock, Shwalb and Caprio were in their seats. When a representative of the Community Food Bank called the winning raffle number, a scream rang through the arena—it was Maria. She and Marlene had won. They were escorted down to the stage just as the house lights dimmed, a roar went up from the crowd, and, with the opening riff of “Badlands,” the stage lights came on to reveal Bruce, almost close enough to touch.
And so Maria Shwalb’s dream did come true. An investigation by the New Jersey attorney general and a class-action suit went down and two strokes of good fortune were required before it happened, suggesting that the dream still needs some work, but that didn’t matter to Maria. All that mattered for the next two and a half hours was the singer, the song, and the press of flesh around her. “It was an absolutely amazing, exciting, awesome experience—to be that close after all these years,” she told me after the show. “We felt like we were twenty-one again and could party and dance all night.” ♦
*Correction, December 1, 2009: The independent promoter is Seth Hurwitz, not Saul Hurwitz, as originally stated.
by James J. Atkinson
University of Notre Dame
3 May 2004
Ticket scalping is the resale of tickets in the secondary market. It exists at many sports and other entertainment events because under-pricing at the box office creates excess demand, thereby not allowing the market to clear. With box offices setting the prices of tickets artificially low, licensed ticket brokers and unlicensed on-site street scalpers emerge as the secondary sellers to clear the market. These ticket resellers purchase a lot of the tickets at the artificially low box office price and then meet the demands of those purchasers willing to pay higher prices for those same tickets. Figure 1 shows that ticket resellers are able to purchase the tickets at an artificially low price, PBO and then resell at the market-clearing price P*. Other times, the ticket resellers will buy from other ticket holders who for whatever reason are unable to use their tickets. These ticket resellers usually are able to mark up the price from the purchase price and turn a profit. For instance, a block of eight tickets for the opening of Star Wars: Episode I was resold for $600, far above the face value (Weber, 1999).
While some may claim that ticket scalping is unethical and immoral, even illegal in certain states and municipalities, it is simply a free-market transaction. Most economists avidly oppose laws that make ticket scalping illegal. Such regulations do not allow the market forces to reign.
This paper will explain the economics behind ticket selling and reselling. First, several explanations for the artificially low box office prices will be offered. The paper will then explore why ticket resellers are necessary and how they go about purchasing, repurchasing, and reselling tickets. Examples will be cited. Finally, methods of combating the secondary ticket market, including the use of the Internet to make the market more efficient, will be discussed.
Economic Puzzle: Why are ticket prices set artificially low?
Theory 1: The difficulty of selling out with uncertain demand
Paul Krugman (1999) puts forth three theories as to why box offices supplying the tickets typically sell at a price lower than the market-clearing price. The first theory deals with the image of the sports team or music artist. Most teams and artists feel that it is crucial to their image that their venue be sold out. After all, a sold-out venue lends value to attending. It makes attending more attractive to customers who were able to obtain tickets that others were not. Secondly, a sell-out crowd maximizes complementary revenues from parking and concessions. In order to be guaranteed a sell-out crowd, however, the box office has to price the tickets artificially low, since it is improbable that the ticket demand and, therefore, equilibrium price would be known.
Another reason to desire a sell-out crowd occurs in the National Football League. As Andrew T. Williams (1994) points out, the NFL’s blackout rule prevents local television broadcast of a game that is not sold out. Failing to sell out a game, therefore, has negative effects on television revenue and the ability for a team to widen the fan base (Williams, 1994, p. 505).
Pascal Courty (2003) claims that the market-clearing price is unknown because often times, not only are producers uncertain of demand, but consumers also are uncertain of their own demand, i.e. they are unaware of how much they value a ticket until just before they are about to use it. Ticket sales for the NCAA Men’s Basketball Tournament provide a perfect example of ticket demand uncertainty. Two third-round games and one fourth-round game took place at the Continental Airlines Arena in East Rutherford, N.J. on March 25 and 27 earlier this year. The four teams playing at this venue were unaware of their opportunity to play in East Rutherford until Sunday, March 14. Even then, they didn’t know they would advance to the third- and possibly fourth-round games until Saturday, March 20, when they won their second-round games. Tickets for the games in East Rutherford, however, went on sale months beforehand. Fans purchasing tickets when they initially went on sale had little idea as to which teams would be playing there, thus the true value of the tickets was completely unknown at the time of the initial sale. In fact, the value of the tickets for the fourth-round game on March 27 did not become apparent until March 25 when the third-round games determined the teams to play on the 27th. Scalpers eagerly awaited outside the arena on March 25 hoping to snatch up tickets from Wake Forest fans, who had just lost to St. Joseph’s. The scalpers were delighted by the fact that St. Joseph’s, which is located much closer to the tournament site than Wake Forest, had won the game. Certainly, St. Joseph’s would bring more fans, i.e. more demand, thus driving ticket prices upward (Wyatt, 2004).
