The Economics of Ticket Scalping and Its Effect on Modern American Culture

Our topic at hand today deals with ticket scalping and how it effects you guys at home. Yes this is one lengthy article, but hopefully you can enjoy it, or at least take something good out of it. Please note that this is my final paper for my Modern American Culture class so it is written as one. Enjoy :)!

One of the beauties of America can be found in its underlying Capitalist economy. For a country’s people to be happy, they must be economically independent and be able to participate in free enterprise. In a global quest for money, some people will come out better off at the expense of others. One subdivision of free enterprise includes the markup of scarce goods in high demand, and more specifically ticket scalping. While some states have special laws controlling scalping practices, it is perfectly legal to buy and sell tickets online in New York State and many other states. In order to evaluate ticket scalping and its affect on modern American culture, we must fully investigate the music industry as well as the economics, causes, and effects of scalping.

For years, Americans have enjoyed many forms of entertainment including sports, movies, and music. There is an enormously rich market for these industries across the country, and the guys that run movie studios, stadiums, and concert halls know how to milk the fans for their money. The music industry is multifaceted in the fact that there are 2 media: recorded and live. If you were to ask a fan about the difference, such as Ben Ratliff in his letter to the NY Times editor about The Dead, he/she would tell you, “…it is important to understand that recordings are no substitute for… live [music].” There is a premium to pay for a live concert as opposed to going out and buying a CD, but hardcore fans understand this economic truism.

So what is ticket scalping? Occidental Economics defines it as, “any resale of a ticket for an event above the face value (i.e., printed dollar value on the ticket)”. Ticket scalpers may be licensed brokers, or more simply individuals looking to pocket a little extra cash, or fans looking to offset another set of tickets for the same event that they want to attend. It is estimated that 10% of ticket sales are associated with scalping, with 20-30% of the premium seats going through scalpers. Billy Joel was once quoted stating, “For someone to pay more than $30 to see my show is outrageous. My show isn’t worth $150.” Garth Brooks commented on a 900% markup of his tickets and joked, “Hey, I’ve seen the show. It’s not worth it.” It’s great that these artists think this way, but hardcore fans would remark otherwise. The majority of Americans are unable to pay such high prices for shows, but the small majority seems to be able to. If the fan is willing to shell out the dough, a multitude of people will be willing to sell at those high prices. The middle class American seems to be robbed of his experience at the expense of the almighty, omnipotent ticket scalper.

The history of ticket scalping can be traced back to the Romans when seats near the Emperor were highly coveted luxury items. “Tickets to these events were regularly resold or bartered for a better view of the emperor,” says Ticketmaster co-founded Albert Leffler. With the development of the internet and new technologies including eFast ticketing, the secondary ticket market has exploded into an entrepreneurial enterprise accessible to anyone willing to learn the tricks of the trade. With a little research, some startup capital, and a high-speed internet connection, it’s almost too easy to turn a profit. Previously, the title “scalper” was a dirty term referring to sketchy characters that would hang around stadiums quietly murmuring trying to sell their stock without being caught by the police. It is still possible to see these individuals today, but the majority of tickets sold on the secondary market changes hands on the internet through sites like eBay, StubHub, TicketsNow, etc. The business model has been drastically altered in favor of the regular ambitious American. Ray Artigue, professor of practice in the marketing department at the W.P. Carey School explains, “The secondary ticket market revenue pie keeps growing exponentially, and everyone wants a piece of it.” With the right amount of time and energy, anyone can succeed.

