Ticket Brokers as Market Makers

Tech Crunch had a great article on Trent Reznor’s recent war on Ticket Brokers.

From TechCrunch

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.

Working at yoonew has given me a lot of exposure into the ticket industry – and it really isn’t unlike Wall Street in many ways.   A couple points I’d like to elaborate on.

A Ticket has “Optionality”

A ticket will trade like an option.  It has optionality to it since after the event, it “expires”, and some can choose whether to excerise their option to go.  Therefore it will decay going into the event as the “premium” drains out.  A ticket broker who has to hold long inventory of something that behaves like an out of the money call option is only shooting himself in the foot if he doesn’t sell the tickets.  Therefore real time pricing and market making technology is key for the industry and something yoonew is working on.

The only problem in the ticket industry is Ticketmaster getting too big

The way the ticket industry works is that Ticketmaster sets up an auction in order to get tickets sold quickly.  Face value is basically equivalent to a stock’s IPO price – that’s it.   Therefore as Ticketmaster grows and expands into the secondary market there are some questionable conflicts of interest beginning to arise most notably around TicketsNow, the broker they bought a couple years back to compete with StubHub.   There is a “chinese wall” in the ticket industry, and just like on Wall Street and the market will improve as the industry begins to realize this.   Since Ticketmaster RUNS the primary market any horizontal growth is somewhat dangerous.

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  1. Good stuff man. I read Trent’s article last night after I saw you linked to it man. I agree with your response as well.

    I still love the whole hustle of the ticket brokering business, but after noticing what Ticketmaster was pulling with Ticketnow (their brokerage company), it kind of pushed me away from it. They were gaining way too big of a market share in all of this. They were in business with the promoters, dropped the amount of tickets alotted for an onsale, and kept premium ones for resale on their exchange. Totally unfair.

    Nowadays, I have become more of a yoonew trader when it gets down the last month or two of a season because that’s when I start figuring out who I think is ‘for real’ and isn’t.

    I still resell, but mostly deal in team seasons in major markets and that has even dwindled down. Concerts are one area that has been really hurt by this whole recession and I try to stay away from. I mean, unless its Billy Joel or Michael Jackson in London (despite it being 20 shows deep), nothing is really guaranteed.

    I’ve seen acts like Bon Jovi,Springsteen and Dave Matthews who were guaranteed money makers five years ago for any show, become a tossup nowadays.

    People always act like being a ticket reseller is easy. Its not. There are so many factors I had to take into consideration. Will I buy the Friday show, Saturday, or both? Will there be more demand for one or the other? Are the price points fair? How did they do in their last concert run?

    There’s been plenty of times where I’ve bought large blocks and got washed on them and times when I bought large blocks and made solid profit. Sometimes all the info in the world pointing you in the right direction doesn’t even help.

    Good post ZB




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