The Secret Science of Scalping
How Much Is Michael Bolton Worth to You?
By ADAM DAVIDSON
A few weeks ago, I met Barry Arakelian a minute after he got scammed at a Tom Petty concert. Arakelian had paid a scalper $375 for two tickets (face value: $135) outside the Beacon Theater in Manhattan. The tickets, however, turned out to be fakes, and Arakelian, who was getting the evil eye from his girlfriend, approached a nearby police officer for help. But the officer said that he couldn’t do anything unless Arakelian could locate the scalper in the crush of people. By that point the scalper was long gone; Arakelian was embarrassed. Naturally, a minute later, he turned and shouted to no one in particular, “Who’s got two tickets?”
Within a few moments, a massive man in a Mets hat offered him two tickets for $450. It seemed like a lot, but Arakelian accepted almost immediately. And as I watched him enter the Beacon — these tickets worked — I was struck by the economic oddness of the whole experience. Tom Petty is a scalper’s dream. He may still be able to sell out Madison Square Garden, but he often prefers smaller venues like the Beacon, where there is a large demand for a shorter supply of tickets. Petty also insists on keeping tickets below market price. And while I can see why a veteran artist would try to accommodate his fans, I also wondered why Petty and his promoter would price tickets so low when there were clearly people willing to pay much, much more.
Few products are so underpriced that an entire subsidiary industry exists to take advantage of the discrepancy. When there is excess demand for a new car or phone, some people might sell theirs at a markup on eBay, but there’s nobody across the street from the dealership or Best Buy offering it right away for double the sticker price; there certainly isn’t an entire corporation built on exploiting companies’ failure to properly price items initially. Yet concerts and sporting events consistently price their tickets low enough that street scalpers risk jail time to hawk marked-up tickets, and StubHub makes hundreds of millions a year in revenue.
Most concertgoers don’t usually consider ticket prices as incredibly low. After barely keeping up with inflation for decades, concert prices have risen wildly since 1996, or around the time when baby boomers, who helped start the industry, aged into a lot more disposable income. (It was also around this time that Internet piracy made the music industry more reliant on concert revenues.) These days, prices can seem incredibly high. Barbra Streisand, who charged more than $1,000 for some seats at a concert in Rome, inspired so much anger that she canceled the show. Yet to an economist, the very existence of scalpers and companies like StubHub proves that tickets are far too cheap to balance supply and demand. Pascal Courty, an economist at the University of Victoria, in Canada, who has spent the better part of 20 years studying the secondary-ticket market, has identified two distinct pricing styles. Some artists, like Streisand and Michael Bolton, seem to charge as much as the market will bear — better seats generally cost a lot more; shows in larger cities, with higher demand, are far more expensive, too. (If you want to catch Bolton on the cheap, head to Western New York.) The second group comprises notable acts, like Bruce Springsteen and Pearl Jam, that usually keep prices far below market value and offer only a few price points. An orchestra seat to see the Boss in Jersey costs only about $50 more than the nosebleeds in Albany.
Springsteen’s style might seem more altruistic, but performers who undercharge their fans can paradoxically reap higher profits than those who maximize each ticket price. It’s a strategy similar to the one employed by ventures like casinos and cruise ships, which take a hit on admission prices but make their money once the customers are inside. Concert promoters can overcharge on everything from beer sales to T-shirts, and the benefits of low-priced tickets can accrue significantly over the years as loyal fans return. In part, this explains why artists like Springsteen and Petty are content to undercharge at the gate while others, perhaps wary of their own staying power, are eager to capitalize while they can.
But by leaving money on the table, Springsteen and his ilk might be doing their fans an inadvertent disservice. Jared Smith, the president of Ticketmaster North America, told me that the artists who charge the least tend to see the most scalping. Springsteen and others have angrily denounced scalping at their shows, but their prices are guaranteeing the very existence of that secondary market, which has become ever more sophisticated over the years. Many scalpers now use computer programs to monopolize ticket buying when seats go on sale, which forces many fans to buy from resellers. One of the surest ways to eliminate scalping, Smith told me, is to charge a more accurate price in the first place.
As an industry leader, with access to nearly limitless data, Ticketmaster can determine fairly precisely just how much fans are willing to pay for every kind of show. Generally speaking, Smith says, artists who charged a lot more for the best 1,000 or so seats would reduce the incentive for scalpers to buy these tickets; it would also allow artists to charge even less for the rest of the seats in the house. Kid Rock told me that on his forthcoming tour, he is planning on charging a lot more than usual for “platinum seating” so that all other seats — including those in the first two rows — can be around $20. “It’s a smart thing for me to do,” he said. “We’re going to make money; I’m going to make money. I want to prove there is a better way to do this.”
