Ticket scalpers NZ's unsung entrepreneurs
If aggrieved would-be buyers of tickets to major events are to be believed, “scalpers” are worse than Voldemort, Sauron and Darth Vader put together.
But while they’re right to feel angry at paying inflated prices for entry into their favourite shows, these fans should direct their fury somewhere else - at the event organisers for charging prices that are too low.
Scalpers are the cunning entrepreneurs who queue up (either online or waiting in line), buy a bunch of tickets and then on-sell them at an often-hefty profit.
Essentially, what they do is the ticketing equivalent of the carry trade.
And they were on the receiving end of much finger wagging this week during the “shame on you” segment on TV3 consumer show Target.
Unsurprisingly for a show that features nearly a scene per week where a dodgy tradesman rifles through an underwear drawer, Target focused on pouting punters rather than examining the economic implications of scalping.
But it struck me upon watching the show that scalpers aren’t evil or twisted; they are simply taking advantage of an unrealised profit opportunity.
In other words, they’re making the profit that for whatever reason those organising and promoting the event(s) missed out on by charging initial ticket prices below the market-clearing level.
Scalping can, by definition, only occur when demand for tickets to an event exceeds supply: when’s the last time you saw someone hocking off tickets to the local under-12 cricket match for $350 a piece?
If the event isn’t a sell-out then scalping becomes a moot point.
I’m going to use a hypothetical situation to show how low prices cause scalping. A popular band, let’s call them “U2”, comes to Auckland and plays two shows in a stadium that fits 35,000.
So the total supply of tickets to the two shows is 70,000. And let’s say the price for the cheapest tickets (standing room only) is just $90.
But this band is so popular there are 150,000 people willing to pay at least this price to watch one of the shows (some will even go to both of them).
So the rush for tickets essentially becomes a lottery and thousands of fans who would gladly pay more than $90 to hear their favourite songs live miss out to people who either don’t like the band as much (wouldn’t pay as much as they’re prepared to pay) or don’t like the band at all (scalpers).
With even the most expensive seats also sold out these desperate fans end up in a bidding war on TradeMe for a very small supply of (scalped) tickets, pushing the price up to well above what they would have had to pay if the tickets had been more realistically priced.
Now say the minimum ticket price is raised to $250. Thousands of casual fans who’d rather use the money for something else decide not to bid.
This means those who really love the band have much more of a chance of getting tickets.
Even if the shows still sell out scalping activity will be limited because the number of people bidding against each other will be smaller and this, combined with the higher initial price, will mean a much lower profit margin for the scalper.
Of course, for the likes of concerts and stage performances, supply can also be matched to demand by extending the number of shows.
But this isn’t an option for major sporting events like the Rugby World Cup, which is coming to New Zealand in 2011 and prompted new legislation targeting scalpers.
In 2007 the Labour government passed the Major Events Management Act, which “prohibits activities that might compromise the smooth running of a major event, such as ticket scalping and pitch invasion”.
However, the bigger problem with the Rugby World Cup is that the government is going to underwrite two-thirds of the loss, which is forecast to be $30 million.
Prices haven’t been announced yet (they’re scheduled to be revealed in November) but a ticket the final is expected to cost at least $800.
There are also going to be a number of “affordable” ticketing options in order to appease local rugby fans annoyed at the thought wealthy foreigners will fill up all the seats.
According to Rugby NZ 2011 chief executive Martin Snedden, balancing ticket revenue generation against achieving the "stadium of four million" is an "issue of immediate importance".
Translated, this means that people who don’t even like rugby will be taxed in order to allow people in small towns to get subsidised tickets to watch Namibia v Romania.
Now, some would argue that charging thousands of dollars for tickets to the Rugby World Cup final is “unfair”. But that is nonsensical. How does one define a “fair” price? It’s completely arbitrary.
Imagine if you were the highest bidder at a house auction but for “fairness” reasons they overlooked you and gave it to someone who’d made a lower bid.
If the government wasn’t chipping in with taxpayer funds (and borrowed money) the New Zealand Rugby Union would have to charge more and play the games in bigger stadia in order to break even.
Surely the union’s main goal should be making as much money as possible from the tournament in order to spend more on developing the national game.
It should charge $10,000 a ticket for the final if people are willing to pay that much; that would really help the “grassroots” game the bigwigs love to talk about while also knee-capping the would-be scalpers.
If organisations want to lose money by charging low prices for tickets and allowing scalpers to run amok then that’s their problem.
But when the government puts its accounts in even worse shape in order to allow some people to get cheap rugby tickets then it becomes my problem – and yours.
