Scalping goes upscale: The secondary ticket market's online revolution

July 02, 2007

To comment on this and other stories go to the Knowledge@W. P. Carey Blog.

 

 

When country star Garth Brooks played before a sellout Phoenix crowd years ago, he was stunned at the markup on tickets. Scalpers were getting $500 for a seat with a face value of $50. "Hey, I've seen the show. It's not worth it," Brooks joked with reporters at a press conference attended by Marianne Jennings, a professor of legal and ethical studies at the W. P. Carey School of Business and an expert on the secondary ticket market.

 

While Brooks may have been surprised at the resale price, fans seeking tickets for prime concerts, sporting and entertainment events worldwide are willing to pay several times the face value for a little face time with their idols. Primary ticket holders, brokers, promoters, sports franchises and venues are only too obliging to take their money, and have been for some time.

 

 

Old as Rome; transformed by technology

 

The lucrative secondary ticket market, now a slick, technology-driven, multi-billion dollar business -- is as old as ancient Rome. In the early days of fierce Gladiator contests in the Roman Coliseum, the tickets closest to Caesar were the prime seats.

 

"Tickets to these events were regularly resold or bartered for a better view of the emperor," says Ticketmaster co-founder Albert Leffler, vice president of new project development at the world's leading ticket company. Last year Ticketmaster sold more than 128 million primary and secondary market tickets via the phone, retail outlets, and with state-of-the-art online programs that allow tickets to be printed at home, resold with the ease of a mouse click or quickly forwarded to a friend or business associate.

 

"Beyond all doubt, the Internet has revolutionized scalping, and has turned it into a sophisticated white collar business that works for everyone -- the teams, brokers, those with tickets and those who want tickets," says Ray Artigue, the former senior vice president of the Phoenix Suns, who is now a professor of practice in the marketing department at the W. P. Carey School and director of the W. P. Carey MBA Sports Business Program.

 

The old business model was typified by seedy characters on street corners near stadiums, ballparks and forums, peeling off event tickets at a high premium with no guarantee of admittance. Scalpers got their stock in a variety of unconventional ways. For top concert events at Arizona State University, for example, scalpers rented old school buses and trucked in vagrants from downtown Phoenix to camp out overnight and stand in lines with cash in hand to buy a limit of six tickets each. "Many of the homeless didn't even speak English; they would just plunk down the exact change given them by the scalpers, pick up their tickets and go back to the bus where they would receive fifty bucks for their efforts," says Leffler, who years ago was an intern in arts administration at ASU's Grady Gammage Auditorium.

 

 

New business model

 

Today the new model is an electronic extension of the box office, driven by advances in computer hardware and software and by a spate of clever, aggressive online ticketing companies like Ticketmaster, TicketsNow, StubHub (recently acquired by e-Bay), Tickets.com and Craigslist -- some of whom  have forged exclusive primary and secondary ticketing agreements with venues and sports franchises.

 

Here's how it works: both primary (first time sale) and secondary tickets are available on most of these websites; but the best primary seats for any event are usually reserved for season ticket holders, corporate sponsors and those with connections. Single-event and season ticket holders, however, can sell their tickets, usually at a considerable markup, on the secondary online market -- assuming, of course, there are no legal or team/venue restrictions on the markup as there are in some places. Ticket holders set the price, whatever the market and site-specific regulations will bear, and the ticketing company charges a fee -- usually ten percent to the seller and ten percent to the buyer.

 

Software upgrades have taken much of the back-alley risk out of these transactions, and have encouraged more season ticket sales not only to corporations, but also to entrepreneurial types, who can effortlessly sell off tickets for popular entertainment and professional and collegiate sporting events. Savvy individual season ticket holders can defray the cost of season tickets, even make money on it, by selling off some choice events at a higher price, notes James Ward, a marketing professor at the W. P. Carey School. "Some do it for a living," adds economics Professor Stephen Happel, an authority on the secondary ticket market who, with Jennings, has written in the Wall Street Journal on the subject.

 

"Who's going to go to 41 home Suns games or 81 Diamondbacks games? I don't care if the teams are in first place all season, with the best record in sports. There's money to be made in the resale of tickets, plenty of it," says Happel.

 

"The secondary ticket market revenue pie keeps growing exponentially, and everyone wants a piece of it," adds Artigue, suggesting the secondary ticket market will soon eclipse the primary ticket market in total revenue.

 

"It's become an investment tool. I know various Suns season ticket holders that have gotten this down to a science, reselling only their premium games and then it doesn't cost them a dime for the season because their markup is sufficient to cover the season invoice."

 

Stadiums filled to capacity, he notes, also add incremental revenues to the venue and franchise bottom line in the form of parking fees, concession and merchandise sales, and coveted corporate sponsorships.

 

"These companies are looking for eyeballs; if you can deliver, you can charge more for them." There's a parallel benefit, he says, for season ticket holders to pass on tickets for games and events they are not attending. "You get points for high attendance, regardless of who sits in the seat, and this translates into significant discounts in the pricing of next year's season tickets or other enticements."

 

 

Presenters enter the game

 

And so venues, colleges and sports franchises have now entered the game in an effort to capture this windfall without formally having to raise ticket prices. As a bonus, they partake in a marketing bonanza by up-selling online customers through a barrage of promotional e-mails. Many of these venues and franchises, in fact, have signed exclusive contracts with ticket companies like Ticketmaster, making them the authorized ticket resale provider. Under the terms of these gainful agreements, the online brokers usually share ticket fees with their team/venue clients. Everyone seems to win. Customers, in return, are provided with convenience and heightened security, and the online broker has a virtual team or venue monopoly.