Smith, meanwhile, spends much of his time these days trying to persuade artists that increasing the price of their top tickets to near the point where supply meets demand is not greedy but equitable for their fans. “Every time I convince an act, we get three more artists to sign up,” he says. “There’s more and more acceptance.”
The impact is already being felt on the street. Outside the Petty show, one scalper told me that, back in the ’80s and ’90s, he made more than $70,000 a year reselling tickets. But now he is lucky to clear $30,000. “A $300 night is a home run now,” he said. His business has suffered tremendously since 2007, when New York State legalized ticket reselling and helped supply meet demand. “StubHub is killing us,” he said. Indeed, Internet-based ticket reselling has doubled in the past five years and is now projected to be a roughly $4.5 billion business. After fighting the secondary market for years, some have surrendered. The Mets, like 27 other baseball teams, have signed a deal with StubHub, and the Yankees recently signed one with Ticketmaster, to create a formal secondary market. The organizations might as well get a piece of the action.
This doesn’t seem to bother fans. Barry Arakelian told me that he had a great time at the Petty show, regardless of the fact that he paid $825 to see a show that should have cost about $200. He would have paid even more, he said, if he knew the money was going to an artist he admired. “And if I paid the higher price,” he said proudly, “you’d shut out the scalpers.”
http://www.nytimes.com/2013/06/09/magaz ... html?_r=1&
By ADAM DAVIDSON
A few weeks ago, I met Barry Arakelian a minute after he got scammed at a Tom Petty concert. Arakelian had paid a scalper $375 for two tickets (face value: $135) outside the Beacon Theater in Manhattan. The tickets, however, turned out to be fakes, and Arakelian, who was getting the evil eye from his girlfriend, approached a nearby police officer for help. But the officer said that he couldn’t do anything unless Arakelian could locate the scalper in the crush of people. By that point the scalper was long gone; Arakelian was embarrassed. Naturally, a minute later, he turned and shouted to no one in particular, “Who’s got two tickets?”
Within a few moments, a massive man in a Mets hat offered him two tickets for $450. It seemed like a lot, but Arakelian accepted almost immediately. And as I watched him enter the Beacon — these tickets worked — I was struck by the economic oddness of the whole experience. Tom Petty is a scalper’s dream. He may still be able to sell out Madison Square Garden, but he often prefers smaller venues like the Beacon, where there is a large demand for a shorter supply of tickets. Petty also insists on keeping tickets below market price. And while I can see why a veteran artist would try to accommodate his fans, I also wondered why Petty and his promoter would price tickets so low when there were clearly people willing to pay much, much more.
Few products are so underpriced that an entire subsidiary industry exists to take advantage of the discrepancy. When there is excess demand for a new car or phone, some people might sell theirs at a markup on eBay, but there’s nobody across the street from the dealership or Best Buy offering it right away for double the sticker price; there certainly isn’t an entire corporation built on exploiting companies’ failure to properly price items initially. Yet concerts and sporting events consistently price their tickets low enough that street scalpers risk jail time to hawk marked-up tickets, and StubHub makes hundreds of millions a year in revenue.
Most concertgoers don’t usually consider ticket prices as incredibly low. After barely keeping up with inflation for decades, concert prices have risen wildly since 1996, or around the time when baby boomers, who helped start the industry, aged into a lot more disposable income. (It was also around this time that Internet piracy made the music industry more reliant on concert revenues.) These days, prices can seem incredibly high. Barbra Streisand, who charged more than $1,000 for some seats at a concert in Rome, inspired so much anger that she canceled the show. Yet to an economist, the very existence of scalpers and companies like StubHub proves that tickets are far too cheap to balance supply and demand. Pascal Courty, an economist at the University of Victoria, in Canada, who has spent the better part of 20 years studying the secondary-ticket market, has identified two distinct pricing styles. Some artists, like Streisand and Michael Bolton, seem to charge as much as the market will bear — better seats generally cost a lot more; shows in larger cities, with higher demand, are far more expensive, too. (If you want to catch Bolton on the cheap, head to Western New York.) The second group comprises notable acts, like Bruce Springsteen and Pearl Jam, that usually keep prices far below market value and offer only a few price points. An orchestra seat to see the Boss in Jersey costs only about $50 more than the nosebleeds in Albany.