Disclaimer – I love rugby.
Back to home
Back to top
Print
Email
Share
Delicious
Digg
StumbleUpon
Reddit
Google
Yahoo
Technorati
Scoopit
NBR SERVICES
SUBSCRIPTIONS
Sign up for NBR subscriber content or email alerts
Latest
Comments and questions16
Just the beginning of where this article falls over is "fans who would gladly pay more than $90".
No, fans would GLADLY go for free.
I wouldn't 'gladly' pay for $90 for anything but if I feel it's justified, I pay my $90.
If I miss out because someone who has no interest in the concert has done nothing more than buy it a glorified profit that in no way reflects 'earnings' - that is, they do 1 hours work for a $300 profit - I'm then FORCED to pay $180, $270, $360 etc etc... when the guy next to me paid $90 for the same experience. All because some 'entrepreneur' decided to beat me to it just to make a big, fat, undeserving profit. Anyone who thinks of these guys as entrepreneurs probably earns and over inflated salary while the people below them work there a** off for half the reward.
How much someone is prepared to pay for a concert ticket is not solely a function of how much they love the band. It is primarily a function of other socio-economic factors. Sorry if I'm stating the obvious but if your (admittedly facetious) world cup model were employed then surely the NZRU would risk alienating their main fan base. Try to take a long term view, after all once the world cup big wigs have left, their local fan base is all they'll have left. Best look after them eh?
The law should be that no ticket can be on-sold for more than face value, and this should apply to ALL events, not just a few at the discretion of the Government.
By doing this it would still allow people who bought tickets and then found they can't attend after all to recoup their outlay and let someone else have the tickets. It will stop the 'thieving' situation we currently, especially disgusting when original sales are for a charity and the scalpers "steal' their money!
I agree entirely. Basic supply and demand.
But you miss the other positive. Scalpers also help marginal shows get off the ground. They buy tickets that may otherwise not be sold. The scalpers may take a loss but have boosted sales for the show. The have shared the risk of putting the show on. If it is popular they share in it's success, if it is not, they share some of the loss. No one is forced to buy these tickets.
Niko's argument on scalping is irrefutable. Promoters need to make a profit on an event so set ticket prices at a level that will ensure they do so. These prices are inevitably less than the die hard fans are prepared to pay, but assessing what that price might be and/or having variable pricing so that the next person who gets to the box office counter pays the maximun he/she is willing to fork out is impossible. Scalpers maximise their profit by addressing only that part of the market that "must have" the tickets.
no New Zealanders going to RWC games as very few Kiwis will be able to compete with the buying power of the Pound and Euro. A thousand NZ Dollars is fair more affordable in Euro than Kiwi. What sensible scalper would sell their tickets to a New Zealander.....
I presume from Adrian Wills' comment that equally, according to his principles, he does not accept interest payments from the bank when he deposits his money as he has made a big fat profit without exerting any effort to 'earn' it? And that he most certainly would refuse to pay a discounted price for a ticket on a flight because it was so unfair to the person sitting next to him that she was charged full price for the identical service (and that the airline had earned such very different profits for the same amount of effort)?
The entrepreneur/scalper may not have 'worked' in the manual sense, but he has assumed a risk in the financial sense in that he may not have estimated the public demand accurately, and is left holding a batch of tickets that he cannot sell. I presume Adrian Wills would not have a problem with that occurring?
Niko Kloeten is perfectly correct in his economic analysis - these arbitrage opportunities exist because the 'scalpers' have better information about the likely preparedness to pay for the tickets than the promoters - the promoters get the price 'wrong' by underestimating customers' willingness to pay. That people are prepared to pay higher prices to scalpers merely confirms this fact - afer all no one will pay more for the ticket than they value it at.
If Adrian Wills hates scalping and scalpers so much, he has a choice. He does not have to buy a ticket from anyone other than the promoter. He can grumble in private about failing to get a ticket, but he had exactly the same chance as the scalper to buy one before the supply ran out (indeed, most promoters place a limit on the number of tickets any one individual can buy in order to deter scalpers). If he is at the concert courtesy of a scalper's ticket standing next to someone who paid the promoter's price, that is simply becuase he values the ticket more than the scalpers' price in the first place.
Its called 'price discrimination' and its everywhere in the real world, and it occurs because everyone places a different value on the same item. If we all value it differently, why should we all pay the same price? Say I value a $90 ticket at $91 and you at $191. We both buy at $90. I have a 'surplus of $1 and you $101. How unfair - you get more value out of your ticket than I do! Say we both fail to get a ticket and a scalper offers it to us both at $100. You buy, I don't. You get $91 surplus, I get $0 surplus and the scalper gets a $10 profit. Who wins most? You do. Caveat emptor!