James Swofford (1999) ties in risk aversion with demand uncertainty as being a supporting cause of Krugman’s first theory. He argues that the box office selling the tickets at an artificially low price is willing to trade profit for certainty. This low price level, however, leaves an opening for speculators (i.e. scalpers and brokers) who face less risk or are less risk averse than the producing firm. For instance, an individual ticket buyer may purchase tickets with the intention of actually consuming them. If the price were to increase enough, however, he would decide to sell them. A ticket office does not have this luxury though. If the producing firm sets the price too high, it may get stuck with too many tickets, more than it can possibly use or even give away (Swofford, 1999, p. 533).
Theory 2: Appealing to the common man
Krugman’s second theory is that it is an important social goal of the box offices that tickets be available to fans at moderate prices. This allows regular fans to attend concerts and sports events, as opposed to having a venue filled only with wealthy and perhaps less enthusiastic individuals who would be the only ones who could afford to be there. This creates “a situation where not only the rich and powerful receive all the tickets, [thereby generating] positive morale effects” (Happel and Jennings, 1995). Your typical diehard football fan generally is not the CEO of a Fortune 500 company, but rather a blue-collar factory worker. Appealing to this class by offering tickets at artificially low prices can serve to widen the fan base.
Theory 3: Differing profit maximization functions
The third Krugman theory deals with the fact that box offices and resellers have different profit maximization functions. Box offices always strive to maximize profit in the long run over the course of several events or seasons. Ticket resellers, however, have the luxury of being concerned only with maximizing profit in the short run on an event-by-event basis. Swofford breaks down the different profit functions into box offices’ and resellers’ differing cost functions and revenue functions. The ticket reseller’s cost function differs because it may have fewer costs due to lower information costs, lower transaction costs, or lower taxes (Swofford, 1999, p. 534). For instance, a ticket reseller who works a local market would likely be more knowledgeable about that particular market than would a national ticket supplier selling tickets for a concert tour. In other words, the scalper’s information costs are lower. Additionally, since ticket scalping is illegal in many places, the scalper is able to avoid the cost of taxes (Swofford, 1999, p. 535).
The revenue functions of a box office and a reseller differ “because the producer may be identified more with the product than the ticket scalper or arbitrager” (Swofford, 1999, p. 535). Therefore, the box office and the reseller are concerned with profit over different time frames. With the box office, the more consumer surplus and product satisfaction, the greater sales are in the future (Swofford, 1999, p. 536). The scalper, on the other hand, is not identified with the product like the original producer and therefore can maximize profit in the short run “without affecting the future profit opportunities from ticket scalping” (Swofford, 1999, p. 536). On-site ticket scalpers generally do not sell to regular customers, so they have no reputation to gain or lose by selling at certain prices. Additionally, Allan C. DeSerpa (1994) points out that the box office has to take additional revenues, such as concessions, into consideration when pricing the tickets.
How Ticket Resellers Benefit Box Offices
Zane Spindler (2003) adds one more theory to Krugman’s list. In response to Swofford’s article, Spindler argues that both scalpers and producers benefit from each other. In the title of his article, he likens the relationship to parasites serving their host. Spindler disagrees with Swofford’s claim that scalpers reduce consumer surplus without affecting the producing firm’s revenue: “The possibility of selling unwanted tickets would surely affect the initial demand for tickets per se when such a repurchase/resale feature is not officially provided” (Spindler, 2003, p. 695). According to Figure 2, box offices benefit from the additional demand for tickets that ticket scalpers provide. Instead of receiving revenue PL x QL (as it would if reselling were not allowed), the firm would now receive PM x QL, with some tickets going to regular consumers and others going to scalpers. The scalper benefits from this by purchasing the quantity QL – Q1 from the firm at price PM and then reselling at an average price of up to PH. The gross revenue collected by the scalper would then be (PH – PM) x (QL – Q1). Thus, according to Spindler, both the firm and the scalper benefit from the existence of each other.
Williams provides further support for Spindler’s theory. Williams argues that if NFL owners followed their own economic self-interests, they would vigorously oppose any laws that interfered with the reselling of tickets above face value. This is because ticket scalpers bring better information about the true ticket-clearing price for tickets. In other words, the monopolist box office firm learns more about the location of the demand curve of the ticket consumers (See Figure 3). According to his research, the presence of scalping in California has allowed the San Francisco 49ers to charge $1.95 more per ticket than if scalping had been outlawed. The additional revenue for the 49ers organization adds up to over $1 million per year (Williams, 1994, p. 507).