The problem with the revenue pie growing exponentially is that while it helps the seller, the buyer on the other side of the transaction falls victim to outrageous price gouging due to instantly sold out supplies and shortages. Hardcore fans are unable to purchase tickets in the primary markets because scalpers instantaneously transfer them from the primary market to the secondary. For those fans able to purchase tickets in the primary market, they fall victim to another problem; the average ticket price has skyrocketed in and of itself. Economist Alan Krueger of Princeton University, studied historical pricing data, and found that ticket prices have been escalating for the last five years, with no plateau in sight. Pollstar data showed that over the last five years prices for concert tickets have grown 61%, while CPI has only increased by 13%.2 In addition, the cost of a concert ticket has sped past the cost of other tickets in the entertainment industry by approximately 30 percent. In 2006, a Dave Matthews Band ticket at the DTE Energy Music Theater in Clarkston, Michigan cost about $60, when in 1995, a ticket cost $19. The average price of concert tickets had increased by about 82 percent between 1996 and 2003, and has roughly double over the last 10 years. In an age where many people download music for free on the internet, maybe they can afford to pay a hefty fee for a concert ticket. But for those playing by the rules, tickets are just too expensive. While $60 dollars may not seem too expensive, it is important to remember that there is a wide range of prices for different artists. Ben Folds may cost only $40, but Lil’ Wayne at Madison Square Garden costs $200. The music industry is becoming too inaccessible to the average Joe.

Kruger has studied the ticket pricing market in depth, and has come up with a few hypotheses that try to explain the causes of increasing prices. In a 2002 lecture titled, “Rockonomics: Economics and Public Policy in the Rock and Roll Industry”, Kruger talked to his students about his work in the study of economic causes and effects of the rising cost of concert tickets. First of all, production costs for shows have allegedly increased, however he is a bit skeptical of the “facts” he received from industry professionals regarding elaborate sets, pyrotechnics, etc. One thing that we must take into account though is new technology that previously had not been used. The elegance and grandeur of some concerts is out of control; i.e. Britney Spears and The Pussycat Dolls. Secondly, the music industry has been consolidating over the years. Recently, TicketMaster and Live Nation have joined together creating a monopoly over concert ticketing services. Congress was concerned about the antitrust implications of the merger, and the fan should be too.5 If TicketMaster and Live Nation don’t use good judgment in pricing, we may see even greater ticket inflation. Kruger’s third hypothesis deals with the status of album sales and its affect on the price of tickets. He has observed that Jazz and Blues fans tend to buy more music, while there seems to be more piracy in the genres of Rock and Pop. Kruger has concluded that this trend explains why Jazz and Blues ticket prices have grown more slowly (23.4%) than Rock and Pop ticket prices (74%). Lastly, Kruger hypothesizes that ticket prices in general are just too cheap, in terms of real market value. While it may seem expensive to pay $60 to see DMB, a hardcore fan may be willing to pay close to $150 for the show, especially if the seats are in a prime location. Usually different levels of seating are priced differently, but the difference in price between a front row seat and a dead last row seat are the same. Due to this spread, a scalper is able to mark up hot seats while paying a lower base price for the seating area. The secondary market only exists because there are buyers willing to pay.

In an attempt to further understand the complexities associated with the secondary ticket market, I took it upon myself to conduct a case study. When news broke of a Phish reunion tour, my first reaction consisted of, “Sweet! I really wanna go, I hope I can get tickets!” After reading the rest of the press release however, my happiness was immediately usurped as I realized that the concert was in Virginia, and that I would not be able to go. Fortunately, the human brain is multifaceted, and my entrepreneurial spirit took over realizing that a once in a lifetime opportunity to earn a large sum of disposable income was sitting right under my nose.
To begin, it was important to do some basic research regarding buying and selling practices, and it seemed pretty simple. Numerous websites made sure to inform me that it is imperative that a buyer syncs his clock with the atomic clock, and gave tips for quick CAPTCHA image verification bypassing. After you hit submit on the purchase page, it’s just the luck of the draw. After a few minutes of heated anxiety, my brother and I were fortunate enough to cop a pair of tickets. In researching the ticketing of the show, it seemed that most of the tickets were going out to the fans and not directly to brokers. Another beauty of the 3 day reunion tour that Phish was playing in Hampton, Virginia was that the Hampton Coliseum is completely General Admission, meaning that all tickets are priced the same, and worth the same; it is up to the fan to choose his/her standing spot by arriving early to the venue. Another beauty of this ticket offering is that the tickets were relatively cheap, at $46.50, because Phish wanted them to be cheap. Phish also made it clear that they would not stand for their tickets to be scalped. Fortunately, diehard fans that were lucky enough to win the figurative “TicketMaster lottery”, were able to purchase tickets for an incredible show at an affordable price. On the other hand, scalpers were able to purchase tickets for an incredible show at an affordable, and at the same time were able to pocket a good $500-1000 in cash! After about two weeks, and numerous problems with eBay’s ticket resale policies, my brother and I made a hefty profit of $583.50 through StubHub (a 447.13% markup!). Ticket scalping was as simple as we had thought. The hardest part is earning the chance to buy the tickets. After that, patience and perseverance leads you to your goal.

