Ticket & Markets, Part 2 (Copy, paste…embrace the inevitability)

In Part 1, I contended that:

…efficient organized markets in tickets for events have not been allowed to develop despite the fact that: (a) the existing market structure is horribly inefficient to the detriment of both buyers and sellers and (b) a vastly more efficient, tried and tested, robust market structure which could very easily be applied to ticket markets already exists and furthermore, especially given modern web technology would be easily adaptable to ticket markets.

As I also noted, I’ve been thinking about this for some time, but was catalyzed to comment by reading two articles. The first (behind the FT’s ridiculous paywall, yet another industry to be deconstructed and rebuilt!) was an editorial by Joe Cohen on secondary ticket markets sparked by the massively over-subscribed Led Zepplin reunion concert. The second was a post by John Wilson also on the subject of secondary ticket markets.

Basically they both point to the fact that secondary markets for tickets exist (despite laws and restrictions against them; these only serve to make them work badly…) and that this is a contributing factor to unnecessarily disfunctional primary markets:

(Joe Cohen on the sale of Led Zepplin tickets, FT Sep 21, 2007)
The circus that has ensued would dent anyone’s confidence in promoters. A crashed website, a ballot with a window of less than a week to enter and no guarantee of a ticket at the end of it. Add to this, of course, the blood-spitting opposition of such promoters to reselling your ticket if you turn out to be unable to attend. “Be patient,” was the concert spokesperson’s answer to the debacle. Be realistic, is my response, and look to the US for a healthier way of ticket allocation.

(John Wilson on getting tickets to the Police concert)
Where to get tickets at this late stage? Well, at this point I did some digging around and was astonished by the results.

- Ticketmaster still had tickets at £90 face value plus booking fee of over £10.
- Seatwave and Viagago, as well as similar ticket trading exchanges had an abundance of tickets. These were trading at an average price of £112 on top of which had to be added Seatwave charge on the buyer of £15 or so. This was for tickets and not hospitality packages
- ebay also had lots of ticket on buy it now and auction. All were evidently looking for a premium.
- Gumtree also had an abundance of tickets, but these were mostly at a discount to face value eg £90 tickets for £45

Why such a wide variety of prices for a relatively homogeneous item? Moreover, if there were still tickets in the primary market (Ticketmaster), why would anyone pay a premium in the secondary market?

Well, there are several factors to consider
- I bothered to search; some people don’t bother to scan the many “trading venues”
- trust; I trust that Ticketmaster has the genuine article. Seatwave & Co have refund policies (assuming you believe that they can honour them) and assurance re delivery. ebay has a ratings system. Gumtree is dealing in the wild west with persons unknown as is the case with other websites advertising tickets.
- time to “expiry”. As the event approach, people become more desperate to sell which can quickly drive down prices if there is an abundance of tickets evident. But even if scarce, you still want rid of them in time. Some people “blink” sooner than others.
- booking fees can add a considerable premium onto the price, so some tickets advertised above “face value” simply reflect attempts to recoup booking fees.

Much to the ticket industry’s annoyance, there is clearly an active secondary market, but despite their lobbying efforts, the UK Govt is loathe to outlaw such markets, questioning why live entertainment should receive special concessions and how is the consumer harmed by the current situation.

As I pointed out in Part 1, and is implicitly underlined by these two gentleman, a healthy – transparent, liquid, well-regulated – secondary market adds enormous value to the price discovery and distribution process of any (transferable) good or service. So why is their so much resistance to free and fair secondary markets in tickets? Well, last year at the futures industry’s annual Burgenstock conference I was speaking on a panel – discussing the future potential of markets in sports risk – and the conversation gravitated towards the question of why so many people seemed to have such a hard time seeing the potential for new types of markets and, worse, why they should not stand actively in the way of these developing. A gentleman in the audience reminded everyone (I for one had not been previously aware of this historical gem) that in the early 20th century – and then especially from the period starting with the “Great Crash” and lasting until the early 1960s, secondary markets in equities were seen by much disdain by many in the establishment and were at best tolerated and at worse actively argued against. In this context, the NYSE was seen as a second-class citizen in the financial firmament and traders and speculators in shares were considered an untouchable caste by the brahmin bankers. The moral of the story: that resistance to change and the dispersal of power engendered by transparency and access to information have been resisted by the “gatekeepers” since the beginning of time. (Just ask Martin Luther!) Equally, this resistance has always proved futile and those that embraced transparency and change, usually not only survived but prospered in the new paradigm. (The mystery is why the strategy of active immobilism continues to find disciples given its horrendous historical track record of inevitable failure…I’ll leave that one to the sociologists amongst you!) Perez would frame this situation as a disconnection of the techno-economic paradigm (what is possible) from the socio-institutional paradigm (what people in power can stomach.)

But I’m an optimist. So whereas I know the road will be bumpy and resistance will not melt away with a whimper, I’m convinced that the market for tickets – both primary and secondary – will undergo a transformation that take months and years, not decades. The foundation of my conviction is that the market model (and many if not all the mechanisms and processes) exists already (in the shape of the capital markets, see Part 1) and needs only minor adaptations to serve the needs of all the participants (‘wholesale’ and ‘retail’) in the markets for tickets for entertainment events. And indeed, the entrepreneurs and innovators are moving forward at this very moment: a number of ticket brokers and/or exchanges exist such as StubHub, viagogo, seatwave and of course eBay (amongst many others); major primary resellers like Ticketmaster; and aggregators such as Tickex (who in a highly fragmented market such as tickets have a great business model in my opinion.)

I’m in no way anything close to being an expert on these firms and their business models, however my impression is that in general they have focussed on the fulfillment process (super important of course) rather than the risk management process. Of course you need both, but in my opinion, the potential (financial) opportunity arising from intelligently revolutionizing the risk management (underwriting and distribution) process is even greater than the exciting rewards available for these companies that are optimizing the matching and fulfillment process. This is certainly an opportunity I will have my eye on going forward. (Indeed, I look forward to learning more about John’s portfolio company he alludes to at the end of his post linked to above.) Rather than delve deep into the myriad opportunities that exist to transpose the capital markets paradigm on to ticket markets, let me leave you with a fragment of a possible future:

The year is 2021 and Oasis has announced they will be doing a reunion concert at Wembley Stadium to celebrate the first year-on-year drop in CO2 emissions in the history of the modern world. The $7 billion Live Entertainment Fund – a leading hedge fund focused on underwriting and investing in live sporting and entertainment events – has underwritten the entire ticket offering at a price of £20 million and will work with a number of ticket distributors to syndicate and distribute the tickets over a week, one month prior to the concert, using the online bookbuilding capabilities of Tickex Group. The fund would not comment, but analysts expect the proceeds from the sale to exceed £25mn, which will likely give LEF a return on equity of more than 30% for their 6 month investment (depending on the cost of various insurance and weather hedges: the tickets are expected to include the now standard 50% rebate for rain for outdoor concerts and sporting events.) Since its inception in 2010, the flagship LEF Music Fund has returned an average of 43% annually.

(Oh and by the way I had my pension fund invest £50,000 in LEF in 2011…making it a lot easier for me to afford to bid for a box for my friends and family to go see Oasis at Wembley!)

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