New York Attorney General Eric Schneiderman recently announced an investigation into ticketing. The investigation will likely shine a light on how tickets really work, and why consumers have no chance.
It’s 9:58am Saturday morning and millions of fans are ready for the on-sale. In just two minutes, each will feverishly refresh their browser, nervously type in the re-captcha code, and hope to hit the jackpot: Tickets. It doesn’t matter if it’s an Adele concert, a Seahawks playoff game, or a festival, the story always ends the same. After ten minutes, hope evaporates as the tickets are sold out.
In desperation, fans flock to StubHub, Vivid Seats, and other marketplaces finding thousands of tickets already available, for a significantly inflated price, mere minutes after on-sale (and some even, gasp, before on-sale!). The blame game starts. My internet is too slow. There weren’t enough tickets put on sale. Those corrupt brokers with their bots took all the tickets!
Live events are more popular than ever as proven by attendance trends, price inflation, and a scorching hot live event tickets industry where Live Nation is thriving, StubHub has grown into a multi-billion dollar venture, and even companies the mainstream haven’t heard of yet, such as Ticketfly (sold for $450 million), Eventbrite (valued over $1 billion), and SeatGeek (raised over $100 million in financing) are fetching valuations in the hundred millions to billions. With this much money in the game, one would easily conclude the playing field cannot be level for the everyday fan hoping to buy tickets.
In this two part series, we’ll explore what really happens behind the scenes. Who ends up with the tickets? How do they end up on the secondary market so quickly? Why do the content providers allow it? And why can’t you get tickets at an affordable price for highly sought after events?
There are 7 common ways ticket brokers get tickets*:
- The Insiders: Companies, Sponsors, Agents, Promoters, Players, Coaches
- Deals with team executives
- Buy and Hold
- Fan Clubs
- Card Deals
* We recognize there are more than 7 ways and have seen most all of them, however we are focused on the 7 that represent the vast majority of the tickets brokered on the market.
Who are the players?
Tickets to live events are notoriously underpriced when they go on-sale and it’s for a reason: live events are a business and businesses need to eliminate risk where they can.
There is much more to a concert, festival, or game than the fan sees or even considers. The very basics*
- Securing a venue costs money, whether building, renting or managing. Usually this is done through multiple forms of finance which require cashflows and predictable revenue to pay for expenses and planning
- Live events make money through X major channels: Sponsorship, Premium Seating, Parking, Concessions, Merchandise, and Tickets. Yes the tickets are the most important to the fans and, sometimes, to the performers, they are only a fraction of the actual event
- Locking up predictable revenue early helps the content provider eliminate risk. Sell all the tickets and lock up the revenue in advance. To do this, tickets are priced below market to sell quickly.
*An entire book could be written detailing all those involved. These are the basics.
Who Gets The Tickets:
Once the event is a reality, the negotiations begin as to who has access to what tickets long before on-sale. Tickets are silo’d based on contractual obligations. Where they most commonly go:
- Contracted pre-sale: Many sponsors and seat license holders, as part of buying a product and paying for it upfront, get access to tickets before the general public. Some are sponsors of the venue or team while others are sponsors of the event, league, or tour.
- Sponsorship deals: Major sponsors get tickets in advance as part of their agreements. Brands sponsor tours and get ticket allotments. Common sponsors include the major payment providers, such as American Express and MasterCard, who negotiate a block of tickets for their cardholders as part of their sponsorship deals, and brands looking to connect to the fan base of an act or team, like Salesforce with U2 and Xfinity with Taylor Swift.
- Fan Clubs: The performer will usually negotiate a block of tickets for their die-hard fans and distribute them through Fan Clubs
- The Content: Tickets are always held back for the players, coaches, performers, managers, promoters, and insiders. Usually, they are some of the best tickets.
Who are the players involved:
- Content Providers: Teams, Venue Operators, Promoters
- The Content: Artists, Players, Agents, Managers and their family members
- Brokers: When demand overpowers supply, prices rise and capitalists* surface looking to benefit from the delta. It’s the simplest business equation there is: find underpriced assets and sell them for a large profit. From this simple premise dawned a $10+ billion dollar industry employing tens of thousands which gives the common fan very little chance of getting great tickets Say what you want about ticket brokers, but we’ve met with billionaires, millionaires, tech entrepreneurs, and titans of all business in our 10+ years with StubHub and TicketManager, and some of the most savvy and intelligent people we’ve met are ticket brokers. They may not enjoy a great reputation, but they are not to be underestimated.