Ticket Resellers as Necessary Market-Clearing Agents
Ticket resellers typically are referred to either as brokers or scalpers. A ticket broker is a licensed reseller who usually operates out of an office, and depending on how large the firm is, may have several regular customers. Big brokers often times earn seven- and even eight-figure incomes (Teegardin, 1998). They act as the middlemen, buying from those who are willing to sell and selling to those who are willing to buy (at a marked-up price of course). Estimates of the number of ticket brokers in the nation range from 800 to over 1,000 and the industry is extremely fragmented and regionalized, with no single brokerage firm controlling even 1% of the market (Happel and Jennings, 2002, p. 449). TicketAmerica estimated that the primary ticket market brought in $7.2 billion in 1997 and that ticket brokers resold 10% of the primary market at an average of twice the face value, leading to an estimate of the secondary broker market valued at $1.4 billion for that same year (Happel and Jennings, 2002, p. 449).
The other ticket resellers are referred to as scalpers. The word “scalper” is commonly referred to an on-site reseller and there is a certain stigma associated with the word, particularly because of the nuisance effect they create on game-day, including blocking traffic, heckling ticket holders, and selling counterfeit tickets. Honest scalpers, however, perform a valuable service because they are on site in the hours leading up to the start of the event. They are the ones who close the market, a necessary function of any efficient market.
Many fans who are looking for tickets may not have the time to stand in line or call the box office during a ticket sale. Enter the resellers. Ticket brokers and scalpers get their share of tickets, sometimes in bulk, by paying people to stand in line or call the box office when tickets initially go on sale. Unfortunately, the aggressive ticket purchasing efforts by the resellers may take away the opportunities of some regular fans that may just want to purchase a ticket for the sake of consumption, rather than resale.
Besides having hired individuals clog the queues and phone lines, there likely also exists a fair amount of insider trading that occurs, i.e. ticket resellers who know someone at the box office could bypass the lines to obtain tickets. This practice, called “ice” involves a box office employee channeling the tickets to resellers for a fee. The ethics of such a practice are questionable to say the least, and in 2001 “ice” was changed from a misdemeanor to a felony in the state of New York (Happel and Jennings, 2002, p. 446). A report released by the Office of New York State Attorney General Eliot Spitzer in 1999 revealed that “the practice of paying and receiving ice is rampant.” This is due in part to the fact that box office employees typically are a “tightly knit group that includes … familial relationships” (Spitzer, 1999, p. 11).
How Resellers Make the Sale
After the resellers acquire the tickets from the box office, they have to find the channels in which to make the resale. Ticket brokers sell through their offices or Web sites days or even weeks before an event. These brokers are licensed to be resellers and acquire customers through placing ads in newspapers. Many of the brokers’ customers, as stated earlier, may be regulars.
Ticket scalpers, on the other hand, are not licensed nor do they have big offices or Web sites through which they can sell their tickets. Rather, they work both sides of the market on site during the day of the event, both buying and selling tickets up to the final minute before the event starts. Fans who come to the game with extra tickets can unload them on one of many ticket scalpers at the site who will then turn around and sell them at a higher price to those searching to buy tickets. Scalpers serve as the middlemen for those who want to sell tickets and those who want to buy tickets. Regular fans with extras and fans looking for extras usually are unable to meet without the middleman because the scalpers are much more aggressive and experienced than the general public and are able to snatch up the tickets before the two parties meet. Curry Kirkpatrick of Newsweek interviewed ticket scalpers at the 1993 Major League Baseball All-Star Game in Baltimore. They defended the legitimacy of their practice, with one stating: “We’re in the ultimate capitalist system. We’re not out to hammer anybody. If the Oriole season-ticket holders and the MLB people and the players kept all their tickets, we wouldn’t be here. But somebody wanted to forfeit their seats to make some bucks. We provide that service. We’re the middleman” (Kirkpatrick, 1993).
Even with ticket scalping allowed, the market remains somewhat inefficient because information asymmetry exists among buyers and sellers. The scalpers who are on site of the sports event on a daily basis know a lot more about the market than a fan who comes to unload his extra tickets only once in a while or a fan who comes to the event venue to purchase tickets one time.
