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That Futures Market Thing Is Here In the Secondary Ticket Market

Copyright (c) 2008-2019

Since 1989, we've been on a quest to address and overcome the legal, economic and ethical concerns of those who find something unseemly about secondary ticket markets, aka ticket scalping. Slowly but surely, legislators and regulators saw the benefits and beauty of a free market for tickets, and once-banished ticket resales came out into the light, emerging from their homes in raincoats, backrooms, and trunks. Enter the Internet, a medium perfectly suited for the creation of a national ticket market. Also enter, at the same time of the dot-com explosion, great personal wealth. Ease of trading and cash brought new dimensions and volume to the ticket market.

By 2002, we were suggesting that the ticket market had progressed to a point that hedging, a futures market for tickets, was the way to go. Oddly, however, there is still resistance, from major league sports teams, some states, and even monopolists who still want to control those secondary ticket sales. The free market has done us proud in its ability to make tickets available at lower prices. Emotional voices still rise up with cries of "Not fair!" and "Foul!" to try and grab control, profits, and whatever other touchy, feely points get in the way of market efficiencies (the only way fairness ever works). Success-to-date should not find us resting on laurels. Issues-to-be-revolved and work-to-be-done remain. Herewith a look at some issues.

What Are Major-Event Tickets? Licenses? Call Options?

For major events held in stadiums, arenas, amphitheaters, or concert halls with limited seating capacity, there are several schools of thought on what a ticket really is:

They are a revocable license (i.e., the Patriots can take those season tickets back at any time and most tickets have something about revocation and/or license on them);

They are personal property (chattels as the Brits say) and ticket holders have the right to buy, sell, devise, bequeath, gift an do whatever can be done with other property such as a bike, a car, or a computer;

They are call options, i.e., bearer instruments. The holder has the right, but not the obligation, to occupy a certain seat over a certain period of time Or, in effect, call in the seat or shares, if so desired.

Depending on where a state lands in ticket classification will control its destiny and, more importantly for us, where the ticket market goes. If tickets are licenses, then forget about a futures market. If the team can revoke your license at any time, well you can't deal in futures. If a ticket is a physical chattel, so also are there limits on futures markets because chattels require physical transfer, often fancy titles, and other mumbo jumbo for passing title that hearkens back to feudal England. But if tickets are essentially call options, then it would follow that such bearer instruments of value would be traded in a nationally-organized futures market, just as call options are currently. In fact, this year's Super Bowl finds a futures market, courtesy of two MIT MBA students who drew on our work, using the tools, access and customers of the Internet to create a national exchange ( Why, if you had purchased an option in their futures market before the Giants squared off for their final confrontation with Green Bay, $86 would have found you a seat. As the game progressed, the price of the options rose, depending on which team you hedging. Touchdowns bring a spike. Missed downs bring a drop. Think of the market opportunities for the NCAA Final Four tickets or the Masters golf tournament. We could even see it on Britney Spears's concerts – what are the odds she would actually make the performance? What a challenge for arbitragers! Football and basketball games may be easier to forecast.

Any Obstacles to the Future and Futures Markets?

With the possible exception of Massachusetts, the states have found their ways to the free market, or are not using existing laws for curbing secondary market trades. And there are no federal laws imposing national restrictions or rules on ticket scalping. In 1998, Congressman Gary Ackerman (D-NY) tried to introduce the Ticket Scalping Reduction Act which, if passed, would have prohibited the sale of five or more tickets in a single transaction at a markup in excess of $5.00 or 10 percent of printed face value (whichever is greater). In a rare example of collective economic intelligence on both sides of the Congressional aisle, no cosponsors came forward and hearings were never held on the Ackerman bill.

However, there are those state and local laws on licenses and chattels, not directed specifically at tickets, that interfere with the bearer nature of tickets. And bearer character is necessary for a futures market to work. Quirky team practices, based on these archaic property principles, stand as barriers to open trading. Teams such as the Packers have waiting lists for season tickets. If you signed up this year, you would be next in line to get tickets in the year 3074. Let's hope the Favre genes carry through for multiple generations. If a ticket is a chattel, the wait and its physical nature are part and parcel of the legal protection for the Packers' position. Worse are the Patriots. This franchise revokes the season tickets of those who are caught reselling tickets over a certain price, and the Patriots ask their Internet agent to report names of those sellers for purposes of revocation. If a ticket is a license, the Patriots have that absolute right of revocation.

There was a loophole in our thinking on ticket resales and the laws regulating them. The successful elimination of barriers to ticket resales was a brilliant coup. But some of the teams had a coup d'้tat that trumped the market reforms. They went back to the old common law on licenses, something deeply embedded in U.S. laws: tickets are licenses that can be revoked at any time by the grantor and for any reason. And a futures market cannot function with the heavy hand of common law controlling the very subject of its trades. So why wouldn't the owners and promoters just join in on the futures market and share in the profits? More developed secondary markets could only help owners and promoters by providing greater information on seat prices. But, there is a wrinkle that the futures market does not address: owners and promoters lose the concession sales that are stripped away from the entertainment package in a futures market. They price tickets, whether concert or sporting event, below what the market will bear because of goodwill or to drive demand or as a bit of a loss leader. Complementary sales, the snacks, the shirts, the programs, are the real profit margins for owners and promoters. They underprice tickets for psychological reasons knowing that what the market will bear comes in the backdoor through the "stuff" they sell at the venue.

And other potential market participants have their reasons for opposition to a futures market. Ticketmaster and other designated agents for primary ticket sales, being dependent on primary seller prices, are averse to creating a brave new world of secondary sales, unless, of course, they can control those secondary sales. That secondary market control is precisely what many designated ticket agents are trying to do, legislatively and otherwise – make themselves the exclusive primary AND secondary sellers. Working together, they are cutting out the possibility of a futures market. Monopolists often find their way to monopolies through vertical relationships.

Many small ticket brokers and street scalpers are opposed to a nationally organized market as well. Such a market would mean that local customers are no longer highly dependent on them to secure good seats for special events. In fact, the general trend does not look promising for small, highly localized sellers even if a nationally organized market does not form. Online trading, where secondary sellers and buyers can bypass middlemen, is a powerful and growing force that eliminates the need for the small broker.

A futures market is the future. But, that market still must grapple with the piecemeal classification of tickets, the complementary sales factor, and the resistance by those who have profited for so long, primary and secondary, from the traditional and restricted sales and distribution systems for tickets for one-time or limited seating events. The ticket market is opening up as never before, but work remains, on everything from the law of chattels to persuasion of those whose businesses will change with the new market dynamic

About The Author: Shop Amazon - Top Gift Ideas
Professor Stephen K. Happel is a Professor of Economics and Professor Marianne M. Jennings a Professor of Legal and Ethical Studies in the College of Business at Arizona State University. They have contributed to – A secondary ticket market blog Authority Tickets

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