Podcast Summary
Artists trying to combat ticket market issues: Some artists use programs to ensure tickets go to fans, but the ticket market remains complex and often unfair, leaving fans feeling priced out.
The ticket market is notoriously complicated and opaque, with issues ranging from scalpers using bots to buy tickets before fans, to significant fees added by venues and ticket vendors that can double the ticket price. These practices have led to widespread frustration among consumers. However, some artists, like Bruce Springsteen, have attempted to combat these issues by using programs like Verified Fan to ensure that tickets go to genuine fans rather than scalpers. Despite these efforts, the ticket market remains a complex and often unfair system that can leave fans feeling frustrated and priced out of popular events.
Discussing market redesign for fair competition and efficiency: Economists propose market design reforms, such as time units and frequent batch auctions, to shift competition from speed to price and promote fair competition and efficiency, but practical challenges and resistance from incumbents hinder implementation.
Market design plays a crucial role in ensuring fair competition and efficient functioning of markets. Economists Alan Krueger and Eric Budish discussed this concept and highlighted the need for market redesign in certain sectors, using the example of high-frequency trading in financial markets. They argued that the current design encourages competition based on speed, leading to significant financial gains for those who are even a billionth of a second faster than their competitors. However, Budish proposed a solution of implementing time units and frequent batch auctions to shift the competition from speed to price. Despite the potential benefits, this market design reform has not been implemented due to practical reasons and resistance from incumbents profiting from the status quo. This discussion underscores the importance of understanding market design and the potential for redesign to address inefficiencies and promote fair competition.
Tickets and High-Frequency Trading: Unexpected Parallels: Tickets and high-frequency trading share similarities through emotional connections, underpricing, and competition-driven markets, resulting in complex ecosystems with dual-purpose platforms.
The ticket market, despite appearing unrelated, shares similarities with high-frequency trading through speed-based competition and the power of the status quo. Tickets, being an experienced good with an emotional connection as the product, have historically been underpriced due to artists' desire to maintain fan loyalty. This results in high demand and profit-seeking activities, such as ticket brokers and secondary markets, which often engage in rent-seeking behavior. The secondary market, represented by platforms like StubHub, serves a dual purpose by acting as an insurance policy for ticket sellers, allowing them to charge higher prices due to the resale opportunity. The ticket market's unique dynamics, driven by emotional connections and underpricing, create a complex ecosystem that parallels the fast-paced competition found in high-frequency trading.
Complex ticketing value chain with different incentives: The ticketing industry's lack of transparency and economic efficiency leads to sub-optimal pricing and long lines, not reflecting actual demand
The ticketing industry operates in a complex and opaque value chain, where the pricing of tickets is not based on economic theory and market demand. The industry players, including artists, managers, promoters, venues, and ticket distributors, have different incentives that can affect ticket pricing. For instance, artists and their managers aim for the highest possible revenue, while promoters aim to minimize their financial risk. Venues want to maximize their revenue, and ticket distributors, like Ticketmaster, follow the pricing instructions given by the venues. The result is a ticketing market that is not efficient and often leads to tickets being sold at prices that may not reflect the actual demand. The former chairman of Ticketmaster acknowledged this issue, stating that the industry prices its products worse than others. The lack of transparency and economic efficiency in ticketing creates an environment that can lead to sub-optimal pricing and long lines at ticket sales, reminiscent of the bread drops in the old Soviet Union.
Understanding the Complexities of the Ticketing Industry: The ticketing industry involves intricate transactions and revenue sharing among multiple parties, with service fees making up a significant portion of ticket prices. While these fees include rebates to venues, artists, and promoters, they can lead to perceived price gouging and underpricing, ultimately impacting fans and stakeholders.
The ticketing industry involves complex transactions and revenue sharing among various parties, including venues, performers, promoters, and ticketing companies like Ticketmaster. While a significant portion of ticket prices goes to cover costs and pay performers, service fees often make up a substantial portion of the ticket price. These fees are not solely profit for ticketing companies, but also include rebates to venues, artists, and promoters. The industry's opacity and conflicting interests can lead to perceived price gouging and underpricing, with a portion of unsold tickets finding their way to the secondary market. Ticketing companies, such as Ticketmaster, often take on the negative public perception of high service fees, allowing other parties to maintain their public image. The industry's dynamics can create a challenging environment for fans, artists, and stakeholders alike, requiring careful consideration and transparency.
The Complex World of Live Event Ticket Markets: Producers manage ticket prices for their shows, but high demand and scalpers can lead to exorbitant costs, causing fan frustration. Despite attempts to regulate, everyone profits in this intricate web of supply and demand.
The live event ticket market is unique and complex, with producers having a deep relationship to their product and fans willing to pay high prices for experiences. Producers, like Jeffrey Sellers of Hamilton, oversee the funding and management of a production, including setting ticket prices to cover costs. However, the high demand for popular shows and the existence of scalpers can lead to exorbitant prices, angering fans. Despite efforts to fix the market, everyone from producers to scalpers profits. As heard on Freakonomics Radio, there are creative solutions, but even the best fixes may not be sufficient. Ultimately, the ticket market is a complex web of supply and demand, where fans' desire for experiences often outweighs the cost.
