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You Can’t Push On A String. Understanding The Truth About Supply, Entitlement And Dynamic Pricing Of Tickets

“I paid $15 for concert tickets 10 years ago, $100 each now? Ticketmaster is ripping me off. I’ll never buy another ticket.” Umm, how much is your house worth now? Are you stealing from the buyer when you take the gains by selling in California and buying a bigger house for cash with your profits while you move to Idaho? Are you happily driving a six-figure pickup truck which costs $50,000 more than the basic model? Is it fair to the companies who manufacture electronics that your 80-inch flat screen television costs 75% less today than the 50 inch one you bought six years ago?

People are funny about money. Some expensive things make perfect sense if you want them enough, while others are just ridiculous. A Lamborghini and a Prius will both drive you anywhere you need to go. The difference between them other than price is how much it’s worth to you to be fancy, seek status, or “collect” a depreciating asset.

What about a hamburger? It’s around $3.50 with fries at In-N-Out and $35 at Burger & Lobster. You leave both places well fed. Is the 1,000% premium worthwhile to have $2.00 worth of lobster added to your burger, and truffle oil on your fries?

How much is it worth to see Tom Brady’s last NFL game? He played it last year in front of a full stadium. He’ll likely play another last game this year. Next year, perhaps, Tom will decide what’s more important to him: Gisele or yet another “last” year in the NFL.

Not a sports fan? What about the giant prices collected by Motley Crue on their stadium tour which just ended. This tour happened a few years after their last farewell tour in which each member of the band signed an irrevocable contract that Motley Crue would never play live again. How many people went to both “last” shows? Were you ripped off, or secretly glad that you got to hear Home Sweet Home one more time?

Here’s the dark secret about tickets: people will pay almost anything to get in if they really want to go. The reason is that there are fewer seats than fans for the hottest events. So, if you’re trying to get in for Harry Styles, The Super Bowl, Bruce Springsteen, The World Series or perhaps Taylor Swift when she announces, expect to pay whatever the market will bear. The reason is there is enough demand to support almost any price point. The people who get tickets will be the ones willing to pay. That’s capitalism.

Traditionally, that’s also the way acts like it. They presell tickets in partnerships with sponsors who pay for the privilege: American Express
AXP
, Citibank, Chase and Capital One
COF
are the most prevalent, but it could also be Facebook or Spotify passwords which are sponsored. Then, on the last day, the public sale opens with whatever tickets are left and the artist can brag they sold out in 11 seconds. Well, for those in the know, they sold out in 11 seconds after having been on sale for the previous four days through the password sales which are generally open to anyone with a credit card from American Express or Citibank.

Now, imagine that you’re Harry Styles or someone at that level. You’ve worked your way up from being on a TV singing competition to becoming one of the hottest acts on planet Earth. You may stay that famous forever, but most likely not. This is your chance. What do you do? Maybe, get all the money you can. That’s pretty normal. Aaron Judge just hit his 61st homerun this year, tying Roger Maris’ American League record. Which way will Judge’s price go when they renegotiate his contract?

Dynamic pricing is just technology measuring the intensity of demand and adjusting the prices to meet the willingness of people to pay. It’s what the airlines use to price flights, and simply a faster version of what happens on eBay when there’s an item up for bid. Prices rise until no one will buy, then they drop until purchasing resumes. Dynamic pricing balances supply and demand. If there’s no demand, prices go down. If there’s excessive demand, prices go up. That’s how you sell 12,000 tickets in a city of 6 million people.

In 2019 the FTC held a hearing about how tickets were sold. Each commissioner told a sad story about how hard it was for them to get Hamilton tickets at face value. Common sense would say just wait a couple of years and the demand will abate. That’s in fact what’s happened. Hamilton prices are down now and easier to buy in many markets. The way to win is to buy the tickets which are selling below face value. It’s like buying a car. You could get the newest model at full sticker price, or you could buy the same model lightly used at a deep discount.

Most shows don’t sell out, and often their prices crash. Just last week you could have purchased tickets for Jackson Browne at Chateau St. Michelle for 80% off face value. Band-Maid at The Filmore Silver Spring is 29% below face value for a show which is upcoming on 10/25. Bill Burr at the KFC Yum Center is 57% below face value, Rufus Du Sol is 27% below face value for the show at Hayden Homes Amphitheater, and The Mars Volta is selling for 38% lower than face at the Byline Bank Aragon Ballroom. You could have purchased Twenty-One Pilots for less than half price almost anywhere in the country.

Here’s why. For all the talk of “scalpers” there is really no such thing. Instead, there is a complicated system in which tickets are sold inefficiently and billions of dollars of venture capital has been allocated to solve that discrepancy.

What is that system? Let’s discuss how it works for music, but it’s very similar for sporting events. Mounting a tour is expensive. The band must plan and rehearse the show. That might mean having videos produced to run on screens while the music is played. The stage usually has customized special effects whether lighting, fog, or pyrotechnics. All the needed equipment from the stage itself to the speakers and the amplifiers which power them have to be rented or bought.