Springsteen’s style might seem more altruistic, but performers who undercharge their fans can paradoxically reap higher profits than those who maximize each ticket price. It’s a strategy similar to the one employed by ventures like casinos and cruise ships, which take a hit on admission prices but make their money once the customers are inside. Concert promoters can overcharge on everything from beer sales to T-shirts, and the benefits of low-priced tickets can accrue significantly over the years as loyal fans return. In part, this explains why artists like Springsteen and Petty are content to undercharge at the gate while others, perhaps wary of their own staying power, are eager to capitalize while they can.
But by leaving money on the table, Springsteen and his ilk might be doing their fans an inadvertent disservice. Jared Smith, the president of Ticketmaster North America, told me that the artists who charge the least tend to see the most scalping. Springsteen and others have angrily denounced scalping at their shows, but their prices are guaranteeing the very existence of that secondary market, which has become ever more sophisticated over the years. Many scalpers now use computer programs to monopolize ticket buying when seats go on sale, which forces many fans to buy from resellers. One of the surest ways to eliminate scalping, Smith told me, is to charge a more accurate price in the first place.
As an industry leader, with access to nearly limitless data, Ticketmaster can determine fairly precisely just how much fans are willing to pay for every kind of show. Generally speaking, Smith says, artists who charged a lot more for the best 1,000 or so seats would reduce the incentive for scalpers to buy these tickets; it would also allow artists to charge even less for the rest of the seats in the house. Kid Rock told me that on his forthcoming tour, he is planning on charging a lot more than usual for “platinum seating” so that all other seats — including those in the first two rows — can be around $20. “It’s a smart thing for me to do,” he said. “We’re going to make money; I’m going to make money. I want to prove there is a better way to do this.”
Smith, meanwhile, spends much of his time these days trying to persuade artists that increasing the price of their top tickets to near the point where supply meets demand is not greedy but equitable for their fans. “Every time I convince an act, we get three more artists to sign up,” he says. “There’s more and more acceptance.”
The impact is already being felt on the street. Outside the Petty show, one scalper told me that, back in the ’80s and ’90s, he made more than $70,000 a year reselling tickets. But now he is lucky to clear $30,000. “A $300 night is a home run now,” he said. His business has suffered tremendously since 2007, when New York State legalized ticket reselling and helped supply meet demand. “StubHub is killing us,” he said. Indeed, Internet-based ticket reselling has doubled in the past five years and is now projected to be a roughly $4.5 billion business. After fighting the secondary market for years, some have surrendered. The Mets, like 27 other baseball teams, have signed a deal with StubHub, and the Yankees recently signed one with Ticketmaster, to create a formal secondary market. The organizations might as well get a piece of the action.
This doesn’t seem to bother fans. Barry Arakelian told me that he had a great time at the Petty show, regardless of the fact that he paid $825 to see a show that should have cost about $200. He would have paid even more, he said, if he knew the money was going to an artist he admired. “And if I paid the higher price,” he said proudly, “you’d shut out the scalpers.”
http://www.nytimes.com/2013/06/09/magaz ... html?_r=1&
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Comments
Interesting article. Thanks for posting it!
Pearl Jam bootlegs:
http://wegotshit.blogspot.com
LIVEFOOTSTEPS.ORG/USER/?USR=435
The problem with this is a a sold out show is truly sold out. So if you can't go you can't give or sell your tickets to your friend, and if you missed out on the general sale, you can't go out and find a ticket on stubhub, craigslist or out front face value or otherwise.
Honestly, if you want to buy someone tickets as a gift, write them a check or give them cash so they can use their card.
Problem solved.
"..That's One Happy Fuckin Ghost.."
“..That came up on the Pillow Case...This is for the Greek, With Our Apologies.....”
Wait until Michael Bolten has a show in Western New York. You'll save more money!
:fp:
I think the point is that instead of having $80 tix in the hands of 30% fans, the bands could raise prices and put $150 tix in 75% of their fans hands before the secondary market fiasco hits.
OTOH, they could tour more often or hit more cities up for 2-3 shows per tour, thus creating more tickets and a smaller demand.
Come on, I mean sure I get the premise, but to even hint that offering SOME tickets at lower prices is hurting fans is quite a stretch. There are two "problems" (problem meaning if you believe ticket prices are too high on the secondary market):
1. The ease of which tickets can be resold (despite the fact that tech exists to thwart this)
2. The number of tix that go directly to secondary ( there was an article just last week posted here that only about 10% of the tix are available for public sale for some performers)
Solve those and the notion that "regular" fans can't get tix at reasonable prices will mostly disappear.