- Kid Rock. He charged $20 per ticket to his tour in an attempt to stem the secondary market
- Bruce Springsteen. “The Boss” is the most outspoken in his band’s attempt to keep their events affordable, even eschewing larger newer venues like STAPLES Center for the smaller venue down the street. Bruce Springsteen and the E-Street band have been the subject of major inquiries into ticket scalping. The first, putting Ticketmaster on the hot-seat after purchasing TicketsNow and filtering buyers to the secondary site and more recently with New York Attorney General Eric Schniederman publicly investigating the distribution and resale of tickets.
- Her team attempted to sell up to 70% of her tickets through a fan club brokered by Songkick, who then dropped the ball with a terrible information security blunder.
- Miley Cyrus. During her Hannah Montana whirlwind tour, Cyrus was the first major act to require the credit card used at purchase to enter the show. Adele has since followed. Brokers, as usual, have found a way around these measures.*
- Adele. The most high-profile and recent of the primary vs. secondary battles, Adele attempted to sell tickets requiring the credit card used at purchase, like Cyrus, while trying to sell as many tickets into her fan club as possible. Tom Petty had success doing the same with his 2013 shows in Los Angeles, however the demand for those shows were nowhere close to the estimated 10 million people trying to buy tickets to see Adele. It didn’t work as we saw what former Ticketmaster CEO Nathan Hubbard would call “one of the best days ever for the secondary ticket market.”
- Pearl Jam. The first high-profile “we want the real fans” example who went to war with Ticketmaster over their fees.
- Many acts out there carve out tickets for their fan clubs and require membership. The goal is to get those engaged with the band to buy the tickets and attend the show. Brokers make up a large chunk of these fan clubs, despite the contents best efforts, as they have the most to gain and the most time to devote. Find a fan club, and you’ll find thousands of brokers.
- The primary ticket sellers, promoters, and even the content have begun to get smart to the brokers in fan clubs and are attempting measures to limit the number of great seats, which end up in the wrong hands. Companies like Songkick, who recently made news by suing Ticketmaster, focus on fan club on-sales yet haven’t found a way to keep out the brokers.
Spinning / Bots
The rumors are true, there are bots and spinners that give some ticket brokers an unfair advantage at on-sale. Spinners and Bots are actually relatively simple and much more prominent than the general public believes despite high profile cases in Las Vegas and Pennsylvania.
What does a Bot do? A bot is technology coded to hit the on-sale thousands of times instantly. Many bots, including a number of bots we’ve seen personally, are not as advanced as one would think. The technology pings the on-sale while a room full of people, usually off-shore in a second or third world country, furiously bang out the re-captcha with no idea of what they’re actually doing.
The operator sits back and watches all the options populate on their screen and chooses which tickets to buy. So not only are they getting tickets fans can’t get and blocking others from buying them, they are cherry picking the best tickets and passing on the less desirable, releasing them back into the on-sale for the “lucky” fan who gets them.
Remember when Mike Tice, then Head Coach of the Minnesota Vikings was caught selling his Super Bowl Tickets? This practice is much more prevalent than the general public could imagine. In a previous life, we personally sourced over 100 great tickets to a Conference Semifinal basketball game through coaches in the conference alone.
Though these tickets are given with the best intentions, to have friends, family, and those close to the content have access to the event, the practice has grown beyond its intent. Family members and business partners simply can’t attend five Taylor Swift shows in two weeks or 14 playoff basketball games. Even though they can’t attend, these tickets still have value and most insiders can’t risk being caught selling their tickets as it is oftentimes against the agreement.
Brokers offer these insiders a way to profit from their tickets. An untraceable way of selling their tickets for a profit without being caught. And since the insider themselves can’t post or sell the ticket for market value, they will usually sell to the broker for less than market, allowing the broker to make a profit on the deal.
Deals with team executives
Large brokers don’t play by the normal rules, and they don’t have to as they bring value to the content providers.
Selling tickets is a moving target changing every day. Sometimes, due to circumstances beyond the content providers control, they end up with unused good seats which they cannot sell the traditional way. Enter ticket brokers.
An example: The benefit of a season ticket is having your seat for the entire year. If the person with better seats than you leaves, you’re next in line to take them and move into those seats. If you bought season tickets five years ago, and I bought them two years ago, you likely have better tickets than I do. However, if you move out of town, I am next in line to buy your tickets for next season.
Once the season tickets are spoken for, tickets go on-sale to the general public who goes through the torturous on-sale process to buy their tickets. Our event is now sold out. Right? Wrong.
The five year season ticket holder goes bankrupt and hasn’t paid for his tickets in three months. Those tickets are now reclaimed. Naturally, the next in line would be easiest, but moving every single person on the list every time someone cancels or stops paying mid-year is not scalable and does not work.
Next, the insiders return a block on unused tickets. And they’re the good ones. So now, the venue finds themselves with a block on unused, unpaid for, great tickets. Putting them on-sale to the general public is “unfair” to those who bought in advance and would create a mutiny.