For a big tour there might be as many as 100 people traveling along with 12 or more giant tractor trailer trucks to haul everything from city to city. While you’re leaving the venue the crew is breaking it all down, loading the trucks and moving to the next city where they rebuild everything before the doors open. Each of these people working the tour gets paid, hotel rooms, travel expenses and per diem.

Because most acts can’t afford to front that money, it’s put up by the promoter of the tour who gets a split of the profits after the tickets are sold. So, the tickets go on sale before the tour begins with the hopes that enough tickets will sell to cover the costs.

As a result, Ticketmaster, AXS and whatever other companies are ticketing the venues where the show will play all put the shows up for sale at once. Know this: the band sets the price, not the ticketing company. Ticketmaster or AXS is the software provider, like eBay. The prices come directly from the band or their promoter. If you’re going to be mad at someone about the price of tickets, at least be mad at the someone who is actually setting the price and collecting the profit. One more thing: most of the “service fee” typically goes the venue where the event takes place. That’s how the venue gets its money. What’s leftover for Ticketmaster or AXS was once described as “a river of nickels.”

There was just a podcast on this very issue, in which much was made of the fact that Live Nation, Ticketmaster’s parent company is worth $21 billion on the New York Stock Exchange. Ticketmaster makes sure that tickets are delivered accurately for thousands of shows every week at venues around the world. Docusign, a company which makes software which allows you to electronically put your signature on paper is worth $11 billion. Zoom is worth $22 billion. It makes software that lets you talk through your computer, something you can already do for free on Facetime.

Usually, ticket pre-sales start on Tuesday and the show is as sold out as it’s going to get by Friday of that week. There are two sets of buyers, those who are planning to go to the show, and buy their tickets for personal use, and those who believe that the tickets might be worth more in the future who invest money now in hopes, but with no guarantee, that they will get more back later.

More than half the time these days, the prices in the future are below the price paid for the tickets when they went on sale, so this is a very risky bet. It can go bad in lots of ways: the band can release a new album that stiffs, they can add a second night in the same cities thereby doubling the supply of tickets without consideration of whether there’s enough demand, the economy can trend toward recession which tends to cut back consumer spending, or Adam Levine might decide to become a serial Instagram Lothario and trash Maroon 5’s reputation. There’s also weather to consider for outdoor events, and the fact that while all other prices are rising in an inflationary economy, discretionary income must then be diminishing.

There is a vast market force distributing these tickets: Seatgeek, TickPick, Vivid Seats, TicketNetwork and more all of whom have large national distribution, access to venture capital and in some cases such as Vivid, are publicly traded companies. The force of competition between these various markets tends to push ticket prices down. There are also intermediaries like Ticket Evolution, Logitix, and Eventellect which aggregate and redistribute tickets.

The reality of the situation is this: when there are more seats available than interested buyers, there is almost no way to sell all the tickets. Prices will drop to pennies on the dollar as the curtain goes up. For those events in which demand and supply is essentially balanced, ticket prices will hold steady. They won’t go up, they won’t go down. And, for those very few events which everyone wants to attend, the tickets will be very expensive. Nobody has a right to see something just because they want to go. When there are ten people who want to go for every ticket which is available, the only rational way to sort them is by price. That’s not the fault of Ticketmaster or AXS. It’s just basic economics. Choose your own adventure.

Because markets require inventory to operate, large amounts of money are spent to purchase tickets when they go on sale, only to be sold in the future. This is risky for the reasons described above, but also transformative for consumers. It used to be that you stood in line at Tower Records or Sears for hours to buy a ticket on the day it went on sale. Now both those stores are hard to find and irrelevant to ticket distribution. But, in the day, that was where you got a ticket and if the show sold out, you were out of luck. Your only alternative was to find the local guy in your community who had tickets to sell, or to take your chances when buying a ticket from someone standing just outside the venue on the night of the show.

Today, you buy your tickets on your phone as late as minutes before the event starts. Because there have been hundreds of millions invested into software and distribution technology, the tickets arrive in seconds. Prices are changing dynamically here too as the inventory on the secondary market continually refreshes usually on a downward slope.

The world has changed from events which are popular being always sold out, to tickets being available at the very last minute for almost anything, however the higher the demand, the higher the price. The good news is, for those tickets which have no velocity of demand, tickets prices get as low as $5 online. Variable pricing cuts both ways, it’s up to you to decide whether you want to see the most expensive events, or those which provide the best value.

Either choice, like the Lamborghini v. Prius discussion above will get you where you want to be which in this case is entertained.

Informed consumers tend to take a hybrid model approach. Sometimes, they pay a very high price for something they just can’t stand to miss, but they make it up by going to other events which are super inexpensive. At the end of the year, it all works out. All they remember is the great times. There are still only eight notes in an octave. The prices paid fade from memory, but the song remains the same. What’s new is there are now dozens of options where to get tickets to hear it played.

https://www.forbes.com/sites/ericfuller/2022/09/29/you-cant-push-on-a-string-understanding-the-truth-about-supply-entitlement-and-dynamic-pricing-of-tickets/ You Can’t Push On A String. Understanding The Truth About Supply, Entitlement And Dynamic Pricing Of Tickets

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