Catch 22 Tickets: Why the Bidding System Won’t Fix Exhibition
In Q4 of 2017, eBay saw their aftermarket ticket sales website, StubHub, hit over 250 million in revenue. StubHub is a marketplace that matches buyers and sellers of event tickets, ranging from concerts to sports games to everything in-between. But is its present success and ubiquity to be expected? In the same year (2017), the live music market alone–this is excluding sports and miscellaneous ticketed events–saw its volume hit nearly $10 billion dollars. Again, StubHub is purely an aftermarket intermediary, so their market capture rate immediately points to the pure volume of people ticket scalping.
Ticket scalping, put simply, is the act of purchasing event tickets with the intent to mark up and resell them for a profit on the aftermarket. And as McFadden puts it in his 2016 article, no longer is the "stereotypical burly guy selling tickets in the shady part of the parking lot” the only one engaging in the activity [1]. The aftermarket ticket industry has become a multi-billion dollar enterprise, with numerous large-scale online companies capitalizing on this occurrence, hoping to compete for even a sliver of marketshare.
The widespread growth of ticket scalping is a societal issue for a number of reasons, both on the retail buyer and exhibitor side of things. Scalpers' interaction with the current ticket economy increases pricing for consumers, causes genuine fans to miss out on the opportunity to attend events, and takes money out of the pocket of artists, sports teams, and any other sort of exhibitor. Promptly summed up, it is called "scalping" for a reason. A very popular idea to combat this system is what is essentially an automated "bidding" system, in which tickets are priced accordingly and dynamically in line with demand, much like airline tickets and hotel rooms.
The interaction between the secondary market and direct retail market acts as an extremely positive feedback loop, with ticket prices in one therefore inflating ticket prices in the other. This feedback loop has an arguably negative impact on society by making many ticketed events simply unaffordable for lower income peoples. On a pure economic basis, this action and reaction makes logical sense—that is to say, retailers raising prices causes scalpers to raise prices as to maintain worthwhile margins, and scalpers raising prices lends to retailers the ability to sell their tickets for a higher price due to the law of supply and demand (as well as the public's heightened perceived value of events due to the aftermarket pricing). This interaction between the two is only further complicated by what’s called venue disparity. There are truly only a limited number of event venues, and most tend to be on the small side or stadium side, with very few catering specifically to artists of medium sizes. Therefore, there is a common problem in which these medium sized artists that are not quite large enough to fill a stadium with fans will have to opt for a smaller venue. In this specific case, not enough tickets will be supplied to even come close to meeting demand, with any selected price (within reason) being viable and able to sell out and be scalped for an even higher gross value.
To further explore just how serious of an issue this presently is, and one of the main combative measures that has been taken against it, one must look no further than the BOTS Act of 2016. Written into effect under the Obama administration, the Bots Act criminalizes usage of automated programs to purchase concert and event tickets. And while this act did effectively break up some of the largest organized ticket scalping syndicates (similar to Wiseguy Tickets) [2], it has only given rise to a higher number of side hustle scalpers: people that buy and scalp tickets as a part-time gig. Again, these small-time scalpers have very negligible impact on an individual level, but when 500 or more of them target a single event or venue, their effect is as bad, if not worse than the previous rule of big business scalpers.
The benefits of aforementioned bidding system are potentially numerous, and easy to achieve. Free markets, given high volume (such as the ticket market has) tend to have prices move towards the demand curve. That is, buyers and sellers negotiate en masse on fair pricing options. While this does currently happen on the aftermarket for tickets, it does not occur in a free way as tickets are either artificially marked up, or in far too low a supply on the aftermarket due to a number of reasons, including but not limited to small venue size, high rate of real fan purchases, or a mere lack of scalper supply. This is known to work in theory, due to a number of larger economic concepts, but has almost been field-tested due to scalpers themselves in part.