The Internet, however, has made it easier for buyers and sellers to meet without the use of the ticket scalper middleman. In 2000, less than 4% of secondary broker market sales were transacted online (Happel and Jennings, 2002, p. 450). Buyers are not going to ticket broker Web sites too often. Instead, Internet auction sites, most notably eBay, allow sellers and buyers to meet having to confront a middleman. And the business is growing at a fast rate: From July 2000 to March 2001, eBay’s sports tickets auctions grew 200% (Happel and Jennings, 2002, p. 451). Reselling tickets on these Internet auctions sites, however, can be risky for certain season ticket holders. Many sports organizations prohibit their season ticket holders from reselling their tickets for much above the printed face value. Severe repercussions follow such breaches of this agreement. Notre Dame Sports Information Director John Heisler said that 1,200 football tickets attempting to be illegally resold on the Internet were confiscated by the university in 2003. Often times, these tickets are traced back to the original owner whose ticket-holding privileges can be revoked for the following season.
Buyers at Internet auctions sites generally will find prices to be lower as the time to the start of the event approaches. Per Figure 4, the price of tickets being resold declines significantly in the hours and minutes leading up to game time. This occurs for two reasons. The first reason is that buyers pay a premium to comfortably secure a ticket well before the event. If a Michigan football fan from Ann Arbor, Michigan is planning on traveling all the way to Pasadena, California for the Rose Bowl Game, he had better make sure he has tickets to the game before spending so much money on airfare and hotel reservations. The second reason for declining prices is that as the event time comes nearer, ticket scalpers become more and more anxious to sell because an unused ticket after the event is nearly worthless. For the 2004 Rose Bowl Game, for instance, a pair of tickets selling on eBay two weeks prior to the game could not be purchased for less than $800, even if they were end zone seats. Often times, pairs of tickets for preferred seats were going for over $1,000. Minutes prior to kickoff, however, with plenty of scalpers still holding tickets, one particular pair of tickets was sold to the author of this paper for only $300, close to the original face value. Note that the ticket price never reaches zero, because even unused tickets to certain events, such as the Rose Bowl, have some value to collectors after the event.
Combating the Secondary Market: Anti-Scalping Regulations
Ticket scalping has been viewed by many to be unethical because it makes the real fans pay a higher price for tickets than the stated “face value” printed by the box office. Ticket scalpers, therefore, cut into the consumer surplus of the consumers. This brings up a controversial subject: Should ticket scalping be illegal? Currently, 31 states and the District of Columbia have anti-scalping regulations on the books. Economists, however, typically are opposed to such laws because they create market inefficiencies. As stated earlier, ticket scalping exists as a necessary mechanism that allows the market to clear. Without ticket scalping, demand would continue to exceed supply, thus creating an inefficient market.
The city of Phoenix has taken a different approach to ticket scalping regulation. Instead of outlawing it, they are encouraging it. Of course, certain restrictions apply. The city adopted an ordinance in 1995 that set up a specially designated area for ticket scalpers across the street from America West Arena, where the Suns of the National Basketball Association and the Coyotes of the National Hockey League play. Scalping in this area was declared perfectly legal, but scalping anywhere else was prohibited. This law has benefited ticket buyers by leveling the playing field significantly. With all the ticket scalpers forced to compete with each other in one centralized area, information asymmetry has been cut down dramatically. It is much easier now for buyers to gather information if all of the transactions are centralized. Furthermore, the nuisance effect of scalpers has been eliminated. No longer are scalpers able to heckle fans on their way to the game nor are they able to block traffic. Additionally, the law has made it much easier for police to patrol the area in which the scalpers work, which has most likely all but eliminated the amount of counterfeit tickets.
Alternative Ways of Combating the Secondary Market
The old adage, “If you can’t beat ‘em, join ‘em,” applies well to the relationship between ticket resellers and box offices. Because anti-scalping regulations do not always help crack down on the amount of reselling that occurs, box offices have begun to engage in the resale market themselves. With Internet technology and the increasing use of electronic tickets (e-tickets), this is becoming easier and more prevalent. E-tickets are not paper tickets that the box office physically sends to the purchaser. Instead, an e-ticket is e-mailed to the purchaser, who is then able to print it or e-mail it to a friend who may use it. The printed e-ticket contains a unique barcode that is scanned upon entry to the event. Once it is scanned, the ticket is no longer useable.
The San Francisco Giants of the MLB engage in reselling e-tickets through the organization’s “Double Play Window.” This allows ticket holders who are unable to use single game seats to resell their e-tickets through the Giants’ Web site. Once the e-ticket is sold, the original bar code is voided. Buyers benefit by being assured of the authenticity of their tickets. The Giants benefit by making a profit on the resale, receiving a 10% fee from both the seller and the buyer, getting revenues that would otherwise go to scalpers and brokers (Happel and Jennings, 2002, p. 451). The Columbus Blue Jackets of the NHL have a similar marketplace set up for their season ticket holders on TicketMaster. As Nobel prize-winning economist Gary Becker has said, “The use of the Internet is a way of making a market more perfect” (Agwin, 2002).