Risk and reward in Broadway investing: Broadway investing carries risk but potential for high returns. Most revenue goes to expenses, and secondary ticket market can lead to losses.
Investing in Broadway shows comes with significant risk and reward. While some shows may only return a modest profit or even result in losses, there are occasional blockbusters that can yield enormous returns for investors. However, the majority of the revenue goes towards paying expenses, with producers only earning a profit once the show becomes successful. Unfortunately, the secondary ticket market, where bots and scalpers operate, can lead to significant losses and unfair practices. Producers and stakeholders advocate for these profits to go to those who support and create the shows, rather than being siphoned off by bots and scalpers.
Broadway prioritizes accessibility and affordability: Producers aim to make Broadway shows affordable for a wide audience, creating opportunities for ticket scalping but maintaining focus on accessibility and attendance.
The Broadway ticket market, unlike typical markets, prioritizes accessibility and fairness over profit maximization. Producers aim to make shows affordable for a wide audience, even if it means underpricing their tickets. This creates opportunities for scalpers to profit from the difference between face value and market value. The history of ticket sales, from physical lines to the internet, has seen various methods of ticket scalping evolve. However, despite these challenges, producers continue to focus on making theater accessible to all, fostering a culture of attendance and enjoyment.
The Domination of Ticket Scalping Industry by Wise Guy and the Real Scalping between Promoters and Brokers: Wise Guy led the ticket scalping industry using advanced technology, but most revenue came from markups between promoters and brokers, with artists receiving little to no additional income.
The ticket scalping industry in the mid-2000s was dominated by companies like Wise Guy, who used advanced technology to outmaneuver anti-bot systems and secure large quantities of tickets for resale. However, the real scalping was happening between promoters and brokers, with artists often receiving little to no additional revenue from the markups on ticket prices. The industry relied on a combination of flat fees, percentage-based payments, and hybrid models for artist compensation, with the remaining revenue being made up through ticket resales. Everyone from ticket brokers to software developers and even the FBI were involved in this lucrative market. The end of Wise Guy's operation in 2010 marked the end of an era in ticket scalping, but the practice continues to be a contentious issue in the entertainment industry.
Redesigning Ticket Sales for Maximum Profit and Fairness: Economist Eric Buddish proposes a system where artists, teams, and ticket vendors cooperate to allow artists to ban resale, enable refunds, and use ticket auctions to find optimal prices, benefiting consumers and maximizing revenue.
Economist Eric Buddish suggests a radical redesign of the ticket sales market for events like concerts and sports, making it profit-maximizing for the right people and fair to consumers. This would involve allowing artists and teams to ban ticket resale or restrict it, enabling fans to get their money back if they can't use their tickets, and using ticket auctions to find the exact price where demand meets supply. Buddish argues that this approach recognizes the unique nature of entertainment events and addresses the issue of finding the optimal price that maximizes revenue and prevents empty seats. He also notes that such a system would require the cooperation of artists, teams, and ticket vendors, and that some may resist the change due to their vested interests in the current paradigm. Milton Friedman's concept of the "tyranny of the status quo" highlights the importance of understanding the forces preserving the current market's inefficiencies and exploring alternatives.
Consumer Preferences and Ticket Sales Models: While economic theories like ticket auctions may not align with consumer preferences due to lack of instant gratification and scalability, models like Ticketmaster's Verified Fan program, which prioritize fan engagement, have seen success in reducing ticket resales.
While economic theories, such as using ticket auctions to determine fair market value, may seem appealing, they may not resonate with consumers. The study mentioned in the discussion demonstrated that auctions on average discovered the secondary market resale value, but the difference between the auction price and the average secondary market resale value was only 2%, whereas the difference between the face value and the resale value was about 100%. However, consumers did not favor this model due to its lack of instant gratification and scalability. A more recent approach, Ticketmaster's Verified Fan program, prioritizes fans based on their level of engagement and likelihood to use or resell the ticket, rather than speed or price. This model has seen success, with fewer than 5% of the tickets distributed via the program ending up on the secondary market. Overall, understanding consumer behavior and preferences is crucial when implementing ticket sales models.
The Challenge of Fair Access to Tickets for Fans: Despite Ticketmaster's efforts to provide fair access to tickets, scalpers can outmaneuver the system, leaving genuine fans frustrated and priced out of high-demand events.
While Ticketmaster's verified fan concept aims to provide fair access to tickets for fans, it can be outmaneuvered by scalpers, leading to frustration for genuine fans. This was evident during our visit to a Bruce Springsteen show on Broadway, where tickets originally priced at $75 were being sold for exorbitant prices on the secondary market. Despite efforts like online lotteries, many fans, like one we spoke to from Belgium, were unable to secure tickets through primary channels. The woman's experience underscores the challenge of ensuring fair access to tickets, especially for high-demand events. The secondary market, dominated by rivals like StubHub, can make it difficult for primary ticket sellers to maintain control over ticket prices. However, it's important to note that Ticketmaster itself also engages in resale ticket sales through its TM plus resale site, albeit on a smaller scale. The Freakonomics Radio team found a mix of fans who managed to secure tickets through primary channels and those who were left disappointed. The episode also touched upon the production team's experience at the Walter Kerr Theatre and the challenges fans face in securing tickets for once-in-a-lifetime experiences.
