Tag: ticket scalping

The Concert Ticketing Theta Paradox

Jeremy Larochelle

 

When you break them down to their basic economic form, concert tickets are just like stocks – a limited commodity that can be traded based on the perceived worth of the market. This phenomenon has become much more apparent after the industry was shuttered for two years thanks to COVID.  Some fans who had purchased seats for a reasonable price (when the market was flooded with options) and sat on those tickets have watched their values go through the roof.  For example, my mom had purchased three seats in the nosebleeds (200 section) to see Elton John at the Amway Center in Orlando over two years ago for just under $400.  She decided to sit on those tickets and when I wanted to join my family for the show a few months prior to curtains, a single ticket cost more than what she paid for three.  I guess you would say the price – tripled.

 

We all know that because there are only “X” amount of seats for a show demand easily takes over price. Scalpers certainly get it and have made a fortune off that supply/demand misbalance for years. This practice has received a steroid shot thanks to technology.  Today’s scalpers use everything from technology-backed brute force to gobble up blocks of tickets to machine learning algorithms that automatically price, buy, hold, and sell tickets. This has increased the speed at which tickets can be turned over and with that, the price usually goes up.

 

Interestingly, similar technology is used in the stock market. Bots and electronic funds transfers allow companies to price, hold, and sell ownership of publically traded companies at blazing speed. Research into stock pricing will reveal that much of this action is the result of consumer behavior. Digital tools such as the Relative Strength Index (RSI) is used to gauge the momentum of a stock while the MACD tells us in which direction the price is likely to go.  Oscillators, moving averages, and overall technical analysis are all used to tell Skynet when to buy or sell stocks. The one thing nearly all of these equations and the technology that fuels them share is they are built on how consumers collectively behave as the availability (or perceived availability) of a commodity changes. The same thing happens with concerts. Ultimately, the price of an event is dictated by how much a cluster of consumers is willing to pay to get in a show.

 

Unlike traditional stocks which can last into infinity if the company stays afloat. Concerts and events have a limited shelf life and as that performance gets closer time becomes a problem.  Once again, we find a similarity between the stock market and the ticket market. This time it comes in the form of options trading.

 

In its simplest form, options trading gives the buyer the “option” to purchase “X” amount of shares of a company before a pre-determined date. The buyer pays a premium for this benefit. For instance, if John thinks Widget Inc’s stocks, currently trading at $50 per share, will trade at $100 per share in two months. He gives his broker a fee (let’s say $200 in this case) for the “option” to buy those stocks anytime between today and a pre-set day two months from now for $50 per share. If the stocks jump to $100 a share, John can execute his option and double his money. However, if that date arrives and John does not execute his option. He will lose the $200 he paid. The impact of that elapsed time is measured by Theta in options trading and it plays a very important role in how premiums are priced.

 

Theta also exists in the ticketing world but it is widely dependent on consumer demand on a show-by-show basis.  If that demand is huge (say a superstar’s farewell performance), Theta can mean more profit for the re-seller. In some instances, it can even push the demand curve straight up as the strike (event) date approaches. Consequently, if that demand is weak, it can reduce the profit for the re-seller, sometimes to the point of a loss if they are afraid the tickets won’t sell before the date and become worthless. After all, it is best to make some money than no money… right?

 

This can be beneficial for fans who live near a venue. For instance, I live just fifteen minutes from where Elton played here in Orlando and I watched ticket prices daily. Roughly two days before the show, I was able to secure amazing floor seats for the single price of one of my mom’s nosebleed seats when she bought them pre-pandemic.

 

The thing to keep in mind is that just like stocks/ options the concept of time until the show represents an inherent risk to your ticket price. If you want to attend that special event, it is typically best to buy tickets as close to their initial sale date as possible (being a member of a fan club can be worth its weight in gold for times like these). Otherwise, you will likely enter the ticketing options game where Theta could become your best friend or worse enemy.

 

A Ticket Scalping Benefit for Bands

Jeremy Larochelle

 

Country-singer Kacey Musgraves was preparing for a sold-out show at the 1,800 seat Van Buren in Phoenix on February 13th, 2019 when she took home four trophies including Album of the Year at the 61st Grammy Awards on February 10th. Phoenix fans were lucky to find out that her management had already placed a second show on sale at the 5,000 capacity Comerica Theater in August.

 

I was certain that Musgraves new mass-market status was going to push demand, and consequently the price of tickets up. It appeared that I was not the only one.  The show sold great out of the gate and within weeks very few primary tickets were left. Fans were forced to purchase from the resale market. As usual, these prices were higher than the ticket’s face value – at least up until showtime.

 

Between 2:00 pm – 4:00 pm on show day a flood of tickets went on sale. Many at half the face value. Tickets are sometimes released closer to show time, but usually, these are from the act’s camp and sold on the primary market. Instead, these below-face value tickets were found on the resale markets. This got me thinking about the ticket brokering game, how it impacts the concert ecosystem, and if there is an added benefit to the practice.

 

Most of the press surrounding ticket scalpers or brokers is negative and rightfully so. They buy blocks of tickets at face value then jack up the prices. This results in less opportunity for true fans to enjoy their favorite artist. However, at its core, ticket brokering is pretty much the same as trading stocks. You buy a piece of a company at a reasonable price in hopes that their valuation will rise so you can sell the stock and earn money for your prediction. The same is true in ticket scalping. Individuals or companies buy up blocks of tickets based on the assumption that demand for a particular artist will increase. These entities then raise the price and make a profit on their analysis.

 

But what happens when these predictions are off and the broker is stuck with a block of tickets they can’t sell at face value? In the stock market, that individual can just hold onto the stock in hopes of a better-priced future. However, in the world of rock-and-roll concerts are time-sensitive. The ticket scalper’s opportunity to recoup his or her investment is gone forever once the lights hit. The only course of action is to sell at a loss and hope they make some of their money back.

 

This can be a HUGE benefit for the artist. In most scalping instances tickets are purchased at the agreed-upon ticket scaling rate between the venue, promoter, and artist’s management team. Yes, brokers buy up blocks of tickets, but they are typically doing so at face value, so the artist receives some benefit.  For one, they are more likely to have a sold-out show and for a band building their brand on the road. Sold-out shows help them appeal to promoters and talent buyers that represent larger spaces and better opportunities. As I mentioned in a previous post, buyers and promoters are constantly assessing the risk involved in booking an act and sold-out sales metrics help alleviate that concern. Second, and perhaps more important. The band and their team earn a larger paycheck. This helps them stay on the road.  Pay the crew, put on better concerts, market new events, and release new music.

 

I am not condoning ticket scalping. Especially in a day and age where bots can exasperate the process and cut off true fans within seconds. Just remember, scalping has been a part of the concert industry for decades. We all hate paying more than the face value of the ticket we receive. However, there are plenty of times where savvy fans get into shows at exceptional rates without impacting the Artist’s bottom line. There is some benefit to that.