A Futures Market for Ticket Resale
Stephen K. Happel and Marianne M. Jennings (2002) have written a journal article that proposes the creation of a nationally organized futures market for major events tickets. The market for ticket resale today is very inefficient and complicated, with the great deal of fragmentation and information asymmetry that exists. Happel and Jennings (2002) actually argue that the fact that a futures market for tickets has not already been organized is a market failure.
This so-called futures market would operate similarly to a stock market. The tickets, which are simply bearer instruments, would be viewed as call options: “Like a call option, the holder has the right, but not the obligation, to occupy (call in) a certain seat over a certain period of time” (Happel and Jennings, 2002, p. 444). And since these tickets traded today basically are nothing more than call options, then Happel and Jennings (2002) argue “that such bearer instruments of value could be exchanged, just like stock options, in a nationally organized futures market” (p. 444). This would allow fans the opportunity to wait until the day of the game to realize the true value of the tickets. They could then decide whether or not to exercise the call option.
One major obstacle to creating this futures market is the difference in laws from state to state. Establishing uniform regulations across the nation would be difficult since 31 states and the District of Columbia each have different laws regulating ticket reselling. Additionally, within some of the non-regulated states are municipalities with ordinances restricting the resale of tickets in some manner. Furthermore, as mentioned earlier, the ticket brokerage industry is extremely fragmented. Happel and Jennings (2002) admit: “Trying to organize the fiercely independent group of ticket brokers is like herding cats” (p. 450).
Happel and Jennings (2002) conclude their journal article with five explanations for why this market does not exist (p. 459). The first two are general observations. Firstly, stock options are homogenous whereas tickets are not. Certain seats in the venue should have greater values than others. Secondly, the market may not be deep enough, as it is likely very few tickets would be traded on a day-to-day basis. The third explanation comes from the point of view of the producer, who aims to sell not only tickets but also complimentary concessions at the venue, as DeSerpa (1994) points out. An efficient futures market would likely upset the pricing balance that owners seek to achieve between ticket prices and anticipated complementary sales. Tickets would resell for a higher price but the consumers of these resold tickets would not be willing to purchase any souvenirs or food at the concession stands, having spent so much on admission in the first place. The fourth explanation deals with the broker’s point of view. Basically, a futures market would end the broker industry as we know it. No longer would customers depend on brokers and street scalpers to secure seats to special events. As noted earlier, ticket brokers and scalpers are already being squeezed out a little by the growing usage of e-tickets and Internet auction sites. The fifth and final explanation comes from the consumer’s point of view. Some consumer rights activists would certainly try to blow the whistle on what they would perceive as secondary market price gouging that would allow only the wealthy to attend special sports events. Surely, there should be some sort of blue-collar aura to any sporting event.
Dan Seligman of Forbes wrote at the end of 1999 that having laws against ticket scalping was in the top ten dumbest ideas of the century. Still, many feel that ticket scalping is an evil that can be prohibited. This is an ignorant position. As long as box offices continue with the goals at which they are currently aiming, there will always be ticket scalping, illegal or not. Of course, practices such as “ice” should certainly be outlawed and severely punished, as this is akin to illegal and unfair insider trading within the stock market. But as long as ticket scalpers provide legal means for ticket holders to buy and sell tickets, they are benefiting most consumers and box offices.
Figure 1. Tickets sold at the box office often times are priced too low. While P* is the market-clearing price, the box office in this example sells at PBO. Therefore, there is an excess demand of tickets, which effects a secondary market.
Figure 2. Spindler’s graphical analysis of how the scalper parasite benefits its box office host. The true value of the tickets lies along the MARGINAL VALUE curve, but scalpers, intent on securing tickets to make a profit, drive the demand for tickets up to a joint demand curve, DJ, thereby benefiting the box office, which is now able to sell the same quantity at PM instead of PL. Scalpers purchase quantity QL – Q1 at PM and sell the same quantity at PH along the AVERAGE VALUE curve. Therefore, both scalpers and the box office benefit from each other.
Figure 3. Sports teams, such as those in the National Football League follow a monopolist model. The problem for such suppliers, however, is that they do not know where their consumers’ demand curve lies.
Figure 4. The price of tickets in the secondary market decreases as the time of the event draws nearer. The price of the ticket never reaches zero because even a ticket stub has value to some after the event is over.
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