In addition to learning about the simple economic principles of supply and demand in a real-world situation, we learned a lot about the industry and were able to tie some of our previous research into the mix. Regarding Phish’s executive decision to keep ticket prices low and to stop scalping, it seems as if their plans backfired. Kruger’s fourth hypothesis dealing with irrationally low priced tickets seemed to be correct. While Phish wanted to see low ticket prices, crazed fans unable to see those low ticket prices on their computer screens rushed to eBay, StubHub, and TicketsNow, keeping their eyes on the prize, and not on their bank account balances. No matter how little a ticket costs, if there is enough demand, the base price of the ticket has no importance in the secondary market other than to help sellers calculate percentage gains. Keep in mind that not all shows turn profits, but the right shows turn them. A good scalper is a smart scalper; he does his research, he has a feel for the industry, and he has good hand-eye coordination. Master scalpers/brokers are hard to come by, but any average Joe, or 17-year old kid, is capable of low-level success.

Despite the state of our current economy, The Chicago Tribune reports that concert ticket sales haven’t been effect that badly. Suite101 contributing writer, Shelley Aylesworth-Spink, found that, “although times were tight in 2008, revenue for concert sales in the United States were up 7.8 percent to $4.2 billion. Ticket sales, however, did drop by three percent which means that in 2008, ticket prices were still high.” Workers facing unemployment seem to find the cash to escape to a good concert and at the same time are paying less in the secondary market. Checking eBay close to the date of a concert can reveal steals under face value. In a world where the concept of face value has almost disappeared, an economy in a nosedive is saving the consumer. Simple microeconomic theory explains that as demand rises, the price of an item rises, and when demand falls, the price of that item falls as well. In an economic crisis, the demand for concert tickets will indeed fall, but there will still be demand for them at a certain price. As the price of the tickets equalize lower, those willing and able to dispose income, will purchase the tickets at the new price. The answer to controlling ticket scalping is not increased regulation, but rather self-regulation, setting a bar for your maximum eBay bid lower than before. A ticket is only worth as much as you value it.

An American is an individual born with the unalienable rights of freedom of speech, freedom of religion, freedom of economic independence, and many other rights. In an attempt to fully analyze the ticket scalping market, the analysis of the buyer and the seller are of the utmost importance. For all intents and purposes, we can assume that the buyer is a fan, a parent, or just an average Joe that wants to see a concert, but we cannot make any assumptions in the seller’s territory. As seen in our case study, it is as likely for a ticket broker to be on the other side of a transaction as is a 17 year old kid, just looking to earn some cold hard cash. It is true that tickets are sometimes unfairly marked up in the secondary market almost instantly as primary supplies liquidate in minutes (or even seconds), but aside from previous broker negotiations, a large supply of tickets is still available on the open market for everyone to purchase. Many people do not understand how quickly tickets sell out, and how important it is to sit at their computer at the exact second tickets go on sale for the chance to purchase. Purchasing tickets on TicketMaster is a lottery, not a sure commitment to a purchase. As much as the consumer wants to be mad at scalpers, he must change his perspective and realize that he could scalp, or learn how to purchase tickets if truly inclined. The problem with scalping is that an artist’s pricing judgment for affordability is swallowed up by a third party. The beauty of scalping is that we can directly see the free market at work. Will-call ticketing is a great measure that artists can request to ensure that quality seats are unable to be resold, but complete control and restriction of ticket scalping by any form of government cannot happen. It is not our job to criticize the industry and to place moral judgments on the successful, but rather to marvel at the system and hope to gain some insight. If you can’t beat ‘em, join ‘em. And if you choose not to join ‘em, learn, practice, enjoy, and repeat.

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