Anonymous (4:23pm) said - "Sorry if I'm stating the obvious but if your (admittedly facetious) world cup model were employed then surely the NZRU would risk alienating their main fan base. Try to take a long term view, after all once the world cup big wigs have left, their local fan base is all they'll have left. Best look after them eh?"
My argument, as I clearly stated, is that the best way for the NZRU to "look after" its loyal fan base is to make a huge profit to re-invest in the game rather than burning through hard-earned cash reserves.
Good article! But, concentrating only on the RWC, the real sin is Clark, Hobbs and the NZRU actually foisting the event on the New Zealand taxpayer and rate payer. Hell, it even looks as though we tax payers will be paying to see it in TV!
Those who will benefit should pay for it! Businesses, rugby union, airlines and hotels. Not the poor sod whose taxes and rates are paying for the facilities and infrastructure!
What's next? Is Key going to bid to hold the Olympics? Just like Auckland City, he seems to be good at frittering OUR money.
Good on the scalpers, by the way!
Disclaimer: I too enjoy rugby union.
I think you'll find that once fans stop supporting the NZRU it will be very difficult to 'buy' them back. Making world cup tickets unaffordable for 95% of the country sounds a bit risky to me. No large scale world tournament has ever succeeded without the support of the majority of the host country/city. I genuinely thought you were joking but are you seriously suggesting a RWC where tickets cost 10,000 dollars? Your time would be better spent thinking of innovative ways to provide lower price tickets for everyone...
The issue comes up all the time, and as Niko said the solution is in the promoter hands if they don't want their tickets resold. The easiest ways to do this are to trickle feed tickets, so there is a continual supply, then trading at above face value will not start until after all sales have completed. This raises the risk of buying for the sole purpose of on-sale. The other strategy is to run a dutch auction. Start selling the price at say $10,000, and when ther are no more people prepared to pay that to secure a ticket (is sales stop), then drop the price to say $9,000 and wait until that level of market is satisfied. Eventually all tickets will have been sold at the best possible price, and there will not be any significant opportunity for resale at a higher price than the ticket was originally purchased at.
The organisers and the Government will fail abysmally at their attempt to prevent trading at a profit in tickets for major events sold under the currently proposed arrangements. There are so many ways to get around any restrictions that can be put in place that it will never work.
Usually we strive to encourage entrepreneurial activity, so why should this particular example be subject to official disapproval?
Is it when me and 30 other people sit in every available cab outside a venue, telling people they can 'share' a cab to wherever they want to go for double the fare?
Or if I ride a full bus or train and an elderly woman gets on, I ask her for $5 to give up my seat?
I'm sure I'd be rubbished and ridiculed, which is what scalpers deserve.
Why'd my email address get published!?
Accepting interest on th money in my bank is hardly th dame proportionate profit which was my point. I get sweet f*** all interest on my money so that's not even a drop in th bucket.
I get price discrimination, that's perfectly understandable, I just think in the ticket market, it's at the expense of exploiting the fans. I can see the 'entrepeneur' aspect you're trying to plug but I'm not going to agree with it. It's simply people buying goods at a lower price, with intent to make a very inflated profit, and there's no risk in a sell out concert situation, which is where it occurs, because we fans have NO other choice. I can't go see the same band at th arena next door.
Sorry but i disagree with that kind of attitude toward making profits. Guess I'll never be a CEO huh? :-)
[url=http://t1lmpatg1wcqtgkf.com/]y7hl0r7peznhfh66[/url]
[link=http://ndbp70zwqpnfzp8z.com/]6jisdfsy4ly6wxyq[/link]
csqw4fas702sqine
http://b2blfhl8aawxqajs.com/
It's acknowledged that Madonna (among others) has allowed the release of primary market tickets to StubHub; a venue that would otherwise be seen as a scalping agency and Ticketmaster now has revenue sharing agreements in place with what would otherwise be secondary market portals.
Several US States have also repealed anti-scalping legislation in recent times becuase it doesn't particularly work (and hasn't been well enforced).
It may be that the scalper's day is far from run and there are significant vested interests among producers (the artistes and tehir agents for instance), promoters and ticket agents which prevent any sort of move to a market clearing model.
Adrian - sounds like you yourself aren't intelligent enough to realize this opportunity.
Post new comment or question
To share this article, click on a service below