So what do they do? They sell them to the source who will keep it quiet, those who make their living out of staying under the radar: ticket brokers.
These deals are very common and have matured over time to sophisticated give and take deals as each party knows the value of the tickets being sold. They usually begin with small favors, such as personal benefits like custom tailored suits bought for the team execs or golf outings* and blossom into much more complicated deals where the broker, in return for getting such valuable inventory, is called on whenever a bad event rolls around and the team needs to sell tickets to make the event more respectable. If a broker got Springsteen tickets early, they can bet they’re going to get a phone call to buy $50k in ladies tennis when the event isn’t selling well. We’ve detailed a few of these deals in past pieces where we discuss Super Bowl Tickets.
*One of the worst kept secrets of my time at Staples Center was execs getting tailored suits bought by a prestigious local ticket broker. It was just the tip of the iceberg.
Some of these deals are so mature the ticket brokers have become a channel for the teams where the broker buys blocks of tickets at a discount and can even return the tickets they don’t sell prior to the event or game. Many teams will publicly slam the practice of scalping or ticket brokering yet will partake in the same kinds of deals themselves on a rather broad scale.
As the ticket market has matured and the secondary market has gotten more legitimate, some of these larger deals have made their way out from the shadows, and become more formal and turned into “sponsorship” or business deals.
Sponsorships & Business Deals
Major sponsors get tickets in advance as part of their agreements. Brands sponsor tours and get ticket allotments. Common sponsors include the major payment providers, such as American Express and MasterCard, who negotiate a block of tickets for their cardholders as part of their sponsorship deals, and brands looking to connect to the fan base of an act or team, like Salesforce with U2 and Xfinity with Taylor Swift.
In the early 2000’s the secondary ticket market blossomed with entrants like StubHub (formerly I-drenalin.com and LiquidSeats.com), which sold to ebay, TicketsNow, sold to Ticketmaster, RazorGator, backed by major venture capital firms, and TicketNetwork. Teams and venues knew the secondary market was making big money long before these entrants achieved very public wins and brought the practice to the public’s attention.
StubHub opened the sponsorship floodgates originally by signing partnership deals with the Detroit Lions and Chicago Bears making them the “Official Re-sale Partner” of the teams. StubHub’s desired outcome was simple: get introductions to season ticket holders so they’ll sell their tickets on the StubHub marketplace. What these deals did, however, was make it simpler for the aforementioned hand-shake agreements to get more formalized. The venues and teams could now pocket money from these deals upfront and while spinning them as reputable business deals instead of keeping them quiet.
Once these sponsorship deals became commonplace, brokers of all sizes got in on the action. In one of the earlier deals, the Seattle Seahawks, for example, offered a “sponsorship” proposal whereby the broker could be an “official partner.” A simple look at the details of the proposed sponsorship from 2007 reveals the vast majority of the investment is in Super Bowl tickets with some sponsorship elements included to make it look like a more legitimate deal.*
*Alliance Tickets, a well-known and respected ticket broker, eventually did a deal with the Seahawks. This sponsorship has taken many forms from many teams over the years and is very common.
The size and breadth of these sponsorship deals grew alongside the secondary market. The NFL did a deal with outsourced re-sellers making them “official re-sale partners of the NFL On-Location Super Bowl Program.” They are simple deals that make sense for both parties and look very similar to VAR deals* in more mature markets. The NFL, looking to capitalize on the secondary market for their own event , outsources the sale of travel packages, complete with hotel room blocks held by the NFL and pre-game hospitality tied to the game, to companies who build out sales teams and take the risk on the event. In exchange, these companies get a cut of the sales and, more importantly, the ability to sell other events such as the Masters, Kentucky Derby or UFC to the customers they meet selling for the NFL.**
*A VAR (value-added reseller) is a company that resells software, hardware and/or networking products and provides value beyond order fulfillment.
**Many of these companies will actually refer to themselves as the entity. Customers will believe they are buying “directly from the NFL or NCAA” when they are not, they are going through a middle man which is a totally separate company.
The most successful of these deals has been PrimeSport’s deal with the NCAA to be the official seller of March Madness. With the tournament switching locations each year and never having a static home, it really is the perfect event to outsource and has allowed PrimeSport to cross the line between broker and primary seller, something secondary providers and marketplace have been aiming to do for years.
The deals continue to get larger. The biggest deals include StubHub and Major League Baseball Advanced Media, StubHub and AEG, and Ticketmaster’s Ticket Exchange and the NFL. Each is significantly larger than the original deals StubHub struck with MLB’s Seattle Mariners in 2001 or the aforementioned Detroit Lions and San Diego Chargers deals. Those deals were in the hundreds of thousands annually. These current partnerships range anywhere from $3mm to tens of millions annually.