 

Under the terms of these agreements, Ticketmaster pays the franchises and venues an undisclosed fee to provide customers with convenience and heightened security, and, in return, it gets a virtual team monopoly on their secondary ticket market. Ticketmaster has signed about 50 of these exclusive ticketing agreements with teams in Major League Baseball (MLB), the National Football League (NFL), the National Basketball Association (NBA) and the National Hockey League (NHL), including teams like the Phoenix Suns and the San Antonio Spurs, The New England Patriots and the Arizona Cardinals, the Los Angeles Dodgers and the Atlanta Braves, and the Toronto Maple Leafs and Detroit Red Wings. Ticketmaster recently signed a league-wide agreement with the NBA to become its "Official Ticket Provider" and "Official Secondary Ticket Provider."

 

"When you buy a ticket from the guy on the street corner or frankly from anyone online who is not an authorized event ticket provider, you never know for sure until you walk through the turnstile if you bought a good ticket," says Joe Freeman, Ticketmaster Vice President and Assistant General Counsel. Freeman notes that Ticketmaster guarantees its stock and provides secure online programs for season ticket holders such as TicketExchange, that closely monitors the resale of their tickets. An added benefit, he says, is that Ticketmaster "works within the letter and spirit of the various laws, region by region, that regulate the resale of tickets. Ten to 12 years ago, the notion of selling a ticket through the computer was far-fetched. Today it's the norm."

 

Ticketmaster, says Jennings, owes its existence to "a few brave souls who saw a secondary ticket market early on, and were out there in their trench coats and silk shirts. Those were real pioneers. Sometimes undesirable people perform very valuable functions in society."

 

Now everyone is engaged. Buoyed by the prospects of additional revenues, concerned about outrageously high prices demanded by some ticket holders, and wanting more control, a few professional sports teams are purchasing their own ticketing agencies. Last year, for example, the Cleveland Cavaliers acquired Flash Seats, a small ticketing company with offices in Cleveland and San Jose, California, according to a recent New York Times report. "Flash Seats allows sports teams to exert control over who fills their seats, and to fight back against [online] sites … that have transformed the shady world of ticket scalping" into big business, the paper reported.

 

Other teams have taken similar steps, the Times notes. Two years ago, MLB's Internet unit purchased Tickets.com, and the San Francisco Giants have acquired Double Play Ticket Window. In addition, teams like the Patriots, New York Yankees, and Denver Broncos require ticket holders to use the team's own ticket change. "Ticket holders reselling their tickets via unauthorized outlets are subject to revocation of their season ticket accounts," the Broncos management wrote recently in a brusque letter to ticket holders.

 

 

Squeezing out competition?

 

Not everyone is impressed.

 

"These ticketing companies and team ticket exchanges are basically trying to squeeze out the competitive nature of the secondary market under the guise that they are doing it for the safety and convenience of the consumer," says Happel. "That's a crock. I get a laugh out of that. They are doing it for profit. Ticketmaster is the 800-pound gorilla in the secondary ticket market." Happel insists the street corner scalping market is self-policing. "Nobody wants counterfeit tickets. It hurts the market."

 

But John Eaton, clinical marketing professor at the W. P. Carey School, is more sanguine in his assessment of online ticketing companies. "If by providing a higher level of service or another level of service, it leads to greater profits, then it's a smart strategic move," he says.

 

Eaton, Happel, Jennings, Artigue and Ward are all staunch defenders of the free market system and oppose any limitations on it, even in the resale of tickets. "You can call higher prices a disadvantage," says Ward. "But it's supply and demand. The alternative is those tickets would not be available to consumers." As it now stands, he notes, you can purchase tickets to just about any concert, entertainment event, sports game, playoff or championship if you have the credit card limit to pay for it. "You want people in the seats willing to pay the price," says Happel. "That's clearly in the best interest of a free market economy."

 

While Ticketmaster believes in a free market economy, Assistant General Counsel Freeman stresses the need for more consumer protections in the secondary ticket market. "We believe very strongly in free markets with respect to the resale of tickets, but for any free market to function fairly there need to be rules that protect consumers against fraud and that safeguard the legitimate rights of those who make live entertainment events possible in the first place," he says. “The people who make the creative and entrepreneurial investment to bring the concert or ballgame to the public should have a say in helping create a level playing field for all involved, particularly since when a fan buys counterfeit tickets, it's the venue and Ticketmaster typically left trying to clean up the mess."

 

But what about some of those nosebleed prices?

 

"That's how a free market economy works," says Eaton. "If you don't want to pay that much, don't bid that much, and wait to see if the price drops. You may be sitting this one out."

 

 

Bottom Line:

 

  • Once a seedy, backstreet operation, the lucrative secondary ticket market today is now a slick, technology-driven, multi-billion dollar business.
  • The Internet has revolutionized scalping, turning it into a sophisticated white-collar trade.
  • The new business model is an electronic extension of the box office, driven by sleek advances in computer hardware and software and by a spate of clever, aggressive online ticketing companies. State-of-the-art online programs allow tickets to be printed at home, resold with the ease of a mouse click or quickly forwarded to a friend or business associate.
  • But some critics say that successful online ticketing companies and team/venue ticket exchanges are squeezing out the competitive nature of the secondary market under the guise of consumer protection and convenience.
  • Experts still agree that a free market economy ought to prevail in the secondary ticket market, but many insist that more consumer protections ought to be in place.