When too many scalpers will target a specific exhibition, an odd situation will occur: shows that sell out quickly will end up having a high number of empty seats. And this isn't because people decide not to show up last minute. When supply exceeds demand on the aftermarket, and pricing is not adjusted, the number of tickets that remain unsold at the time of an event can be extremely high; this most notably happened on Rihanna's 2016 tour, with a specific viral article by Lewis Panther showcasing photos of Wembley stadium half empty, despite the very same show "selling out” [4]. This essentially showcases the fact that consumers are only willing to pay a set amount for tickets, and that when price does exceed the demand curve, tickets go unsold for popular events with demand to match venue size. A bidding system would essentially force every ticket to be sold, as unsold items (when valued) very rarely go unsold in a system of bidding.
On the other hand, the Rihanna scenario uncovers a potential problem with introducing a system of bidding–and this problem stems from both a psychological and economic phenomenon. When purchasable goods are perceived as scarce by consumers, an innate sense of urgency triggers a higher chance of a conversion and therefore purchase [3]. Furthermore, losses are perceived as being much weightier than gains. Therefore, if there is a clear risk of tickets selling out, more consumers will convert and buy tickets. While one could argue that tickets being heavily scarce (in part due to scalpers) is a negative occurrence that ought to be fixed, it is certainly understandable from a financial perspective why exhibitors may actually appreciate this byproduct of scalping. Higher demand not only creates more financial opportunity for artists, but also intrinsically perpetuates an artist's sense of popularity, as their shows that "constantly sell out" can be referenced.
Moreover, one cannot just observe pure levels of ticket sale profitability as the only driving force for exhibitors, especially in terms of artists. This is because an artists only makes a small portion of their income through live performances. Therefore, an artist must weight their popularity and fan satisfaction at a very high level. Off the bat, artists typically have income from album sales, merchandise, paid commissions, and concerts. If there is a chance that engaging in said bidding system could breed animosity amongst an artist's fans, there is a high internal motivation to avoid this potential risk, as the short term financial gain from elimination of scalpers could end up hindering profitability elsewhere. For example, if an extremely popular artist performs in a small venue, and were to sell their tickets in a bidding system, the demand may far exceed supply. This could drive the retail side's prices to a relatively obscene amount, likely alienating fans from all but wealthy financial backgrounds. This already happens with many events as it is. For example, when Elton John's Farewell Tour went up for sale earlier this year (2018), there was a surge of people taking to social media to complain about high prices with some fans even calling the tour an "absolute con" [7].
It stands to reason that the introduction of a bidding system, especially at venues where demand exceeds supply, will certainly drive prices above the level of “absolute con” from time to time, and as such, there is at the very least exhibitor pause in accepting a system like this. After all, a fan’s perception of an artist is far more valuable than temporary financial gain due to the multiple income streams that a strong fandom does bring.
Another reason that a bidding system may backfire is that extremely limited seats, such as front row tickets to Broadway shows like Hamilton, or VIP tickets to meet Kanye West, would likely cost ludicrous premiums. This is because some super fans will be able to spare no expense, effectively barring any fans that aren’t able to or willing to spare no expense close to no opportunity to experience said events to the same degree that the ultra-wealthy are. Though slightly distant in terms of scope, one need only look to the example of charitable auctions to recognize this occurrence. At charity auctions, wealthy buyers typically bid items of little intrinsic value to obscene amounts, barring regular, non-wealthy attendees from feasibly winning the auction. On the one hand, one can make the argument that these are to be viewed as “charitable donations”, but on the other, it still illustrates the obstacle of dealing with limitability, and economic differences between the wealthy and non-wealthy—casinos limit bets because the table games truly change when wealth is uncapped.
At the end of the day, the existence of an aftermarket for anything that is limited in access is to be an expected outcome in a capitalistic society. While the system of bidding may certainly eliminate majority of scalpers, it would simply give rise to the same exact issues on the consumer side, if not even bigger issues. In addition, the risk it would pose to performer credibility and fan satisfaction far outweighs any potential monetary gains due to the way in which artists make majority of their money (through aforementioned variable income streams). Ticket scalping is a necessary part of the industry of exhibition, and the consistent growth of that sector points to it not going away anytime soon.