Partnership deals and VAR agreements* aren’t anything new and are very common in mature industries like technology. The content provider is simply locking up some of the upside early and focusing on their core business, putting on the event, while outsourcing the cost, time, and energy of the secondary market to those who already understand it and have experience with it.
Buy & Hold: The Tens Of Thousands Of The Little Guy
Given what is happening on the macro side of the secondary market, with mega-brokers, billion dollar marketplaces, and sponsorships everywhere, many pundits in the live events space believe the days of the old-school ticket broker are coming to an end. The participation numbers, however, show a different trend.
There are over 10,000 small time ticket brokers out there trying to get an edge on the system every day. For every PrimeSport mega-broker there are 500 sole proprietorships buying and selling tickets for profit the “old fashioned ways.”
These brokers still buy season tickets in bulk and sit on them, diversifying their portfolios by buying a number of different teams and looking to pay off the season with the biggest games, selling the down games for whatever they can get for them. Ever wonder why you can buy baseball tickets for $2 when the face value is $10?*
*There are a number of reasons brokers will sell a ticket for such a low dollar amount, even though the effort doesn’t seem worth the pay off. Completing orders and selling at a low cost helps brokers in their standing with some marketplaces. The adverse effect on the market caused a number of teams to take action to create a price floor and try to eliminate very low cost tickets
Even though the majority of these brokers are small and operate with less than $500k in cash, they are very resourceful. They open up dozens of credit cards, join every fan club, use services which alert them to on-sales and special codes, and spend their entire day trying to beat the system by buying up tickets. The common fan, who wakes up and lines up on a Saturday with one or two credit cards and a tablet or two ready to buy tickets at on-sale, stand little chance against even the small brokers who have dozens of browsers and cards open and at the ready.
The lengths many of these brokers will go to seem extreme to the common fan, however, when done full-time, can yield lucrative results. They will fly to the city of the on-sale and stand in line knowing there are tickets on hold for those on-sales. They will hire day labor to stand in line with them as there is usually a 4 to 8 tickets per person limit.* Those guys standing in front of the game asking you if you need tickets? The good ones can make up to $10,000 for one day’s work buying extras and re-selling them. It really is a site to behold.
*One prominent broker rents out buses, fills them with 50+ day laborers, and heads to the on-sale with six figures in cash.
Despite the terrible public perception, ticket brokering is a lucrative business for many where the top guys at the small firms are easily clearing six figures in net profit annually with some in the millions.
As we’ve seen, nobody is innocent in this game. However, there are many occasions where the content themselves really do want their best fans to experience the event. High profile examples include:
*If the event requires the credit card used at purchase, the broker simply meets the buyer at the event and walks them in (with this kind of money at stake, it is still a winning proposition) or they use a credit-card gift card and ship the card to the buyer.
Live events are more popular than ever and, for a myriad of reasons, brands are flocking to align with the event or performer through sponsorships and activation. One of the more effective activations is the sponsorships credit card and payment companies execute to gain special access for their members. Companies like American Express and MasterCard afford their cardholders access to premium tickets and to pre-sales to live events through sponsorship deals with Live Nation, AEG, Major League Baseball, and many others.
If there is an angle, ticket brokers will take it. Brokers will open up numerous cards of all kinds to assure they have access to these pre-sales in bulk. The average fan doesn’t see any value in opening up dozens of cards with the same carrier and would find the administration a nuisance. When there is money to be made, however, and the cards held in the name of the business, it is well worth the time and energy for brokers to assail the offers.
The ticket market is not unique, it is simply evolving in the same way we’ve seen numerous mature industries grow over the years. What gets lost all too often in the constant debate over “fairness” and availability is the simple fact that live events are a business. Those participating are doing so to make a profit first. Whenever there is an opportunity for a profit in a capitalist marketplace, there will be those who jump at that opportunity. In this case, it’s ticket brokers.
Pressures from fans, the content, and even politicians are helping the market make strides towards efficiency. As that occurs, the loopholes ticket brokers have been exposing will close. They will continue to evolve into partners accepted by the general public* and become well-defined channels for the content providers.
*Brokers have been accepted by many content providers as well-respected partners for years already.
Technology can close many of these loopholes and it already exists. Ticketmaster, Tickets.com, AXS/Veritix and others have the technology to create easily tracked and transferable tickets today. The issue is not the technology, however, it is where we are on the technology adoption life cycle for the fans. Any new technology takes time for all users along the adoption curve to adapt to and accept.
In the meantime, we will continue to hear tales of a rigged system leaving fans upset and pointing fingers. And why wouldn’t we? The system is rigged.
As featured on USA Today Sports