Hypocritical Artists and Secondary Ticket Sales

People seem to understand that things have fluctuating prices based on supply and demand (like stocks, or gold, or ice cream). But when it comes to event tickets people ignore the realities of supply and demand and talk about fairness. Anyone who tries to sell tickets for a profit is greedy. Or, as Nine Inch Nails’ Trent Reznor says today, ticket resellers are parasites.

People pay big dollars for premium events like the Super Bowl and certain concerts. But they pay it to middle man ticket brokers, lovingly referred to as scalpers. Ticket brokers are really just market makers. They risk capital, hold inventory, and place bets that they’ll be able to make a living on the spread.

Pricing tickets is very, very hard. Demand for an event peaks just before it occurs, then falls to zero as it begins, like food that has gone bad. Changes in the economy have a dramatic impact on ticket prices, too. A good ticket broker is thinking about the quality of the event, the date of the event, the venue, the seat locations and the state of the local economy when pricing tickets. And if they do it wrong, they eat their inventory and take a loss.

Most ticket brokers don’t make much money, particularly when you factor in that they’re putting their own capital at risk. A few, those that have good instincts and the right connections, do very well.

But it’s important to know that everyone is in on the game. Players and coaches who go to the Super Bowl sell their tickets to brokers. Venues sell some of (or all of) their best seats to popular events to brokers. The artists do the same. Everyone along the supply chain gets their cut. Usually in cash, which isn’t claimed as income.

The only people taking any risk are the brokers, who put their money on the line. And when an event turns sour, they take the hit.

The benefit to the artists and promoters is clear – brokers create a smooth demand curve for tickets. When an event doesn’t do well, no one feels bad for the brokers. But when tickets for a hot event go for four or five times the face value of a ticket, everyone points to the brokers and says they’re greedy. What they don’t realize is that the broker has paid so many people along the way for those tickets, they’re probably only making a 10% margin on their investment. And that’s when things go well.

In a past life I was the COO of a Kleiner Perkins backed ticket reseller called Razorgator, so I know a lot about this business. And I also know that nobody’s hands are clean.

Reznor wants to kill the secondary ticket business, which is very noble and no doubt popular with his fans. But what he doesn’t talk about is the fact that with any scarce good a market price develops, and there is no way to avoid it. Putting legal or logistical restrictions on ticket resales just means that people pay in other ways, usually by waiting in line. That means people who value their time the least spend the time waiting.

Generally speaking, giving assets to people who are willing to wait around the longest is an inefficient way to allocate resources. But for some artists it makes sense because they want to reward their core base of young fans, most of whom can’t compete on price for tickets.

So the artists will keep complaining about the secondary ticket market to keep those fans happy. Even while they reap the direct and indirect benefits of that secondary market.